------------------------------
| OMB APPROVAL |
|------------------------------|
| OMB Number: 3235-0570 |
| Expires: September 30, 2007 |
| Estimated average burden |
| hours per response: 19.4 |
------------------------------
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: 12/31/06
------------
Item 1. Schedule of Investments.
AIM V.I. BASIC BALANCED FUND
DOMESTIC EQUITY Large-Cap Value Annual Report to Shareholders December 31, 2006
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 in Washington,
D.C.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 [COVER GLOBE IMAGE]
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 AIM V.I. BASIC BALANCED FUND seeks long-term growth
the AIM Web site, AIMinvestments.com. On of capital and current income.
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 Unless otherwise stated, information presented in this report
Activity. Next, select the Fund from the is as of December 31, 2006, and is based on total net assets.
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
[AIM INVESTMENTS LOGO] CHARGES AND EXPENSES. INVESTORS SHOULD READ EACH CAREFULLY
- Registered Trademark - BEFORE INVESTING.
===========================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
Management's discussion of Fund performance AIM V.I. BASIC BALANCED FUND
Process. First, the investment strategy
===================================================================================== is intended to preserve your capital
PERFORMANCE SUMMARY while growing it at above-market rates
over the long term. Second, our investments
For the year ended December 31, 2006, Series I and Series II shares of AIM V.I. Basic have little in common with popular
Balanced Fund, excluding variable product issuer charges, underperformed the Fund's benchmark indexes and most of our peers.
broad market, style-specific and peer group indexes. And third, the Fund's short-term relative
performance will naturally be different
We attribute the Fund's underperformance versus its broad market and than the market and peers and have little
style-specific indexes to below-market returns from selected investments in the information value since we don't own
information technology health care and industrials sectors. Top contributors to many of the same stocks.
performance were selected investments in the financials and consumer discretionary
sectors.
Our fixed income portfolio investment
Your Fund's long-term performance information appears on pages 4-5. process is accomplished through the use of
top-down strategies involving duration
FUND VS. INDEXES management, yield-curve position and
sector allocation. (Duration is the
Total returns, 12/31/05-12/31/06, excluding variable product issuer charges. If measure of a debt security's sensitivity
variable product issuer charges were included, returns would be lower. to interest rate changes, expressed in
terms of years. Longer durations usually
Series I Shares 10.55% are more sensitive to interest rate
Series II Shares 10.26 movements. The yield curve traces the
S&P 500 --Registered Trademark-- Index (Broad Market Index) 15.78 yields on debt securities of the same
60% Russell 1000 --Registered Trademark-- Value Index / quality but different maturities from the
40% Lehman Brothers U.S. Aggregate Bond Index (Style-Specific Index) 14.81 shortest to longest available.) In
Lipper Mixed-Asset Target Allocation Moderate Funds Index (Peer Group Index)(1)12.02 addition, we use bottom-up strategies
Lipper Balanced Funds Index (Former Peer Group Index) 11.60 involving credit analysis and selection of
specific securities. By combining
SOURCE: A I M MANAGEMENT GROUP INC., LIPPER INC. perspectives from both the portfolio and
the security level, we seek to
(1) During the year, Lipper reclassified AIM V.I. Basic Balanced Fund from the consistently add value over time while
Lipper Balanced Funds category to the Lipper Mixed-Asset Target Allocation minimizing portfolio risk.
Moderate Funds category.
==================================================================================== MARKET CONDITIONS AND YOUR FUND
HOW WE INVEST Equity and fixed income markets posted
healthy gains during the year as favorable
We seek to create wealth by maintaining a - Companies have a measurable estimated economic data and solid corporate profits
long-term investment horizon and investing intrinsic value. Importantly, this overshadowed housing market concerns and
in companies that are selling at a estimated fair value is independent of investor uncertainty regarding interest
significant discount to their estimated the company's stock price. rates and oil prices.
intrinsic value--a value that is based on - Market prices are more volatile than
the estimated future cash flows generated rusiness values, partly because investors The Fund's largest contributors during the
by the business. The Fund's philosophy is regularly overreact to negative news. year included financial services holdings
based on two elements that we believe have Since our application of this strategy
extensive empirical evidence: is highly disciplined and relatively MORGAN STANLEY, JP MORGAN AND MERRILL
unique, it is important to understand LYNCH. All benefited from a robust capital
the benefits and limitations of our
==================================================================================== ==========================================
PORTFOLIO COMPOSITION TOP FIVE INDUSTRIES* TOP 10 EQUITY HOLDINGS*
By security type 1. U.S. Mortgage-Backed Securities 10.7% 1. UnitedHealth Group Inc. 2.8%
Domestic Common Stocks & 2. Other Diversified Financial 2. Tyco International Ltd. 2.6
Other Equity Interests 65.2% Services 8.7 3. JPMorgan Chase & Co. 2.5
Bonds & Notes 3. Pharmaceuticals 5.0 4. Cardinal Health, Inc. 2.4
U.S. Mortgage-Backed Securities 25.4 4. Industrial Conglomerates 4.3 5. Fannie Mae 2.3
Five Other Security Types, Each With 10.7 5. Advertising 3.9 6. Citigroup Inc. 2.1
Less Than 2% of Total Net Assets 7. Cemex S.A. de C.V.-ADR (Mexico) 2.0
Money Market Funds 2.8 8. Omnicom Group Inc. 2.0
Plus Other Assets Less Liabilities Total Net Assets $90.09 million 9. Target Corp. 1.9
-4.1 10. First Data Corp. 1.9
Total Number of Holdings* 265
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
markets environment and rotation to CONTEXT FOR RESULTS Bret W. Stanley
large-cap financials as investors [STANLEY Chartered Financial Analyst,
anticipated an end to U.S. Federal Reserve As managers, we know a long-term PHOTO] senior portfolio manager, is
Board interest rate increases. More investment horizon and attractive lead manager of AIM V.I. Basic
important, Morgan Stanley and JP Morgan, potential upside to our estimate of Balanced Fund. Mr. Stanley
under the leadership of new CEOs, showed portfolio intrinsic value are critical to earned a B.B.A. in finance from
signs of improved operating and financial creating wealth. But we understand The University of Texas at Austin and an
performance. maintaining a long-term investment horizon M.S. in finance from the University of
is a challenge. So when shareholders Houston.
A modest number of Fund holdings posted consider our short-term results, we
price declines during the year. Among the encourage them to review our long-term
Fund's largest detractors from performance results on pages 4-5. We are long-term R. Canon Coleman II
were CA, WellPoint and Cendant. Before the investors who provide a portfolio that in [COLEMAN Chartered Financial
close of the year, we sold our holdings in our opinion is distinct from market PHOTO] Analyst, portfolio manager,
WellPoint. At the close of 2006, Cendant indexes and most of our peers. is manager of AIM V.I.
split into three separate operating Basic Balanced Fund. Mr. Coleman earned a
companies: Realogy (real estate), Wyndam Recent studies have shown short-term B.S. and an M.S. in accounting from the
Worldwide (hospitality) and Avis Budget results have little information value and University of Florida. He also earned an
Group (car rental). Following the split, the frequent trading of stocks or mutual M.B.A. from the Wharton School at the
the Fund sold its positions in Wyndam and funds is a costly exercise--reducing University of Pennsylvania.
Avis Budget while retaining Realogy. actual returns by several percentage
points per year as shareholders Jan H. Friedli
Enterprise software firm CA's stock price unknowingly exchange tomorrow's winner for [FRIEDLI Senior portfolio manager,
declined as a result of investor concerns tomorrow's loser. In addition, a recent PHOTO] is manager of AIM V.I.
regarding senior management turnover, Yale University study reveals half of all Basic Balanced Fund. Mr.
weaker-than-expected quarterly earnings mutual funds charge an active management Friedli graduated cum laude from Villanova
and a stock options issues. Despite these fee for essentially a closet-index University with a B.S. in computer science
short-term headwinds, our estimate of CA's portfolio. While this may create smooth before earning an M.B.A. with honors from
fundamental intrinsic value remained and innocuous short-term relative the University of Chicago.
unchanged. performance, it typically leads to
long-term underperformance. Brendan Gau
The fixed income portion of the Fund [GAU Chartered Financial Analyst,
maintained its defensive to neutral stance Considering these factors, your Fund is PHOTO] portfolio manager, is manager
toward duration, which helped performance doing something different and old of AIM V.I. Basic Balanced Fund.
as rates rose during the year. Offsetting fashioned--investing for the long term and He earned a B.A. degree in mathematics,
that positive somewhat was a slight following a common-sense approach that has physics and economics from Rice University.
overweight position relative to the Lehman produced a portfolio that is different
Brothers U.S. Aggregate Bond Index in from common stock market indexes and more Scot W. Johnson
shorter maturities, which hurt as those attractively valued, in our opinion. [JOHNSON Chartered Financial Analyst,
maturities increased more than longer PHOTO] senior portfolio manager, is
duration bonds. In closing manager of AIM V.I. Basic
Balanced Fund. Mr. Johnson earned both his
PORTFOLIO ASSESSMENT We thank you for your investment and for bachelor's degree in economics and an
sharing our long-term horizon. M.B.A. in finance from Vanderbilt
We believe the single most important University.
indicator of the way AIM V.I. Basic The views and opinions expressed in
Balanced Fund is positioned for potential management's discussion of Fund Matthew W. Seinsheimer
success is not our historical investment performance are those of A I M Advisors, [SEINSHEIMER Chartered Financial Analyst,
results or popular statistical measures, Inc. These views and opinions are subject PHOTO] senior portfolio manager,
but the portfolio's estimated intrinsic to change at any time based on factors is manager of AIM V.I.
value--the aggregate business value of the such as market and economic conditions. Basic Balanced Fund. Mr. Seinsheimer
portfolio based on our estimate of These views and opinions may not be relied earned a B.B.A. from Southern Methodist
intrinsic value for each individual upon as investment advice or University and an M.B.A. from The
holding. At the close of the year, and in recommendations, or as an offer for a University of Texas at Austin.
our opinion, the difference between the particular security. The information is
market price and the estimated intrinsic not a complete analysis of every aspect of Michael J. Simon
value of the portfolio was about average any market, country, industry, security or [SIMON Chartered Financial
by the Fund's historical standards, and we the Fund. Statements of fact are from PHOTO] Analyst, senior portfolio
believed this value content was greater sources considered reliable, but A I M manager, is manager of AIM
than what was available in the broad Advisors, Inc. makes no representation or V.I. Basic Balanced Fund. Mr. Simon earned
market. While there is no assurance that warranty as to their completeness or a B.B.A. in finance from Texas Christian
market value will ever reflect our accuracy. Although historical performance University and an M.B.A. from the
estimate of the portfolio's intrinsic is no guarantee of future results, these University of Chicago.
value, we believe this provides the best insights may help you understand our
indication that your Fund is positioned to investment management philosophy. Assisted by the Basic Value Team and
potentially achieve its objective of Taxable Investment Grade Bond Team
long-term growth of capital. FOR A DISCUSSION OF THE RISKS OF INVESTING
IN YOUR FUND, INDEXES USED IN THIS REPORT
AND YOUR FUND'S LONG-TERM PERFORMANCE,
PLEASE SEE PAGES 4-5.
3
YOUR FUND'S LONG-TERM PERFORMANCE AIM V.I. BASIC BALANCED FUND
==========================================
RESTATED HISTORICAL PERFORMANCE OF SERIES INSURANCE FUNDS, IS CURRENTLY OFFERED
AVERAGE ANNUAL TOTAL RETURNS I SHARES (FOR PERIODS PRIOR TO INCEPTION THROUGH INSURANCE COMPANIES ISSUING
OF SERIES II SHARES) ADJUSTED TO REFLECT VARIABLE PRODUCTS. YOU CANNOT PURCHASE
As of 12/31/06 THE RULE 12B-1 FEES APPLICABLE TO SERIES SHARES OF THE FUND DIRECTLY. PERFORMANCE
SERIES I SHARES II SHARES. THE INCEPTION DATE OF SERIES I FIGURES GIVEN REPRESENT THE FUND AND ARE
Inception (5/1/98) 3.80% SHARES IS MAY 1, 1998. THE PERFORMANCE OF NOT INTENDED TO REFLECT ACTUAL VARIABLE
5 Years 3.84 THE FUND'S SERIES I AND SERIES II SHARE PRODUCT VALUES. THEY DO NOT REFLECT SALES
1 Year 10.55 CLASSES WILL DIFFER PRIMARILY DUE TO CHARGES, EXPENSES AND FEES ASSESSED IN
SERIES II SHARES DIFFERENT CLASS EXPENSES. CONNECTION WITH A VARIABLE PRODUCT. SALES
Inception 3.54% CHARGES, EXPENSES AND FEES, WHICH ARE
5 Years 3.59 THE PERFORMANCE DATA QUOTED REPRESENT DETERMINED BY THE VARIABLE PRODUCT
1 Year 10.26 PAST PERFORMANCE AND CANNOT GUARANTEE ISSUERS, WILL VARY AND WILL LOWER THE
========================================== COMPARABLE FUTURE RESULTS; CURRENT TOTAL RETURN.
========================================== PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE
CONTACT YOUR VARIABLE PRODUCT ISSUER OR PER NASD REQUIREMENTS, THE MOST RECENT
CUMULATIVE TOTAL RETURNS FINANCIAL ADVISOR FOR THE MOST RECENT MONTH-END PERFORMANCE DATA AT THE FUND
6 months ended 12/31/06 MONTH-END VARIABLE PRODUCT PERFORMANCE. LEVEL, EXCLUDING VARIABLE PRODUCT CHARGES,
Series I Shares 9.46% PERFORMANCE FIGURES REFLECT FUND EXPENSES, IS AVAILABLE ON THIS AIM AUTOMATED
Series II Shares 9.26 REINVESTED DISTRIBUTIONS AND CHANGES IN INFORMATION LINE, 866-702-4402. AS
========================================== NET ASSET VALUE. INVESTMENT RETURN AND MENTIONED ABOVE, FOR THE MOST RECENT
PRINCIPAL VALUE WILL FLUCTUATE SO THAT YOU MONTH-END PERFORMANCE INCLUDING VARIABLE
SERIES II SHARES' INCEPTION DATE IS MAY HAVE A GAIN OR LOSS WHEN YOU SELL PRODUCT CHARGES, PLEASE CONTACT YOUR
JANUARY 24, 2002. RETURNS SINCE THAT DATE SHARES. VARIABLE PRODUCT ISSUER OR FINANCIAL
ARE HISTORICAL. ALL OTHER RETURNS ARE THE ADVISOR.
BLENDED RETURNS OF THE HISTORICAL AIM V.I. BASIC BALANCED FUND, A SERIES
PERFORMANCE OF SERIES II SHARES SINCE PORTFOLIO OF AIM VARIABLE
THEIR INCEPTION AND THE
===================================================================================================================================
PRINCIPAL RISKS OF INVESTING IN THE FUND equivalents rather than equity securities values. The unmanaged Lehman Aggregate
for risk management purposes, the Fund may Index, which represents the U.S.
Prices of equity securities change in not achieve its investment objective. investment-grade fixed-rate bond market
response to many factors including the (including government and corporate
historical and prospective earnings of the If the seller of a repurchase agreement securities, mortgage pass-through
issuer, the value of its assets, general in which the Fund invests defaults on its securities and asset-backed securities),
economic conditions, interest rates, obligation or declares bankruptcy, the is compiled by Lehman Brothers, a global
investor perceptions and market liquidity. Fund may experience delays in selling the investment bank. The Russell 1000 Value
securities underlying the repurchase Index and the Russell 1000 Index are
The value of convertible securities in agreement. trademarks/service marks of the Frank
which the Fund invests may be affected by Russell Company. Russell --Registered
market interest rates, the risk that the There is no guarantee that the Trademark-- is a trademark of the Frank
issuer may default on interest or investment techniques and risk analyses Russell Company.
principal payments and the value of the used by the Fund's portfolio managers will
underlying common stock into which these produce the desired results. The unmanaged LIPPER BALANCED FUNDS
securities may be converted. INDEX represents an average of the
Interest rate increases may cause the 30 largest balanced funds tracked by
Foreign securities have additional risks, price of a debt security to decrease. Lipper Inc., an independent mutual fund
including exchange rate changes, political performance monitor. It is calculated
and economic upheaval, the relative lack ABOUT INDEXES USED IN THIS REPORT daily, with adjustments for distributions
of information about these companies, as of the ex-dividend dates.
relatively low market liquidity and the The blended index used in this report is
potential lack of strict financial and composed of 60% RUSSELL 1000 VALUE INDEX The unmanaged Lipper Mixed-Asset Target
accounting controls and standards. AND 40% LEHMAN BROTHERS U.S. AGGREGATE Allocation Moderate Funds Index is an
BOND INDEX (the Lehman Aggregate Index). equally weighted representation of the 10
Investing in emerging markets involves The unmanaged Russell 1000 --Registered largest moderate funds that by portfolio
greater risk than investing in more INDEX represents the performance of practice maintain a mix of between 40%-60%
established markets. The risks include the the stocks of large-capitalization equity securities, with the remainder
relatively smaller size and lesser companies; the Value segment measures the invested in bonds, cash and cash
liquidity of these markets, high inflation performance of Russell 1000 companies with equivalents. Lipper Inc.is an independent
rates, adverse political developments and lower price/book ratios and lower mutual fund performance monitor.
lack of timely information. forecasted growth
To the extent the Fund holds cash or cash Continued on page 5
4
AIM V.I. BASIC BALANCED FUND
Past performance cannot guarantee
comparable future results.
This chart, which is a logarithmic value of an investment, is constructed
chart, presents the fluctuations in the with each segment representing a percent
value of the Fund and its indexes. We change in the value of the investment. In
believe that a logarithmic chart is more this chart, each segment represents a
effective than other types of charts in doubling, or 100% change, in the value of
illustrating changes in value during the the investment. In other words, the space
early years shown in the chart. The between $5,000 and $10,000 is the same
vertical axis, the one that indicates the size as the space between $10,000 and
dollar $20,000.
====================================================================================================================================
Continued from page 4
The unmanaged STANDARD & POOR'S The Fund is not managed to track returns based on those net asset values
COMPOSITE INDEX OF 500 STOCKS (the S&P the performance of any particular index, may differ from the net asset values and
500 Index) is an index of common stocks including the indexes defined here, and returns reported in the Financial
frequently used as a general measure of consequently, the performance of the Fund Highlights. Additionally, the returns and
U.S. stock market performance. may deviate significantly from the net asset values shown throughout this
performance of the indexes. report are at the Fund level only and do
In conjunction with the annual not include variable product issuer
prospectus update on or about May 1, A direct investment cannot be made charges. If such charges were included,
2007, the AIM V.I. Basic Balanced Fund in an index. Unless otherwise indicated, the total returns would be lower.
prospectus will be amended to reflect index results include reinvested
that the Fund has elected to use the dividends, and they do not reflect sales Industry classifications used in
Lipper Variable Underlying Funds (VUF) charges. Performance of an index of funds this report are generally according to
Mixed-Asset Target Allocation Moderate reflects fund expenses; performance of a the Global Industry Classification
Funds Index as its peer group rather than market index does not. Standard, which was developed by and is
the Lipper Mixed-Asset Target Allocation the exclusive property and a service mark
Moderate Funds Index or the Lipper OTHER INFORMATION of Morgan Stanley Capital International
Balanced Funds Index. The Lipper VUF Inc. and Standard & Poor's.
Mixed-Asset Target Allocation Moderate The returns shown in the
Funds Index, recently published by Lipper management's discussion of Fund The Chartered Financial Analyst -
Inc., comprises the largest underlying performance are based on net asset values Registered Trademark-- (CFA --Registered
funds in each variable insurance category calculated for shareholder transactions. Trademark--) designation is a globally
and does not include mortality and Generally accepted accounting principles recognized standard for measuring the
expense fees. require adjustments to be made to the net competence and integrity of investment
assets of the Fund at period end for professionals.
financial reporting purposes, and as
such, the net asset values for
shareholder transactions and the
5
===============================================================================
[MOUNTAIN CHART]
RESULTS OF A $10,000 INVESTMENT
Index data from 4/30/98, Fund data from 5/1/98
60% Russell 1000 value Index Lipper Mixed-Asset
AIM V.I. Basic Balanced 40% Lehman Brothers Target Allocation
Date -Series I Shares S&P 500 Index U.S. Aggregate Bond Index Moderate Funds Index Lipper Balanced Funds Index
===================================================================================================================================
4/30/98 $ 10000 $ 10000 $ 10000 $ 10000
5/98 $ 9910 9828 9949 9933 9899
6/98 10150 10227 10059 10085 10081
7/98 10110 10119 9961 9958 9963
8/98 9681 8657 9137 9050 9105
9/98 10031 9212 9537 9464 9498
10/98 10381 9960 9960 9795 9853
11/98 10751 10564 10261 10154 10214
12/98 11303 11172 10483 10421 10591
1/99 11617 11639 10563 10493 10760
2/99 11221 11278 10400 10272 10501
3/99 11678 11729 10552 10498 10761
4/99 11830 12183 11157 10855 11113
5/99 11606 11895 11044 10735 10942
6/99 11942 12554 11222 10958 11244
7/99 11759 12164 11006 10740 11034
8/99 11647 12103 10759 10597 10918
9/99 11658 11772 10583 10424 10778
10/99 12195 12517 10964 10727 11090
11/99 12632 12771 10913 10740 11210
12/99 13484 13522 10923 10918 11541
1/00 13329 12843 10695 10659 11252
2/00 14022 12600 10270 10445 11224
3/00 14250 13832 11076 11069 11885
4/00 13453 13416 10986 10966 11668
5/00 12926 13141 11053 10983 11558
6/00 13732 13464 10842 11082 11742
7/00 13639 13254 10963 11098 11710
8/00 14445 14077 11393 11594 12233
9/00 13948 13334 11484 11466 11975
10/00 13700 13277 11684 11454 11965
11/00 12604 12231 11500 11076 11531
12/00 12916 12291 11931 11436 11817
1/01 13310 12727 12036 11642 12068
2/01 12357 11567 11877 11328 11599
3/01 11726 10835 11649 11020 11225
4/01 12326 11676 11973 11461 11696
5/01 12326 11755 12163 11580 11800
6/01 12025 11469 12020 11416 11619
7/01 11911 11356 12112 11381 11611
8/01 11311 10646 11876 11118 11281
9/01 10586 9786 11430 10565 10738
10/01 10958 9973 11467 10748 10918
11/01 11403 10738 11803 11113 11353
12/01 11440 10832 11940 11210 11435
1/02 11187 10674 11924 11091 11334
2/02 11008 10468 11981 11029 11257
3/02 11261 10861 12242 11265 11504
4/02 10839 10203 12085 11059 11227
5/02 10723 10128 12162 11040 11222
6/02 10164 9407 11785 10503 10743
7/02 9564 8674 11185 10035 10193
8/02 9637 8731 11311 10185 10297
9/02 9110 7783 10630 9641 9683
10/02 9469 8467 11083 9976 10086
11/02 9754 8965 11501 10350 10495
12/02 9485 8439 11296 10144 10213
1/03 9323 8218 11136 10049 10060
2/03 9247 8095 11019 9991 9984
3/03 9268 8173 11027 10063 10025
4/03 9723 8846 11646 10609 10567
5/03 10146 9311 12184 11068 11035
6/03 10190 9430 12265 11183 11118
7/03 10146 9597 12210 11127 11144
8/03 10320 9784 12356 11274 11332
9/03 10276 9680 12415 11361 11347
10/03 10624 10227 12825 11671 11721
11/03 10711 10317 12941 11757 11825
12/03 11038 10858 13473 12190 12248
1/04 11236 11057 13658 12345 12431
2/04 11458 11211 13893 12491 12601
3/04 11436 11042 13861 12449 12541
4/04 11192 10868 13514 12207 12277
5/04 11192 11017 13575 12226 12331
===================================================================================================================================
Source: A I M Management Group Inc., Lipper Inc.
===================================================================================================================================
[MOUNTAIN CHART]
6/04 11435 11231 13798 12381 12524
7/04 11004 10860 13736 12224 12288
8/04 11026 10903 13958 12366 12363
9/04 11092 11021 14103 12492 12547
10/04 11181 11190 14291 12643 12682
11/04 11545 11642 14679 12950 13024
12/04 11867 12038 15028 13280 13349
1/05 11756 11745 14906 13128 13177
2/05 11879 11992 15167 13292 13364
3/05 11768 11780 15011 13111 13180
4/05 11689 11557 14931 12975 13021
5/05 11868 11924 15211 13253 13320
6/05 11969 11941 15344 13409 13416
7/05 12159 12385 15555 13713 13714
8/05 12080 12272 15594 13722 13753
9/05 12114 12371 15661 13763 13808
10/05 11968 12165 15373 13514 13591
11/05 12294 12625 15703 13781 13921
12/05 12495 12629 15819 13907 14043
1/06 12780 12964 16188 14235 14378
2/06 12769 12999 16269 14245 14360
3/06 12917 13160 16337 14322 14500
4/06 12997 13337 16575 14450 14658
5/06 12724 12954 16316 14218 14368
6/06 12622 12971 16393 14236 14359
7/06 12713 13051 16720 14375 14426
8/06 12884 13361 16991 14619 14703
9/06 13133 13705 17254 14818 14915
10/06 13429 14151 17638 15167 15263
11/06 13566 14420 17962 15437 15557
12/06 13814 14622 18162 15579 15672
===================================================================================================================================
AIM V.I. Basic Balanced 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
beginning of the period and held for the in the table are meant to highlight your
entire period July 1, 2006, through HYPOTHETICAL EXAMPLE FOR COMPARISON ongoing costs. Therefore, the
December 31, 2006. PURPOSES hypothetical information is useful in
comparing ongoing costs, and will not
The actual and hypothetical The table below also provides information help you determine the relative total
expenses in the examples below do not about hypothetical account values and costs of owning different funds.
represent the effect of any fees or other hypothetical expenses based on the Fund's
expenses assessed in connection with a actual expense ratio and an assumed rate
variable product; if they did, the of return of 5% per year before expenses,
expenses shown would be higher while the which is not the Fund's actual return.
ending account values shown would be The Fund's actual cumulative total
lower. returns at net asset value after expenses
for the six months ended December 31,
ACTUAL EXPENSES 2006, appear in the table "Cumulative
Total Returns" on page 4.
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 (7/1/06) (12/31/06) PERIOD2 (12/31/06) PERIOD2 RATIO
===================================================================================================================================
Series I $ 1,000.00 $ 1,094.60 $ 4.80 $ 1,020.62 $ 4.63 0.96%
Series II 1,000.00 1,094.60 6.12 1,019.36 5.90 1.16
===================================================================================================================================
(1) The actual ending account value is based on the actual total return of the
Fund for the period July 1, 2006, through December 31, 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 December 31, 2006,
appear in the table "Cumulative Total Returns" on page 4.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated
above multiplied by the average account value over the period, multiplied
by 184/365 to reflect the most recent fiscal half year.
6
APPROVAL OF INVESTMENT ADVISORY AGREEMENT AIM V.I. BASIC BALANCED FUND
The Board of Trustees of AIM Variable - 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 - The quality of services to be provided
the continuance of the advisory agreement by AIM. The Board reviewed the - 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 - 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 the Advisory Agreement.
independent Senior Officer of the Fund is - Fees relative to those of clients of
to manage the process by which the Fund's - The performance of the Fund relative to AIM with comparable investment
proposed management fees are negotiated comparable funds. The Board reviewed the strategies. The Board reviewed the
to ensure that they are negotiated in a performance of the Fund during the past effective advisory fee rate (before
manner which is at arms' length and one, three and five calendar years waivers) for the Fund under the Advisory
reasonable. To that end, the Senior against the performance of funds advised Agreement. The Board noted that this rate
Officer must either supervise a by other advisors with investment was (i) above the effective advisory fee
competitive bidding process or prepare an strategies comparable to those of the rate (before waivers) for a mutual fund
independent written evaluation. The Fund. The Board noted that the Fund's advised by AIM with investment strategies
Senior Officer has recommended an performance was above the median comparable to those of the Fund; (ii)
independent written evaluation in lieu of performance of such comparable funds for above the effective sub-advisory fee rate
a competitive bidding process and, upon the one year period and below such median for an offshore fund advised and
the direction of the Board, has prepared performance for the three and five year sub-advised by AIM affiliates with
such an independent written evaluation. periods. Based on this review and after investment strategies comparable to those
Such 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 - 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 - 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, year periods. Based on this review and comparable to the median rate of the
information presented below is as of June after taking account of all of the other funds advised by other advisors with
27, 2006 and does not reflect any changes factors that the Board considered in investment strategies comparable to those
that may have occurred since June 27, determining whether to continue the of the Fund that the Board reviewed. The
2006, including but not limited to Advisory Agreement for the Fund, the Board noted that AIM has agreed to waive
changes to the Fund's performance, advisory fees of the Fund and to limit
advisory fees, expense limitations and/or the Fund's total operating expenses, as
fee waivers. dis-
(Continued)
7
AIM V.I. BASIC BALANCED FUND
cussed below. Based on this review, the realize certain benefits upon investing - 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,
- - 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 - 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 - 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 - 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
- - 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. - 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 - 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
- - 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.
8
AIM V.I. Basic Balanced Fund
SCHEDULE OF INVESTMENTS
December 31, 2006
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-65.22%
ADVERTISING-3.88%
Interpublic Group of Cos., Inc. (The)(a) 141,932 $ 1,737,247
- -----------------------------------------------------------------------
Omnicom Group Inc. 16,844 1,760,872
=======================================================================
3,498,119
=======================================================================
AEROSPACE & DEFENSE-0.82%
Honeywell International Inc. 16,332 738,860
=======================================================================
APPAREL RETAIL-1.06%
Gap, Inc. (The) 49,123 957,899
=======================================================================
ASSET MANAGEMENT & CUSTODY BANKS-1.32%
Bank of New York Co., Inc. (The) 30,276 1,191,966
=======================================================================
BREWERS-1.54%
Molson Coors Brewing Co.-Class B 18,141 1,386,698
=======================================================================
BUILDING PRODUCTS-0.73%
American Standard Cos. Inc. 14,306 655,930
=======================================================================
COMPUTER HARDWARE-1.90%
Dell Inc.(a) 68,080 1,708,127
=======================================================================
CONSTRUCTION MATERIALS-2.05%
Cemex S.A. de C.V.-ADR (Mexico)(a) 54,396 1,842,936
=======================================================================
CONSUMER ELECTRONICS-1.34%
Koninklijke (Royal) Philips Electronics N.V.
-New York Shares (Netherlands) 16,364 614,959
- -----------------------------------------------------------------------
Sony Corp.-ADR (Japan) 13,734 588,227
=======================================================================
1,203,186
=======================================================================
DATA PROCESSING & OUTSOURCED SERVICES-3.08%
First Data Corp. 68,106 1,738,065
- -----------------------------------------------------------------------
Western Union Co. 46,400 1,040,288
=======================================================================
2,778,353
=======================================================================
ENVIRONMENTAL & FACILITIES SERVICES-1.64%
Waste Management, Inc. 40,250 1,479,993
=======================================================================
FOOD RETAIL-1.15%
Kroger Co. (The) 23,203 535,293
- -----------------------------------------------------------------------
Safeway Inc. 14,439 499,012
=======================================================================
1,034,305
=======================================================================
GENERAL MERCHANDISE STORES-1.94%
Target Corp. 30,645 1,748,297
=======================================================================
</Table>
<Table>
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
HEALTH CARE DISTRIBUTORS-2.72%
Cardinal Health, Inc. 33,810 $ 2,178,378
- -----------------------------------------------------------------------
McKesson Corp. 5,450 276,315
=======================================================================
2,454,693
=======================================================================
HEALTH CARE EQUIPMENT-0.94%
Baxter International Inc. 18,322 849,958
=======================================================================
HOME IMPROVEMENT RETAIL-1.12%
Home Depot, Inc. (The) 25,029 1,005,165
=======================================================================
INDUSTRIAL CONGLOMERATES-4.32%
General Electric Co. 42,033 1,564,048
- -----------------------------------------------------------------------
Tyco International Ltd. 76,444 2,323,898
=======================================================================
3,887,946
=======================================================================
INDUSTRIAL MACHINERY-1.09%
Illinois Tool Works Inc. 21,359 986,572
=======================================================================
INSURANCE BROKERS-0.38%
Marsh & McLennan Cos., Inc. 11,250 344,925
=======================================================================
INVESTMENT BANKING & BROKERAGE-3.52%
Merrill Lynch & Co., Inc. 17,571 1,635,860
- -----------------------------------------------------------------------
Morgan Stanley 18,820 1,532,513
=======================================================================
3,168,373
=======================================================================
MANAGED HEALTH CARE-2.77%
UnitedHealth Group Inc. 46,403 2,493,233
=======================================================================
MOVIES & ENTERTAINMENT-1.66%
Walt Disney Co. (The) 43,533 1,491,876
=======================================================================
MULTI-LINE INSURANCE-1.27%
Hartford Financial Services Group, Inc. (The) 12,239 1,142,021
=======================================================================
OIL & GAS DRILLING-1.71%
Transocean Inc.(a) 19,006 1,537,395
=======================================================================
OIL & GAS EQUIPMENT & SERVICES-3.00%
Halliburton Co. 42,131 1,308,168
- -----------------------------------------------------------------------
Schlumberger Ltd. 22,034 1,391,667
=======================================================================
2,699,835
=======================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-4.56%
Citigroup Inc. 33,706 1,877,424
- -----------------------------------------------------------------------
JPMorgan Chase & Co. 46,215 2,232,185
=======================================================================
4,109,609
=======================================================================
PACKAGED FOODS & MEATS-1.27%
Unilever N.V. (Netherlands)(b) 41,769 1,140,993
=======================================================================
</Table>
AIM V.I. Basic Balanced Fund
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
PHARMACEUTICALS-5.02%
Pfizer Inc. 52,858 $ 1,369,022
- -----------------------------------------------------------------------
Sanofi-Aventis (France)(b) 17,011 1,566,668
- -----------------------------------------------------------------------
Wyeth 31,150 1,586,158
=======================================================================
4,521,848
=======================================================================
PROPERTY & CASUALTY INSURANCE-1.59%
ACE Ltd. 23,720 1,436,720
=======================================================================
REAL ESTATE MANAGEMENT & DEVELOPMENT-0.59%
Realogy Corp.(a) 17,605 533,784
=======================================================================
SYSTEMS SOFTWARE-2.96%
CA Inc. 74,126 1,678,954
- -----------------------------------------------------------------------
Microsoft Corp. 33,243 992,636
=======================================================================
2,671,590
=======================================================================
THRIFTS & MORTGAGE FINANCE-2.28%
Fannie Mae 34,580 2,053,706
=======================================================================
Total Common Stocks & Other Equity
Interests (Cost $46,022,033) 58,754,911
=======================================================================
<Caption>
PRINCIPAL
AMOUNT
BONDS & NOTES-25.29%
AEROSPACE & DEFENSE-0.45%
Precision Castparts Corp., Unsec. Notes,
6.75%, 12/15/07(c) $ 230,000 232,249
- -----------------------------------------------------------------------
Systems 2001 Asset Trust LLC (United
Kingdom)- Series 2001, Class G, Pass
Through Ctfs., (INS-MBIA Insurance Corp.)
6.66%, 09/15/13 (Acquired
02/09/05-10/27/05; Cost $183,200)(c)(d)(e) 166,225 174,147
=======================================================================
406,396
=======================================================================
AGRICULTURAL PRODUCTS-0.30%
Corn Products International Inc., Sr. Unsec.
Notes,
8.25%, 07/15/07(c) 265,000 268,755
=======================================================================
APPAREL RETAIL-0.09%
Gap Inc. (The), Unsec. Notes, 6.90%,
09/15/07(c) 80,000 80,830
=======================================================================
ASSET MANAGEMENT & CUSTODY BANKS-0.35%
Bank of New York Co. Inc. (The), Sr. Unsec.
Sub. Notes, 4.25%, 09/04/12(c) 35,000 34,736
- -----------------------------------------------------------------------
GAMCO Investors, Inc., Sr. Unsec. Unsub.
Notes,
5.22%, 02/17/07(c) 90,000 89,946
- -----------------------------------------------------------------------
Mellon Capital II-Series B, Jr. Unsec. Gtd.
Sub. Trust Pfd. Bonds, 8.00%, 01/15/27(c) 125,000 130,534
- -----------------------------------------------------------------------
Nuveen Investments, Inc., Sr. Unsec. Sub.
Notes,
5.50%, 09/15/15(c) 65,000 62,890
=======================================================================
318,106
=======================================================================
AUTOMOBILE MANUFACTURERS-0.22%
DaimlerChrysler North America Holding Corp.,
Notes,
4.13%, 03/07/07(c) 200,000 199,536
=======================================================================
</Table>
<Table>
- -----------------------------------------------------------------------
<Caption>
PRINCIPAL
AMOUNT VALUE
BROADCASTING & CABLE TV-2.12%
CBS Corp., Sr. Unsec. Gtd. Global Notes,
5.63%, 05/01/07(c) $ 400,000 $ 400,048
- -----------------------------------------------------------------------
Clear Channel Communications, Inc., Sr.
Unsec. Notes, 3.13%, 02/01/07(c) 215,000 214,609
- -----------------------------------------------------------------------
Comcast Cable Communications Holdings Inc.,
Unsec. Gtd. Global Notes, 9.46%,
11/15/22(c) 167,000 217,324
- -----------------------------------------------------------------------
Unsec. Unsub. Global Notes, 8.38%,
05/01/07(c) 50,000 50,465
- -----------------------------------------------------------------------
Comcast Corp., Sr. Sub. Deb., 10.63%,
07/15/12(c) 130,000 157,347
- -----------------------------------------------------------------------
Cox Enterprises, Inc., Notes, 8.00%, 02/15/07
(Acquired 10/03/05-04/27/06; Cost
$620,684)(c)(d) 600,000 601,446
- -----------------------------------------------------------------------
Hearst-Argyle Television Inc., Sr. Unsec.
Unsub. Notes, 7.00%, 11/15/07(c) 90,000 90,933
- -----------------------------------------------------------------------
Time Warner Entertainment Co. L.P., Sr.
Unsec. Deb.,
8.38%, 03/15/23(c) 150,000 175,909
=======================================================================
1,908,081
=======================================================================
BUILDING PRODUCTS-0.08%
Masco Corp., Unsec. Notes, 4.63%, 08/15/07(c) 70,000 69,647
=======================================================================
CASINOS & GAMING-0.24%
Harrah's Operating Co., Inc., Sr. Unsec. Gtd.
Global Notes, 7.13%, 06/01/07(c) 215,000 215,591
=======================================================================
CONSUMER FINANCE-0.66%
Capital One Capital I, Sub. Floating Rate
Trust Pfd. Bonds, 6.92%, 02/01/27 (Acquired
09/16/04-04/12/06; Cost $294,885)(c)(d)(f) 290,000 292,424
- -----------------------------------------------------------------------
Ford Motor Credit Co., Sr. Unsec. Notes,
4.95%, 01/15/08(c) 310,000 306,110
=======================================================================
598,534
=======================================================================
DEPARTMENT STORES-0.20%
JC Penney Corp. Inc., Unsec. Deb., 8.13%,
04/01/27(c) 180,000 183,681
=======================================================================
DIVERSIFIED BANKS-1.71%
Bangkok Bank PCL (Hong Kong), Unsec. Sub.
Notes,
9.03%, 03/15/29 (Acquired 04/22/05; Cost
$75,121)(c)(d) 60,000 74,739
- -----------------------------------------------------------------------
BankAmerica Institutional-Series A, Gtd.
Trust Pfd. Bonds, 8.07%, 12/31/26 (Acquired
09/26/06; Cost $104,484)(c)(d) 100,000 103,801
- -----------------------------------------------------------------------
BankBoston Capital Trust II-Series B, Gtd.
Trust Pfd. Bonds, 7.75%, 12/15/26(c) 205,000 212,405
- -----------------------------------------------------------------------
Barclays Bank PLC (United Kingdom), Floating
Rate Global Notes, 4.47%, 08/08/07
(Acquired 04/06/06; Cost $99,481)(c)(d)(f) 100,000 100,035
- -----------------------------------------------------------------------
Centura Capital Trust I, Gtd. Trust Pfd.
Notes,
8.85%, 06/01/27 (Acquired 05/22/03; Cost
$63,272)(c)(d) 50,000 52,855
- -----------------------------------------------------------------------
First Union Institutional Capital I, Gtd.
Trust Pfd. Bonds, 8.04%, 12/01/26(c) 100,000 103,751
- -----------------------------------------------------------------------
Lloyds Bank PLC (United Kingdom)-Series 1,
Unsec. Sub. Floating Rate Euro Notes,
5.63%(c)(f)(g) 130,000 114,381
- -----------------------------------------------------------------------
</Table>
AIM V.I. Basic Balanced Fund
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
DIVERSIFIED BANKS-(CONTINUED)
Mizuho Financial Group Cayman Ltd. (Cayman
Islands), Gtd. Sub. Second Tier Euro Bonds,
8.38%(c)(g) $ 30,000 $ 31,711
- -----------------------------------------------------------------------
National Bank of Canada (Canada), Floating
Rate Euro Deb., 5.63%, 08/29/87(c)(f) 60,000 49,058
- -----------------------------------------------------------------------
National Westminster Bank PLC (United
Kingdom)- Series B, Unsec. Sub. Floating
Rate Euro Notes, 5.69%(c)(f)(g) 100,000 86,427
- -----------------------------------------------------------------------
NBD Bank N.A. Michigan, Unsec. Sub. Deb.,
8.25%, 11/01/24(c) 50,000 62,325
- -----------------------------------------------------------------------
RBS Capital Trust III, Sub. Trust Pfd. Global
Notes,
5.51%(c)(g) 60,000 59,676
- -----------------------------------------------------------------------
Sumitomo Mitsui Banking Corp. (Japan), Sub.
Second Tier Euro Notes, 8.15%(c)(g) 90,000 93,362
- -----------------------------------------------------------------------
Svenska Handelsbanken A.B. (Sweden), Unsec.
Sub. Notes, 7.13%, (Acquired 07/26/06; Cost
$251,830)(c)(d)(g) 250,000 251,812
- -----------------------------------------------------------------------
VTB Capital S.A. (Russia), Sr. Floating Rate
Notes,
6.12%, 09/21/07 (Acquired 12/14/05; Cost
$140,000)(c)(d)(f) 140,000 140,402
=======================================================================
1,536,740
=======================================================================
DIVERSIFIED CHEMICALS-0.15%
Bayer Corp., Bonds, 6.20%, 02/15/08 (Acquired
08/01/06; Cost $80,562)(c)(d) 80,000 80,844
- -----------------------------------------------------------------------
Hercules Inc., Unsec. Putable Deb., 6.60%,
08/01/07(c) 50,000 50,023
=======================================================================
130,867
=======================================================================
DIVERSIFIED METALS & MINING-0.10%
Reynolds Metals Co., Medium Term Notes,
7.00%, 05/15/09(c) 87,000 88,643
=======================================================================
ELECTRIC UTILITIES-0.75%
Commonwealth Edison Co., Unsec. Notes, 7.63%,
01/15/07(c) 308,000 308,157
- -----------------------------------------------------------------------
Portland General Electric Co.-Series 4, Sec.
First Mortgage Medium Term Notes, 7.15%,
06/15/07(c) 35,000 35,207
- -----------------------------------------------------------------------
Potomac Electric Power Co.-Series A, Medium
Term Notes, 7.64%, 01/17/07(c) 100,000 100,062
- -----------------------------------------------------------------------
PP&L Capital Funding Inc.-Series D, Unsec.
Gtd. Medium Term Notes, 8.38%, 06/15/07(c) 55,000 55,694
- -----------------------------------------------------------------------
Southern Co. Capital Trust I, Gtd. Trust Pfd.
Notes,
8.19%, 02/01/37(c) 170,000 177,099
=======================================================================
676,219
=======================================================================
FOOD RETAIL-0.71%
Safeway Inc., Sr. Unsec. Notes,
4.80%, 07/16/07(c) 530,000 527,361
- -----------------------------------------------------------------------
7.00%, 09/15/07(c) 110,000 111,059
=======================================================================
638,420
=======================================================================
FOREST PRODUCTS-0.26%
Weyerhaeuser Co., Unsec. Unsub. Global Notes,
6.13%, 03/15/07(c) 235,000 235,282
=======================================================================
</Table>
<Table>
- -----------------------------------------------------------------------
<Caption>
PRINCIPAL
AMOUNT VALUE
HOME IMPROVEMENT RETAIL-0.07%
Sherwin-Williams Co. (The), Sr. Notes, 6.85%,
02/01/07(c) $ 65,000 $ 65,063
=======================================================================
HOTELS, RESORTS & CRUISE LINES-1.04%
Carnival Corp., Sr. Unsec. Gtd. Global Notes,
3.75%, 11/15/07(c) 21,000 20,692
- -----------------------------------------------------------------------
Hyatt Equities LLC, Notes, 6.88%, 06/15/07
(Acquired 01/25/06-10/23/06; Cost
$407,509)(c)(d) 402,000 403,773
- -----------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc.,
Sr. Gtd. Global Notes, 7.38%, 05/01/07(c) 514,000 515,928
=======================================================================
940,393
=======================================================================
HOUSEWARES & SPECIALTIES-0.06%
Newell Rubbermaid Inc., Unsec. Notes,
6.00%, 03/15/07(c) 15,000 15,010
- -----------------------------------------------------------------------
Series A, Unsec. Unsub. Putable Medium Term
Notes, 6.35%, 07/15/08(c) 40,000 40,479
=======================================================================
55,489
=======================================================================
INSURANCE BROKERS-0.46%
Aon Corp., Unsec. Notes, 6.95%, 01/15/07(c) 180,000 180,070
- -----------------------------------------------------------------------
Marsh & McLennan Cos., Inc., Sr. Unsec.
Global Notes, 5.38%, 03/15/07(c) 232,000 231,949
=======================================================================
412,019
=======================================================================
INTEGRATED OIL & GAS-0.45%
ConocoPhillips, Unsec. Deb., 7.13%,
03/15/28(c) 65,000 67,460
- -----------------------------------------------------------------------
Husky Oil Ltd. (Canada), Yankee Bonds, 8.90%,
08/15/28(c) 325,000 341,250
=======================================================================
408,710
=======================================================================
INTEGRATED TELECOMMUNICATION SERVICES-1.48%
TCI Communications Financing III, Gtd. Trust
Pfd. Bonds, 9.65%, 03/31/27(c) 525,000 555,922
- -----------------------------------------------------------------------
TELUS Corp. (Canada), Yankee Notes, 7.50%,
06/01/07(c) 300,000 302,382
- -----------------------------------------------------------------------
Verizon Communications Inc., Unsec. Deb.,
8.75%, 11/01/21(c) 65,000 77,480
- -----------------------------------------------------------------------
7.90%, 02/01/27(c) 150,000 155,295
- -----------------------------------------------------------------------
Verizon New York Inc., Unsec. Deb., 7.00%,
12/01/33(c) 90,000 92,180
- -----------------------------------------------------------------------
Verizon Virginia Inc.-Series A, Unsec. Global
Deb.,
4.63%, 03/15/13(c) 160,000 150,944
=======================================================================
1,334,203
=======================================================================
INTERNET RETAIL-0.09%
Expedia, Inc., Putable Bonds, 7.46%, 08/15/13
(Acquired 08/16/06; Cost $80,000)(c)(d) 80,000 83,550
=======================================================================
INVESTMENT BANKING & BROKERAGE-0.03%
Jefferies Group, Inc.-Series B, Sr. Unsec.
Notes,
7.50%, 08/15/07(c) 30,000 30,351
=======================================================================
</Table>
AIM V.I. Basic Balanced Fund
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
LIFE & HEALTH INSURANCE-0.76%
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)(e) $ 280,000 $ 324,178
- -----------------------------------------------------------------------
Sun Life Canada (U.S.) Capital Trust, Gtd.
Trust Pfd. Notes, 8.53% (Acquired
02/13/06-11/15/06; Cost $361,332)(c)(d)(g) 340,000 358,051
=======================================================================
682,229
=======================================================================
MANAGED HEALTH CARE-0.22%
Cigna Corp., Unsec. Notes, 7.40%, 05/15/07(c) 200,000 201,430
=======================================================================
METAL & GLASS CONTAINERS-0.02%
Pactiv Corp., Unsec. Notes, 8.00%,
04/15/07(c) 20,000 20,132
=======================================================================
MOVIES & ENTERTAINMENT-0.88%
News America Holdings Inc., Sr. Unsec. Gtd.
Deb.,
7.75%, 12/01/45(c) 125,000 142,334
- -----------------------------------------------------------------------
Time Warner Cos., Inc., Notes,
8.18%, 08/15/07(c) 120,000 121,861
- -----------------------------------------------------------------------
Unsec. Deb.,
9.15%, 02/01/23(c) 155,000 192,899
- -----------------------------------------------------------------------
Time Warner Inc., Sr. Unsec. Gtd. Global
Notes,
6.15%, 05/01/07(c) 330,000 330,693
=======================================================================
787,787
=======================================================================
MULTI-LINE INSURANCE-0.41%
Liberty Mutual Insurance Co., Notes, 8.20%,
05/04/07 (Acquired 04/13/06; Cost
$225,799)(c)(d) 220,000 221,907
- -----------------------------------------------------------------------
Unitrin Inc., Sr. Unsec. Notes, 5.75%,
07/01/07(c) 150,000 150,249
=======================================================================
372,156
=======================================================================
MULTI-UTILITIES-0.95%
Ameren Corp., Bonds, 4.26%, 05/15/07(c) 140,000 139,401
- -----------------------------------------------------------------------
Dominion Capital Trust I, Jr. Unsec. Gtd.
Trust Pfd. Bonds, 7.83%, 12/01/27(c) 140,000 146,224
- -----------------------------------------------------------------------
PSI Energy, Inc., Unsec. Deb., 7.85%,
10/15/07(c) 40,000 40,717
- -----------------------------------------------------------------------
Sempra Energy, Sr. Notes, 4.62%, 05/17/07(c) 40,000 39,878
- -----------------------------------------------------------------------
Tampa Electric Co., Unsec. Unsub. Notes,
5.38%, 08/15/07(c) 215,000 214,897
- -----------------------------------------------------------------------
TE Products Pipeline Co., Sr. Unsec. Notes,
6.45%, 01/15/08(c) 30,000 29,964
- -----------------------------------------------------------------------
Virginia Electric and Power Co.-Series A, Sr.
Unsec. Unsub. Notes, 5.38%, 02/01/07(c) 240,000 239,966
=======================================================================
851,047
=======================================================================
OFFICE REIT'S-0.11%
EOP Operating L.P., Sr. Unsec. Notes, 6.76%,
06/15/07(c) 100,000 100,659
=======================================================================
</Table>
<Table>
- -----------------------------------------------------------------------
<Caption>
PRINCIPAL
AMOUNT VALUE
OIL & GAS EXPLORATION & PRODUCTION-0.47%
Pemex Project Funding Master Trust, Unsec.
Gtd. Unsub. Global Notes,
5.75%, 12/15/15(c) $ 165,000 $ 164,719
- -----------------------------------------------------------------------
8.63%, 02/01/22(c) 175,000 216,834
- -----------------------------------------------------------------------
Varco International Inc., Sr. Unsec. Gtd.
Notes,
7.50%, 02/15/08(c) 45,000 45,890
=======================================================================
427,443
=======================================================================
OIL & GAS REFINING & MARKETING-0.06%
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 55,211
=======================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-3.17%
BankAmerica Capital II-Series 2, Jr. Unsec.
Gtd. Sub. Trust Pfd. Notes, 8.00%,
12/15/26(c) 80,000 82,978
- -----------------------------------------------------------------------
Barnett Capital II, Gtd. Trust Pfd. Bonds,
7.95%, 12/01/26(c) 100,000 103,722
- -----------------------------------------------------------------------
General Electric Capital Corp., Unsec.
Floating Rate Putable Deb., 5.11%,
09/01/07(c)(f) 55,000 54,730
- -----------------------------------------------------------------------
JPM Capital Trust I, Gtd. Trust Pfd. Notes,
7.54%, 01/15/27(c) 420,000 437,468
- -----------------------------------------------------------------------
Mantis Reef Ltd. (Australia), Notes, 4.69%,
11/14/08 (Acquired 08/11/06; Cost
$195,854)(c)(d) 200,000 196,778
- -----------------------------------------------------------------------
Mizuho JGB Investment LLC-Series A, Sub.
Bonds, 9.87% (Acquired 06/16/04-07/28/05;
Cost $356,092)(c)(d)(g) 315,000 334,492
- -----------------------------------------------------------------------
NB Capital Trust IV, Gtd. Trust Pfd. Bonds,
8.25%, 04/15/27(c) 460,000 481,684
- -----------------------------------------------------------------------
Pemex Finance Ltd. (Mexico), Sr. Unsec.
Global Notes,
8.02%, 05/15/07(c) 50,000 50,302
- -----------------------------------------------------------------------
Series 1999-2, Class A1, Global Bonds,
9.69%, 08/15/09(c) 308,000 324,598
- -----------------------------------------------------------------------
Regional Diversified Funding (Cayman
Islands), Sr. Notes, 9.25%, 03/15/30
(Acquired 09/22/04; Cost $169,578)(c)(d) 143,333 162,821
- -----------------------------------------------------------------------
Residential Capital LLC, Sr. Unsec. Floating
Rate Global Notes,
6.74%, 06/29/07(c)(f) 150,000 150,727
- -----------------------------------------------------------------------
Sr. Unsec. Gtd. Floating Rate Notes,
5.85%, 06/09/08(c)(f) 135,000 134,873
- -----------------------------------------------------------------------
Textron Financial Corp.-Series E, Floating
Rate Medium Term Notes, 6.94%,
12/01/07(c)(f) 100,000 101,001
- -----------------------------------------------------------------------
Twin Reefs Pass-Through Trust, Floating Rate
Pass Through Ctfs., 6.35% (Acquired
12/07/04; Cost $100,000)(c)(d)(f)(g) 100,000 100,190
- -----------------------------------------------------------------------
Two-Rock Pass Through Trust (Bermuda),
Floating Rate Pass Through Ctfs., 6.32%
(Acquired 11/10/06; Cost
$100,118)(c)(d)(f)(g) 100,000 98,522
- -----------------------------------------------------------------------
</Table>
AIM V.I. Basic Balanced Fund
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL SERVICES-(CONTINUED)
UFJ Finance Aruba AEC (Aruba), Gtd. Sub.
Second Tier Euro Bonds, 8.75%(c)(g) $ 40,000 $ 42,237
=======================================================================
2,857,123
=======================================================================
PAPER PRODUCTS-0.12%
Union Camp Corp., Notes, 6.50%, 11/15/07(c) 105,000 105,970
=======================================================================
PROPERTY & CASUALTY INSURANCE-1.36%
CNA Financial Corp., Sr. Unsec. Notes, 6.45%,
01/15/08(c) 185,000 186,623
- -----------------------------------------------------------------------
Executive Risk Capital Trust-Series B, Gtd.
Trust Pfd. Bonds, 8.68%, 02/01/27(c) 155,000 162,370
- -----------------------------------------------------------------------
First American Capital Trust I, Gtd. Trust
Pfd. Notes, 8.50%, 04/15/12(c) 285,000 302,416
- -----------------------------------------------------------------------
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) 200,000 199,302
- -----------------------------------------------------------------------
Oil Insurance Ltd., Notes, 7.56% (Acquired
06/15/06; Cost $360,000)(c)(d)(g) 360,000 375,908
=======================================================================
1,226,619
=======================================================================
PUBLISHING-0.22%
New York Times Co., Medium Term Notes, 4.63%,
06/25/07(c) 200,000 199,148
=======================================================================
REAL ESTATE MANAGEMENT & DEVELOPMENT-0.21%
Realogy Corp., Sr. Floating Rate Notes,
6.07%, 10/20/09 (Acquired 10/13/06; Cost
$30,000)(c)(d)(f) 30,000 30,019
- -----------------------------------------------------------------------
Sr. Notes,
6.50%, 10/15/16 (Acquired
10/13/06-10/16/06; Cost $95,137)(c)(d) 95,000 95,792
- -----------------------------------------------------------------------
Southern Investments UK PLC (United Kingdom),
Gtd. Trust Pfd. Yankee Notes, 8.23%,
02/01/27(c) 60,000 60,900
=======================================================================
186,711
=======================================================================
REGIONAL BANKS-1.29%
Cullen/Frost Capital Trust I, Unsec. Sub.
Floating Rate Notes, 9.92%, 03/01/34(c)(f) 200,000 204,448
- -----------------------------------------------------------------------
PNC Capital Trust C, Gtd. Floating Rate Trust
Pfd. Bonds, 5.94%, 06/01/28(c)(f) 100,000 96,628
- -----------------------------------------------------------------------
Popular North America Inc.-Series F, Medium
Term Notes, 5.20%, 12/12/07(c) 220,000 218,555
- -----------------------------------------------------------------------
Summit Capital Trust I-Series B, Gtd. Trust
Pfd. Bonds, 8.40%, 03/15/27(c) 100,000 104,900
- -----------------------------------------------------------------------
TCF National Bank, Sub. Notes, 5.00%,
06/15/14(c) 60,000 58,962
- -----------------------------------------------------------------------
Western Financial Bank, Unsec. Sub. Deb.,
9.63%, 05/15/12(c) 430,000 476,999
=======================================================================
1,160,492
=======================================================================
</Table>
<Table>
- -----------------------------------------------------------------------
<Caption>
PRINCIPAL
AMOUNT VALUE
REINSURANCE-0.32%
Reinsurance Group of America, Inc., Jr.
Unsec. Sub. Deb., 6.75%, 12/15/65(c) $ 100,000 $ 100,501
- -----------------------------------------------------------------------
Stingray Pass-Through Trust, Pass Through
Ctfs.,
5.90%, 01/12/15 (Acquired
01/07/05-11/03/05; Cost $196,920)(c)(d) 200,000 187,028
=======================================================================
287,529
=======================================================================
RETAIL REIT'S-0.35%
Developers Diversified Realty Corp., Sr.
Medium Term Notes, 7.00%, 03/19/07(c) 140,000 140,437
- -----------------------------------------------------------------------
JDN Realty Corp., Unsec. Sub. Notes, 6.95%,
08/01/07(c) 170,000 171,394
=======================================================================
311,831
=======================================================================
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 81,896
=======================================================================
SPECIALIZED CONSUMER SERVICES-0.10%
Block Financial Corp., Sr. Unsec. Gtd. Unsub.
Notes,
8.50%, 04/15/07(c) 91,000 91,704
=======================================================================
SPECIALIZED REIT'S-0.39%
Health Care Property Investors, Inc.,
Floating Rate Medium Term Notes,
5.81%, 09/15/08(c)(f) 140,000 140,407
- -----------------------------------------------------------------------
Sr. Medium Term Notes,
6.30%, 09/15/16(c) 110,000 112,121
- -----------------------------------------------------------------------
Health Care REIT, Inc., Sr. Notes, 5.88%,
05/15/15(c) 100,000 98,905
=======================================================================
351,433
=======================================================================
SPECIALTY CHEMICALS-0.17%
ICI Wilmington Inc., Gtd. Notes, 7.05%,
09/15/07(c) 150,000 151,464
=======================================================================
STEEL-0.10%
Commercial Metals Co., Unsec. Unsub. Notes,
6.80%, 08/01/07(c) 90,000 90,612
=======================================================================
THRIFTS & MORTGAGE FINANCE-0.54%
Countrywide Home Loans, Inc.-Series E, Gtd.
Medium Term Notes, 6.94%, 07/16/07(c) 100,000 100,795
- -----------------------------------------------------------------------
Dime Capital Trust I-Series A, Gtd. Trust
Pfd. Notes,
9.33%, 05/06/27(c) 65,000 68,773
- -----------------------------------------------------------------------
Great Western Financial Trust II-Series A,
Jr. Gtd. Sub. Trust Pfd. Notes, 8.21%,
02/01/27(c) 77,000 80,480
- -----------------------------------------------------------------------
Greenpoint Capital Trust I, Gtd. Sub. Trust
Pfd. Notes, 9.10%, 06/01/27(c) 165,000 174,741
- -----------------------------------------------------------------------
Washington Mutual Capital I, Gtd. Sub. Trust
Pfd. Notes, 8.38%, 06/01/27(c) 60,000 63,120
=======================================================================
487,909
=======================================================================
TOBACCO-0.35%
Altria Group, Inc., Unsec. Notes, 7.20%,
02/01/07(c) 311,000 311,370
=======================================================================
</Table>
AIM V.I. Basic Balanced Fund
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
TRUCKING-0.12%
Roadway Corp., Sr. Sec. Gtd. Global Notes,
8.25%, 12/01/08(c) $ 100,000 $ 104,333
=======================================================================
WIRELESS TELECOMMUNICATION SERVICES-0.44%
Alamosa Delaware Inc., Sr. Gtd. Global Notes,
8.50%, 01/31/12(c) 210,000 223,368
- -----------------------------------------------------------------------
Sprint Nextel Corp., Deb., 9.25%, 04/15/22(c) 140,000 168,381
=======================================================================
391,749
=======================================================================
Total Bonds & Notes (Cost $22,894,892) 22,781,093
=======================================================================
U.S. MORTGAGE-BACKED SECURITIES-10.66%
FEDERAL HOME LOAN MORTGAGE CORP.
(FHLMC)-3.10%
Federal Home Loan Mortgage Corp., Pass
Through Ctfs.,
7.00%, 06/01/15 to 06/01/32(c) 44,826 46,093
- -----------------------------------------------------------------------
6.00%, 04/01/16 to 11/01/33(c) 543,531 549,335
- -----------------------------------------------------------------------
5.50%, 10/01/18(c) 233,383 233,751
- -----------------------------------------------------------------------
7.50%, 11/01/30 to 05/01/31(c) 28,326 29,490
- -----------------------------------------------------------------------
6.50%, 05/01/32 to 08/01/32(c) 33,723 34,490
- -----------------------------------------------------------------------
Pass Through Ctfs., TBA,
4.50%, 01/01/22(c)(h) 186,000 179,258
- -----------------------------------------------------------------------
5.00%, 01/01/22 to 01/01/37(c)(h) 681,460 657,617
- -----------------------------------------------------------------------
5.50%, 01/01/37(c)(h) 1,072,702 1,060,969
=======================================================================
2,791,003
=======================================================================
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-6.65%
Federal National Mortgage Association, Pass
Through Ctfs.,
6.50%, 04/01/14 to 10/01/35(c) 511,809 524,344
- -----------------------------------------------------------------------
7.50%, 11/01/15(c) 3,672 3,804
- -----------------------------------------------------------------------
7.00%, 02/01/16 to 09/01/32(c) 74,633 76,823
- -----------------------------------------------------------------------
6.00%, 01/01/17(c) 5,626 5,711
- -----------------------------------------------------------------------
6.00%, 05/01/17(c) 95,192(i) 96,621
- -----------------------------------------------------------------------
5.00%, 04/01/18(c) 249,536 245,942
- -----------------------------------------------------------------------
4.50%, 11/01/18(c) 102,215 98,879
- -----------------------------------------------------------------------
8.00%, 08/01/21 to 12/01/23(c) 27,274 28,725
- -----------------------------------------------------------------------
Pass Through Ctfs., TBA,
5.00%, 01/01/22(c)(h) 727,770 715,489
- -----------------------------------------------------------------------
5.50%, 01/01/22 to 01/01/37(c)(h) 3,212,840 3,186,824
- -----------------------------------------------------------------------
6.00%, 01/01/37(c)(h) 999,650 1,006,523
=======================================================================
5,989,685
=======================================================================
</Table>
<Table>
- -----------------------------------------------------------------------
<Caption>
PRINCIPAL
AMOUNT VALUE
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA)-0.91%
Government National Mortgage Association,
Pass Through Ctfs.,
7.50%, 06/15/23 to 10/15/31(c) $ 37,362 $ 39,011
- -----------------------------------------------------------------------
8.50%, 11/15/24(c) 91,548 98,911
- -----------------------------------------------------------------------
8.00%, 08/15/25(c) 12,835 13,595
- -----------------------------------------------------------------------
6.50%, 03/15/29 to 12/15/33(c) 129,389 132,965
- -----------------------------------------------------------------------
6.00%, 09/15/31 to 05/15/33(c) 313,041 318,072
- -----------------------------------------------------------------------
5.50%, 12/15/33 to 02/15/34(c) 222,654 221,861
=======================================================================
824,415
=======================================================================
Total U.S. Mortgage-Backed Securities
(Cost $9,631,085) 9,605,103
=======================================================================
ASSET-BACKED SECURITIES-1.19%
COLLATERALIZED MORTGAGE OBLIGATIONS-0.13%
Federal Home Loan Bank-Series TQ-2015, Class
A, Pass Through Ctfs., 5.07%, 10/20/15(c) 118,407 117,044
=======================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-0.95%
Citicorp Lease Pass-Through Trust-Series
1999-1, Class A2, Pass Through Ctfs.,
8.04%, 12/15/19 (Acquired
11/04/98-02/09/06; Cost $1,354,303)(c)(d) 325,000 383,008
- -----------------------------------------------------------------------
LILACS Repackaging 2005-I Series A, Sr. Sec.
Notes,
5.14%, 01/15/64 (Acquired 07/14/05; Cost
$489,556)(d)(j) 489,556 475,516
=======================================================================
858,524
=======================================================================
PROPERTY & CASUALTY INSURANCE-0.11%
North Front Pass-Through Trust, Pass Through
Ctfs. Bonds, 5.81%, 12/15/24 (Acquired
12/08/04; Cost $100,000)(c)(d) 100,000 98,764
=======================================================================
Total Asset-Backed Securities (Cost
$1,069,420) 1,074,332
=======================================================================
<Caption>
SHARES
=======================================================================
PREFERRED STOCKS-0.59%
LIFE & HEALTH INSURANCE-0.12%
Aegon N.V., 6.38% Pfd. (Netherlands) 4,100 106,477
=======================================================================
THRIFTS & MORTGAGE FINANCE-0.33%
Fannie Mae, Series J,
6.45% Floating Rate Pfd.,(f) 2,950 148,090
- -----------------------------------------------------------------------
Series K,
5.40% Floating Rate Pfd.,(f) 2,950 147,648
=======================================================================
295,738
=======================================================================
WIRELESS TELECOMMUNICATION SERVICES-0.14%
Telephone & Data Systems, Inc.-Series A,
7.60% Pfd. 5,000 125,350
=======================================================================
Total Preferred Stocks (Cost $527,542) 527,565
=======================================================================
</Table>
AIM V.I. Basic Balanced Fund
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
MUNICIPAL OBLIGATIONS-0.56%
Detroit (City of), Michigan; Series 2005 A-1,
Taxable Capital Improvement Limited Tax GO
(INS-Ambac Assurance Corp.),
4.96%, 04/01/20(c)(e) $ 65,000 $ 61,063
- -----------------------------------------------------------------------
Series 2005, Taxable COP (INS-Financial
Guaranty Insurance Co.),
4.95%, 06/15/25(c)(e) 80,000 73,747
- -----------------------------------------------------------------------
Indianapolis (City of), Indiana Local Public
Improvement Bond Bank; Series 2005 A,
Taxable RB,
4.87%, 07/15/16(c) 50,000 48,081
- -----------------------------------------------------------------------
5.22%, 07/15/20(c) 50,000 48,768
- -----------------------------------------------------------------------
5.28%, 01/15/22(c) 25,000 24,342
- -----------------------------------------------------------------------
Industry (City of), California Urban
Development Agency (Project 3); Series
2003, Taxable Allocation RB, (INS-MBIA
Insurance Corp.)
6.10%, 05/01/24(c)(e) 125,000 128,212
- -----------------------------------------------------------------------
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)(e) 50,000 49,605
- -----------------------------------------------------------------------
4.21%, 07/01/08(c)(e) 75,000 73,895
=======================================================================
Total Municipal Obligations (Cost
$522,940) 507,713
=======================================================================
</Table>
<Table>
- -----------------------------------------------------------------------
<Caption>
PRINCIPAL
AMOUNT VALUE
COMMERCIAL PAPER-0.31%
BROADCASTING & CABLE TV-0.31%
Cox Communications Inc., Floating Rate
Commercial Paper, 5.62%, 8/15/07 (Acquired
11/03/06; Cost $280,000)(c)(d)(f) $ 280,000 $ 280,048
=======================================================================
U.S. GOVERNMENT AGENCY SECURITIES-0.22%
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-0.22%
Unsec. Floating Rate Global Notes, 3.20%,
02/17/09 (Cost $200,000)(c)(f) 200,000 195,646
=======================================================================
<Caption>
SHARES
=======================================================================
MONEY MARKET FUNDS-3.19%
Liquid Assets Portfolio-Institutional
Class(k) 1,436,490 1,436,490
- -----------------------------------------------------------------------
Premier Portfolio-Institutional Class(k) 1,436,490 1,436,490
=======================================================================
Total Money Market Funds (Cost
$2,872,980) 2,872,980
=======================================================================
TOTAL INVESTMENTS-107.23% (Cost $84,020,892) 96,599,391
=======================================================================
OTHER ASSETS LESS LIABILITIES-(7.23)% (6,510,107)
=======================================================================
NET ASSETS-100.00% $90,089,284
_______________________________________________________________________
=======================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
COP - Certificates of Participation
Ctfs - Certificates
Deb. - Debentures
GO - General Obligation Bonds
Gtd. - Guaranteed
INS - Insurer
Jr. - Junior
LILACS - Life Insurance and Life Annuities Backed Charitable Securities
Pfd. - Preferred
RB - Revenue Bonds
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 December 31, 2006 was $2,707,661,
which represented 3.01% 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 December 31,
2006 was $33,968,419, which represented 37.71% 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 December 31, 2006 was $6,419,259,
which represented 7.13% of the Fund's Net Assets. Unless otherwise
indicated, these securities are not considered to be illiquid.
(e) Principal and/or interest payments are secured by the bond insurance company
listed.
(f) Interest or dividend rate is redetermined periodically. Rate shown is the
rate in effect on December 31, 2006.
(g) Perpetual bond with no specified maturity date.
(h) Security purchased on forward commitment basis. This security is subject to
dollar roll transactions. See Note 1I.
(i) All or a portion of the principal balance was pledged as collateral to cover
margin requirements for open futures contracts. See Note 1N and Note 8.
(j) Security considered to be illiquid. The Fund is limited to investing 15% of
net assets in illiquid securities at the time of purchase. The value of this
security considered illiquid at December 31, 2006 represented 0.53% of the
Fund's Net Assets.
(k) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. Basic Balanced Fund
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2006
<Table>
ASSETS:
Investments, at value (cost $81,147,912) $ 93,726,411
- ----------------------------------------------------------------
Investments in affiliated money market funds (cost
$2,872,980) 2,872,980
================================================================
Total investments (cost $84,020,892) 96,599,391
================================================================
Foreign currencies, at value (cost $2,616) 2,632
- ----------------------------------------------------------------
Cash 15,808
- ----------------------------------------------------------------
Receivables for:
Investments sold 2,235,859
- ----------------------------------------------------------------
Dividends and Interest 525,908
- ----------------------------------------------------------------
Investment for trustee deferred compensation and
retirement plans 37,679
- ----------------------------------------------------------------
Other assets 1,961
================================================================
Total assets 99,419,238
________________________________________________________________
================================================================
LIABILITIES:
Payables for:
Investments purchased 9,095,983
- ----------------------------------------------------------------
Fund shares reacquired 87,963
- ----------------------------------------------------------------
Dividends 87
- ----------------------------------------------------------------
Trustee deferred compensation and retirement
plans 43,755
- ----------------------------------------------------------------
Unrealized depreciation on credit default swap
agreements 1,151
- ----------------------------------------------------------------
Variation margin 6,100
- ----------------------------------------------------------------
Accrued administrative services fees 49,190
- ----------------------------------------------------------------
Accrued distribution fees -- Series II 3,687
- ----------------------------------------------------------------
Accrued trustees' and officer's fees and benefits 3,632
- ----------------------------------------------------------------
Accrued transfer agent fees 756
- ----------------------------------------------------------------
Accrued operating expenses 37,650
================================================================
Total liabilities 9,329,954
================================================================
Net assets applicable to shares outstanding $ 90,089,284
________________________________________________________________
================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 93,060,770
- ----------------------------------------------------------------
Undistributed net investment income 1,981,205
- ----------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies,
futures contracts, option contracts and credit
default swap agreements (17,457,342)
- ----------------------------------------------------------------
Unrealized appreciation of investment securities,
foreign currencies, futures contracts and credit
default swap agreements 12,504,651
================================================================
$ 90,089,284
________________________________________________________________
================================================================
NET ASSETS:
Series I $ 84,211,678
________________________________________________________________
================================================================
Series II $ 5,877,606
________________________________________________________________
================================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 7,065,409
________________________________________________________________
================================================================
Series II 496,436
________________________________________________________________
================================================================
Series I:
Net asset value per share $ 11.92
________________________________________________________________
================================================================
Series II:
Net asset value per share $ 11.84
________________________________________________________________
================================================================
</Table>
STATEMENT OF OPERATIONS
For the year ended December 31, 2006
<Table>
INVESTMENT INCOME:
Interest $1,731,382
- ----------------------------------------------------------------
Dividends (net of foreign withholding taxes of
$16,154) 1,001,583
- ----------------------------------------------------------------
Dividends from affiliated money market funds 118,877
================================================================
Total investment income 2,851,842
================================================================
EXPENSES:
Advisory fees 695,975
- ----------------------------------------------------------------
Administrative services fees 244,188
- ----------------------------------------------------------------
Custodian fees 27,190
- ----------------------------------------------------------------
Distribution fees -- Series II 14,454
- ----------------------------------------------------------------
Transfer agent fees 8,986
- ----------------------------------------------------------------
Trustees' and officer's fees and benefits 17,758
- ----------------------------------------------------------------
Other 76,000
================================================================
Total expenses 1,084,551
================================================================
Less: Fees waived and expense offset arrangements (225,715)
================================================================
Net expenses 858,836
================================================================
Net investment income 1,993,006
================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES, FUTURES CONTRACTS,
OPTION CONTRACTS AND CREDIT DEFAULT SWAP
AGREEMENTS:
Net realized gain (loss) from:
Investment securities (includes net gains from
securities sold to affiliates of $4,495) 3,788,604
- ----------------------------------------------------------------
Foreign currencies 2,327
- ----------------------------------------------------------------
Futures contracts (18,476)
- ----------------------------------------------------------------
Option contracts written 5,950
- ----------------------------------------------------------------
Credit default swap agreements (523)
================================================================
3,777,882
================================================================
Change in net unrealized appreciation (depreciation)
of:
Investment securities 3,500,176
- ----------------------------------------------------------------
Foreign currencies 104
- ----------------------------------------------------------------
Futures contracts (90,765)
- ----------------------------------------------------------------
Credit default swap agreements (1,151)
================================================================
3,408,364
================================================================
Net gain from investment securities, foreign
currencies, futures contracts, option contracts
and credit default swap agreements 7,186,246
================================================================
Net increase in net assets resulting from operations $9,179,252
________________________________________________________________
================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. Basic Balanced Fund
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2006 and 2005
<Table>
<Caption>
2006 2005
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 1,993,006 $ 1,647,423
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies, futures contracts, option contracts and
credit default swap agreements 3,777,882 2,363,092
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities, foreign currencies, futures contracts and
credit default swap agreements 3,408,364 914,805
==========================================================================================
Net increase in net assets resulting from operations 9,179,252 4,925,320
==========================================================================================
Distributions to shareholders from net investment income:
Series I (1,595,527) (1,309,455)
- ------------------------------------------------------------------------------------------
Series II (98,205) (72,217)
==========================================================================================
Decrease in net assets resulting from distributions (1,693,732) (1,381,672)
==========================================================================================
Share transactions-net:
Series I (13,432,639) (11,775,262)
- ------------------------------------------------------------------------------------------
Series II (466,801) 23,488
==========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (13,899,440) (11,751,774)
==========================================================================================
Net increase (decrease) in net assets (6,413,920) (8,208,126)
==========================================================================================
NET ASSETS:
Beginning of year 96,503,204 104,711,330
==========================================================================================
End of year (including undistributed net investment income
of $1,981,205 and $1,628,613, respectively) $ 90,089,284 $ 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
December 31, 2006
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-one 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.
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.
Debt obligations (including convertible bonds) and unlisted equities 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.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price or official closing price as of the close of
the customary trading session on the exchange where the security is
principally traded, or lacking any sales or official closing price on a
particular day, the security may be valued at the closing bid price on that
day. Securities traded in the over-the-counter market 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. 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 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 open-end and closed-end registered
investment companies that trade on an exchange are valued at the last sales
price or official closing price as of the close of the customary trading
session on the exchange where the security is principally traded.
Swap agreements are fair valued using an evaluated quote provided by an
independent pricing service. Evaluated quotes provided by the pricing
service are valued based on a model which may include end of day net
present values, spreads, ratings, industry, and company performance.
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. If market quotations are available and reliable for
foreign exchange traded equity securities, the securities will be valued at
the market quotations. Because trading hours for certain foreign securities
end before the close of the NYSE, closing market quotations may become
unreliable. If between the time trading ends on a particular security and
the close of the customary trading session on the NYSE, events occur that
are significant and may make the closing price unreliable, the Fund may
fair value the security. 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 prices are not provided by any of the above
methods may be valued based upon quotes furnished by independent sources
and are valued at the last bid price in the case of equity securities and
in the case of debt obligations, the mean between the last bid and asked
prices.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Paydown gains and losses on mortgage and asset-backed securities are
recorded as adjustments to interest income. Dividend income is recorded on
the ex-dividend date. Bond premiums and discounts are amortized and/or
accreted for financial reporting purposes.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment 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
AIM V.I. Basic Balanced Fund
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 the 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 to distribute substantially all of the
Fund's taxable earnings to shareholders. As such, the Fund will not be
subject to federal income taxes on otherwise taxable income (including net
realized capital gain) that 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. ACCOUNTING ESTIMATES -- 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.
H. INDEMNIFICATIONS -- 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.
I. DOLLAR ROLL TRANSACTIONS -- The Fund may engage in dollar roll transactions
with respect to mortgage-backed securities issued by GNMA, FNMA and FHLMC.
In a dollar roll transaction, the Fund sells a mortgage-backed security
held in the Fund to a financial institution such as a bank or
broker-dealer, and simultaneously agrees to purchase a substantially
similar security (same type, coupon and maturity) from the institution at
an agreed upon price and future date. The mortgage-backed securities to be
purchased will bear the same interest rate as those sold, but generally
will be collateralized by different pools of mortgages with different
prepayment histories. Based on the typical structure of dollar roll
transactions by the Fund, the dollar roll transactions are accounted for as
financing transactions in which the Fund receives compensation as either a
"fee" or a "drop". "Fee" income which is agreed upon amongst the parties at
the commencement of the dollar roll and the "drop" which is the difference
between the selling price and the repurchase price of the mortgage-backed
securities are amortized to income. 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
the return on the securities sold.
J. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in
foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from (i) sales
of foreign currencies, (ii) currency gains or losses realized between the
trade and settlement dates on securities transactions, and (iii) the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
AIM V.I. Basic Balanced Fund
The Fund may invest in foreign securities which may be subject to foreign
taxes on income, gains on investments or currency repatriation, a portion
of which may be recoverable. Taxes are accrued based on the Fund's current
interpretation of tax regulations and rates that exist in the foreign
markets in which the Fund invests.
K. 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.
Fluctuations in the value of these contracts are recorded as unrealized
appreciation (depreciation) until the contracts are closed. When these
contracts are closed, realized gains (losses) are recorded. Realized and
unrealized gains and losses on these contracts are included in the
Statement of Operations. The Fund could be exposed to risk, which may be in
excess of the amount reflected in the Statement of Assets and Liabilities,
if counterparties to the contracts are unable to meet the terms of their
contracts or if the value of the foreign currency changes unfavorably.
L. COVERED CALL OPTIONS -- The Fund may write call options, including options
on futures. A call option gives the purchaser of such option the right to
buy, and the writer (the Fund) the obligation to sell, the underlying
security at the stated exercise price during the option period. Written
call options are recorded as a liability in the Statement of Assets and
Liabilities. The amount of the liability is subsequently "marked-to-market"
to reflect the current market value of the option written. 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. Realized gains and
losses on these contracts are included in the Statement of Operations. 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.
An option on a futures contract gives the holder the right to receive a
cash "exercise settlement amount" equal to the difference between the
exercise price of the option and the value of the underlying futures
contract on the exercise date. The value of a futures contract fluctuates
with changes in the market values of the securities underlying the futures
contract. In writing futures contract options, the principal risk is that
the Fund could bear a loss on the options that would be only partially
offset (or not offset at all) by the increased value or reduced cost of
underlying portfolio securities. Risks may exceed amounts recognized in the
Statement of Assets and Liabilities.
M. PUT OPTIONS PURCHASED AND WRITTEN -- The Fund may purchase and write put
options including options on securities indexes and/or futures contracts.
By purchasing a put option, the Fund obtains the right (but not the
obligation) to sell the option's underlying instrument at a fixed strike
price. In return for this right, the Fund pays an option premium. The
option's underlying instrument may be a security, securities index, or a
futures contract. Put options may be used by the Fund to hedge securities
it owns by locking in a minimum price at which the Fund can sell. If
security prices fall, the put option could be exercised to offset all or a
portion of the Fund's resulting losses. At the same time, because the
maximum the Fund has at risk is the cost of the option, purchasing put
options does not eliminate the potential for the Fund to profit from an
increase in the value of the underlying portfolio securities. The Fund may
write put options to earn additional income in the form of option premiums
if it expects the price of the underlying instrument to remain stable or
rise during the option period so that the option will not be exercised. The
risk in this strategy is that the price of the underlying securities may
decline by an amount greater than the premium received. Put options written
are reported as a liability in the Statement of Assets and Liabilities.
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.
N. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts.
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. Risks may exceed
amounts recognized in the Statement of Assets and Liabilities.
O. SWAP AGREEMENTS -- The Fund may enter into various swap transactions,
including interest rate, index, currency exchange rate and credit default
swap contracts ("CDS") for investment purposes or to manage interest rate,
currency or credit risk.
Interest rate, index, and currency exchange rate swap agreements are
two-party contracts entered into primarily to exchange the returns (or
differentials in rates of returns) earned or realized on particular
predetermined investments or instruments. The gross returns to be exchanged
or "swapped" between the parties are calculated with respect to a notional
amount, i.e., the return on or increase in value of a particular dollar
amount invested at a particular interest rate, in a particular foreign
currency, or in a "basket" of securities representing a particular index.
A CDS is an agreement between two parties ("Counterparties") to exchange
the credit risk of an issuer. A buyer of a CDS is said to buy protection by
paying a fixed payment over the life of the agreement to the seller of the
CDS. If a defined credit event occurs (such as payment default or
bankruptcy), the Fund as a protection buyer would cease paying its fixed
payment, the Fund would deliver the corresponding bonds, or other similar
bonds issued by the same reference entity to the seller, and the seller
would pay the full notional value, or the "par value", of the referenced
obligation to the Fund. A
AIM V.I. Basic Balanced Fund
seller of a CDS is said to sell protection and thus would receive the fixed
payment stream. If a credit event occurs, the Fund as a protection seller
would cease to receive the fixed payment stream, the Fund would pay the
buyer the full notional value of the referenced obligation, and the Fund
would receive the corresponding bonds or similar bonds issued by the same
reference entity. If no credit event occurs, the Fund receives the fixed
payment over the life of the agreement. As the seller, the Fund would
effectively add leverage to its portfolio because, in addition to its total
net assets, the Fund would be subject to investment exposure on the
notional amount of the CDS. Because the CDS is a bilateral agreement
between Counterparties, the transaction can alternatively be settled by a
cash payment in the case of a credit event.
Changes in the value of swap agreements are recognized as unrealized
gains (losses) in the Statement of Operations by "marking to market" on a
daily basis to reflect the value of the swap agreement at the end of each
trading day. The Fund accrues for the fixed payments on swap agreements on
a daily basis with the net amount accrued recorded as a component of
realized gain (loss) on the Statement of Operations. A liquidation payment
received or made at the termination of a swap agreement is recorded as
realized gain (loss) on the Statement of Operations. The Fund segregates
liquid securities having a value at least equal to the amount of the
potential obligation of a Fund under any swap transaction. Entering into
these agreements involves, to varying degrees, lack of liquidity and
elements of credit, market, and counterparty risk in excess of amounts
recognized on the Statement of Assets and Liabilities.
P. 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 at least 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. In addition, the Fund may also benefit from a one time credit to be used
to offset future custodian expenses. These credits are used to pay certain
expenses incurred by the Fund.
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in
the amount of 25% of the advisory fee AIM receives from the affiliated money
market funds on investments by the Fund in such affiliated money market funds.
Voluntary fee waivers or reimbursements may be modified or discontinued at any
time upon consultation with the Board of Trustees without further notice to
investors.
For the year ended December 31, 2006, AIM waived advisory fees of $223,387.
At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the year ended December 31, 2006, AMVESCAP did not
reimburse any such expenses.
The Trust has entered into a master administrative services agreement with
AIM pursuant to which the Fund 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. The
Fund may reimburse AIM for up to 0.25% of average daily assets invested by each
insurance company providing administrative services to the Fund. Pursuant to
such agreement, for the year ended December 31, 2006, AIM was paid $50,000 for
accounting and fund administrative services and reimbursed $194,188 for services
provided by insurance companies.
AIM V.I. Basic Balanced Fund
The Trust has entered into a transfer agency and service agreement with AIM
Investment Services, Inc. ("AIS") pursuant to which the Fund has agreed to pay
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 year ended December 31, 2006, expenses incurred under the
agreement are shown in the Statement of Operations as transfer agent fees.
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 Plan payments, 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. For the year ended December 31, 2006, expenses
incurred under the Plan are shown in the Statement of Operations as distribution
fees.
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 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 year ended December 31, 2006.
<Table>
<Caption>
CHANGE IN
UNREALIZED REALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND GAIN
FUND 12/31/05 AT COST FROM SALES (DEPRECIATION) 12/31/06 INCOME (LOSS)
- -------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ 850,068 $16,959,474 $(16,373,052) $ -- $1,436,490 $ 59,416 $ --
- -------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 850,068 8,195,310 (9,045,378) -- -- 26,494 --
- -------------------------------------------------------------------------------------------------------------------------------
Premier
Portfolio-
Institutional
Class -- 9,533,285 (8,096,795) -- 1,436,490 32,967 --
===============================================================================================================================
Total
Investments
in
Affiliates $1,700,136 $34,688,069 $(33,515,225) $ -- $2,872,980 $118,877 $ --
_______________________________________________________________________________________________________________________________
===============================================================================================================================
</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 year ended December 31, 2006, the Fund
engaged in securities sales of $106,888, which resulted in net realized gains of
$4,495, and securities purchases of $1,135,179.
NOTE 5--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) custodian credits which
result from periodic overnight cash balances at the custodian and (ii) a one
time custodian fee credit to be used to offset future custodian fees. For the
year ended December 31, 2006, the Fund received credits from these arrangements,
which resulted in the reduction of the Fund's total expenses of $2,328.
NOTE 6--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to each Trustee and Officer of the Fund who is not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Fund, and "Trustees' and Officer's Fees and Benefits" also
include amounts accrued by the Fund to fund such deferred compensation amounts.
Those Trustees who defer compensation have the option to select various AIM
Funds in which their deferral accounts shall be deemed to be invested. Finally,
current Trustees are eligible to participate in a retirement plan that provides
for benefits to be paid upon retirement to Trustees over a period of time based
on the number of years of service. The Fund may have certain former Trustees who
also participate in a retirement plan and receive benefits under such plan.
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to fund such retirement benefits. Obligations under the deferred compensation
and retirement plans represent unsecured claims against the general assets of
the Fund.
During the year ended December 31, 2006, the Fund paid legal fees of $4,109
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 Securities and Exchange Commission, 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
AIM V.I. Basic Balanced Fund
fund. A loan will be secured by collateral if the Fund's aggregate borrowings
from all sources exceeds 10% of the Fund's total assets. To the extent that the
loan is required to be secured by collateral, the collateral is marked to market
daily to ensure that the market value is at least 102% of the outstanding
principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended December 31, 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 bank 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 contractually agreed upon rate.
NOTE 8--FUTURES CONTRACTS
On December 31, 2006, $95,192 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/ VALUE APPRECIATION
CONTRACT CONTRACTS COMMITMENT 12/31/06 (DEPRECIATION)
- --------------------------------------------------------------------------------------------------------------------------
U.S. Treasury 2 Year Notes 8 Mar-07/Long $ 1,632,250 $ (6,239)
- --------------------------------------------------------------------------------------------------------------------------
U.S. Treasury 10 Year Notes 48 Mar-07/Long 5,158,500 (60,354)
- --------------------------------------------------------------------------------------------------------------------------
U.S. Treasury 30 Year Bonds 8 Mar-07/Long 891,500 (18,199)
==========================================================================================================================
$ 7,682,250 $(84,792)
==========================================================================================================================
Eurodollar GLOBEX2 etrading 18 Dec-07/Short $(4,277,250) $ 4,367
- --------------------------------------------------------------------------------------------------------------------------
U.S. Treasury 5 Year Notes 6 Mar-07/Short (630,375) 4,688
==========================================================================================================================
$(4,907,625) $ 9,055
==========================================================================================================================
Total Open Futures contracts $ 2,774,625 $(75,737)
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
NOTE 9--CREDIT DEFAULT SWAPS AGREEMENTS
<Table>
<Caption>
OPEN CREDIT DEFAULT SWAP AGREEMENTS AT PERIOD-END
- ---------------------------------------------------------------------------------------------------------------------------------
NOTIONAL UNREALIZED
REFERENCE BUY/SELL PAY/RECEIVE EXPIRATION AMOUNT APPRECIATION
COUNTERPARTY ENTITY PROTECTION FIXED RATE DATE (000) (DEPRECIATION)
- ---------------------------------------------------------------------------------------------------------------------------------
Leman Brothers Inc. Dow Jones CDX.NA.IG Buy 0.40% 12/20/2011 $650 $(1,151)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</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 2,049 25 4,078
- ------------------------------------------------------------------------------------------------------------
Closed -- -- (15) (2,331)
- ------------------------------------------------------------------------------------------------------------
Expired (12) (2,049) (10) (1,747)
============================================================================================================
End of period -- $ -- -- $ --
____________________________________________________________________________________________________________
============================================================================================================
</Table>
AIM V.I. Basic Balanced Fund
NOTE 11--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended December 31, 2006
and 2005 was as follows:
<Table>
<Caption>
2006 2005
- --------------------------------------------------------------------------------------
Distributions paid from ordinary income $1,693,732 $1,381,672
______________________________________________________________________________________
======================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2006, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2006
- ----------------------------------------------------------------------------
Undistributed ordinary income $ 2,019,021
- ----------------------------------------------------------------------------
Unrealized appreciation -- investments 12,430,720
- ----------------------------------------------------------------------------
Temporary book/tax differences (38,139)
- ----------------------------------------------------------------------------
Capital loss carryover (17,383,088)
- ----------------------------------------------------------------------------
Shares of beneficial interest 93,060,770
============================================================================
Total net assets $ 90,089,284
____________________________________________________________________________
============================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales, the recognition of gains (losses) on dollar roll transactions, the
realization for tax purpose of unrealized gains (losses) on certain future
contracts and credit default swap agreements. The tax-basis net unrealized
appreciation on investments amount includes appreciation (depreciation) on
foreign currencies of $104, credit default swap agreements of $(336) and
remaining proceeds to be received on Candescent Technologies Corp. of $2,936.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions.
The Fund utilized $3,340,947 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of December 31, 2006 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
December 31, 2009 $ 1,166,135
- -----------------------------------------------------------------------------
December 31, 2010 16,216,953
=============================================================================
Total capital loss carryforward $17,383,088
_____________________________________________________________________________
=============================================================================
</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,
U.S. Treasury obligations and money market funds, if any) purchased and sold by
the Fund during the year ended December 31, 2006 was $38,554,193 and
$52,307,864, respectively. During the same period, purchases and sales of U.S.
Treasury obligations were $1,635,728 and $2,649,468.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $13,791,363
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (1,363,347)
===============================================================================
Net unrealized appreciation of investment securities $12,428,016
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $84,171,375.
</Table>
NOTE 13--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of defaulted bonds,
foreign currency transactions, paydowns on mortgage-backed securities, treatment
of partnerships and credit default swaps agreements, on December 31, 2006,
undistributed net investment income was increased by $53,318 and undistributed
net realized gain (loss) was decreased by $53,318. This reclassification had no
effect on the net assets of the Fund.
AIM V.I. Basic Balanced Fund
NOTE 14--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31,
--------------------------------------------------------
2006(a) 2005
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Series I 360,135 $ 4,088,599 6,962,166 $ 72,685,111
- ----------------------------------------------------------------------------------------------------------------------
Series II 47,372 532,918 271,411 2,830,503
======================================================================================================================
Issued as reinvestment of dividends:
Series I 134,985 1,595,527 119,258 1,309,455
- ----------------------------------------------------------------------------------------------------------------------
Series II 8,358 98,205 6,619 72,217
======================================================================================================================
Reacquired:
Series I (1,679,810) (19,116,765) (8,187,375) (85,769,828)
- ----------------------------------------------------------------------------------------------------------------------
Series II (97,098) (1,097,924) (276,220) (2,879,232)
======================================================================================================================
(1,226,058) $(13,899,440) (1,104,141) $(11,751,774)
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
(a) There are four entities that are each record owners of more than 5% of
the outstanding shares of the Fund and in the aggregate they own 84% of
the outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with
these entities whereby these entities sell units of interest in separate
accounts funding variable products that are invested in the Fund. The
Fund, AIM and/or AIM affiliates may make payments to these entities,
which are considered to be related to the Fund, for providing services
to the Fund, AIM and or AIM affiliates including but not limited to
services such as, securities brokerage, third party record keeping and
account servicing and administrative services. The Trust has no
knowledge as to whether all or any portion of the shares owned of record
by these entities are also owned beneficially.
NOTE 15--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 for 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
currently intends for the Fund to adopt FIN 48 provisions during the fiscal year
ending December 31, 2007.
AIM V.I. Basic Balanced Fund
NOTE 16--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
YEAR ENDED DECEMBER 31,
------------------------------------------------------
2006 2005 2004 2003 2002
- --------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 10.99 $ 10.59 $ 9.99 $ 8.75 $ 10.84
- --------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) 0.25 0.18 0.13 0.14 0.18
- --------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.91 0.38 0.62 1.29 (2.02)
====================================================================================================================
Total from investment operations 1.16 0.56 0.75 1.43 (1.84)
====================================================================================================================
Less dividends from net investment income (0.23) (0.16) (0.15) (0.19) (0.25)
====================================================================================================================
Net asset value, end of period $ 11.92 $ 10.99 $ 10.59 $ 9.99 $ 8.75
____________________________________________________________________________________________________________________
====================================================================================================================
Total return(b) 10.55% 5.29% 7.52% 16.36% (17.02)%
____________________________________________________________________________________________________________________
====================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $84,212 $90,633 $99,070 $97,665 $82,866
____________________________________________________________________________________________________________________
====================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.91%(c) 0.95% 1.12% 1.11% 1.17%
- --------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.15%(c) 1.15% 1.12% 1.11% 1.17%
====================================================================================================================
Ratio of net investment income to average net assets 2.16%(c) 1.68% 1.24% 1.47% 1.90%
____________________________________________________________________________________________________________________
====================================================================================================================
Portfolio turnover rate 44% 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 do not reflect charges assessed
in connection with a variable product, with if included would reduce
total returns.
(c) Ratios are based on average daily net assets of $87,015,154.
<Table>
<Caption>
SERIES II
--------------------------------------------------------
JANUARY 24,
2002
(DATE SALES
YEAR ENDED DECEMBER 31, COMMENCED) TO
--------------------------------------- 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(a) 0.22 0.15 0.10 0.12 0.14
- ----------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.91 0.37 0.62 1.29 (1.86)
======================================================================================================================
Total from investment operations 1.13 0.52 0.72 1.41 (1.72)
======================================================================================================================
Less dividends from net investment income (0.20) (0.14) (0.14) (0.19) (0.25)
======================================================================================================================
Net asset value, end of period $11.84 $10.91 $10.53 $ 9.95 $ 8.73
______________________________________________________________________________________________________________________
======================================================================================================================
Total return(b) 10.36% 4.91% 7.24% 16.15% (16.12)%
______________________________________________________________________________________________________________________
======================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $5,878 $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 1.91%(c) 1.43% 0.99% 1.22% 1.65%(d)
______________________________________________________________________________________________________________________
======================================================================================================================
Portfolio turnover rate(e) 44% 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 based on average daily net assets of $5,781,500.
(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 Balanced Fund
NOTE 17--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. 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 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; 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. On September 15, 2006, the
MDL Court granted the AMVESCAP defendants' motion to dismiss the Amended Class
Action Complaint for Violations of ERISA and dismissed such Complaint. The
plaintiff has commenced an appeal from that decision.
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.
AIM V.I. Basic Balanced Fund
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V.I. Basic Balanced Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM V.I. Basic Balanced Fund, (one
of the funds constituting AIM Variable Insurance Funds, hereafter referred to as
the "Fund") at December 31, 2006, the results of its operations for the year
then ended, the changes in its net assets and the financial highlights for each
of the two years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2006 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion. The financial highlights for each of the periods ended on or before
December 31, 2004 were audited by another independent registered public
accounting firm whose report dated February 4, 2005 expressed an unqualified
opinion on those statements.
PRICEWATERHOUSECOOPERS LLP
February 14, 2007
Houston, Texas
AIM V.I. Basic Balanced Fund
TAX INFORMATION
Form 1099-DIV, Form 1042-S and other year-end tax information provide
shareholders with actual calendar year amounts that should be included in their
tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the
Internal Revenue Code or to meet a specific state's requirement.
The Fund designates the following amounts or, if subsequently determined to be
different, the maximum amount allowable for its fiscal year ended December 31,
2006:
FEDERAL AND STATE INCOME TAX
<Table>
Corporate Dividends Received Deduction* 48.17%
U.S. Treasury Obligations* 0.34%
</Table>
* The above percentages are based on ordinary income dividends paid to
shareholders during the Fund's fiscal year.
AIM V.I. Basic Balanced Fund
TRUSTEES AND OFFICERS
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management None
Trustee and Vice Chair Group Inc. (financial services holding
company); Director and Vice Chairman,
AMVESCAP PLC; Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm) and
Trustee and Vice Chair of The AIM Family
of Funds--Registered Trademark--
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer);
Chief Executive Officer, AMVESCAP
PLC -- Managed Products; and President
and Principal Executive Officer of The
AIM Family of Funds--Registered
Trademark--
- -------------------------------------------------------------------------------------------------------------------------------
Philip A. Taylor(2) -- 1954 2006 Director, Chief Executive Officer and None
Trustee, President and President, A I M Management Group Inc.,
Principal AIM Mutual Fund Dealer Inc. (registered
Executive Officer broker dealer), AIM Funds Management
Inc. (registered investment advisor) and
1371 Preferred Inc. (holding company);
Director and President, A I M Advisors,
Inc., INVESCO Funds Group, Inc.
(registered investment advisor and
register transfer agent) and AIM GP
Canada Inc. (general partner for a
limited partnership); Director, A I M
Capital Management, Inc. and A I M
Distributors, Inc.; Director and
Chairman, AIM Investment Services, Inc.,
Fund Management Company and INVESCO
Distributors, Inc. (registered broker
dealer); Director, President and
Chairman, AVZ Callco Inc. (holding
company); AMVESCAP Inc. (holding
company) and AIM Canada Holdings Inc.
(holding company); Director and Chief
Executive Officer, AIM Trimark Corporate
Class Inc. (formerly AIM Trimark Global
Fund Inc.) (corporate mutual fund
company) and AIM Trimark Canada Fund
Inc. (corporate mutual fund company);
Trustee, President and Principal
Executive Officer of The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); Trustee and
Executive Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); and Manager,
Powershares Capital Management LLC
Formerly: President and Principal
Executive Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); Chairman, AIM
Canada Holdings, Inc.; Executive Vice
President and Chief Operations Officer,
AIM Funds Management Inc.; President,
AIM Trimark Global Fund Inc. and AIM
Trimark Canada Fund Inc.; and Director,
Trimark Trust (federally regulated
Canadian Trust Company)
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company
Formerly: Partner, law firm of Baker & (2 portfolios))
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Founder, Green, Manning & Bunch Ltd., None
Trustee (investment banking firm); and Director,
Policy Studies, Inc. and Van Gilder
Insurance Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and None
Trustee private business corporations, including
the Boss Group Ltd. (private investment
and management); Cortland Trust, Inc.
(Chairman) (registered investment
company (3 portfolios)); Annuity and
Life Re (Holdings), Ltd. (insurance
company); CompuDyne Corporation
(provider of products and services to
the public security market); and
Homeowners of America Holding
Corporation (property casualty company)
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and Director of various
affiliated Volvo companies; and
Director, Magellan Insurance Company
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund
company); and Owner, Dos Angelos Ranch, (non-profit)
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- -------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company
(3 portfolios))
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired Director, Mainstay VP Series
Trustee Funds, Inc. (21 portfolios)
Formerly: Partner, Deloitte & Touche
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
(2) Mr. Taylor is considered an interested person of the Trust because he is an
officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
TRUSTEES AND OFFICERS--(CONTINUED)
AIM V.I. Basic Balanced Fund
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Senior Vice President and Senior Officer N/A
Senior Vice President and of The AIM Family of Funds--Registered
Senior Officer Trademark--
Formerly: Director of Compliance and
Assistant General Counsel, ICON
Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
John M. Zerr -- 1962 2006 Director, Senior Vice President, N/A
Senior Vice President, Chief Secretary and General Counsel, A I M
Legal Officer and Secretary Management Group Inc. and A I M
Advisors, Inc.; Director, Vice President
and Secretary, INVESCO Distributors,
Inc.; Vice President and Secretary,
A I M Capital Management, Inc., AIM
Investment Services, Inc., and Fund
Management Company; Senior Vice
President and Secretary, A I M
Distributors, Inc.; Director and Vice
President, INVESCO Funds Group Inc.;
Senior Vice President, Chief Legal
Officer and Secretary of The AIM Family
of Funds--Registered Trademark--; and
Manager, Powershares Capital Management
LLC
Formerly: Chief Operating Officer,
Senior Vice President, General Counsel,
and Secretary, Liberty Ridge Capital,
Inc. (an investment adviser); Vice
President and Secretary, PBHG Funds (an
investment company); Vice President and
Secretary, PBHG Insurance Series Fund
(an investment company); General Counsel
and Secretary, Pilgrim Baxter Value
Investors (an investment adviser); Chief
Operating Officer, General Counsel and
Secretary, Old Mutual Investment
Partners (a broker-dealer); General
Counsel and Secretary, Old Mutual Fund
Services (an administrator); General
Counsel and Secretary, Old Mutual
Shareholder Services (a shareholder
servicing center); Executive Vice
President, General Counsel and
Secretary, Old Mutual Capital, Inc. (an
investment adviser); and Vice President
and Secretary, Old Mutual Advisors Funds
(an investment company)
- ------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Global Compliance Director, AMVESCAP
Vice President PLC; and Vice President of The AIM
Family of Funds--Registered Trademark--
Formerly: Senior Vice President, A I M N/A
Management Group Inc.; Senior Vice
President and Chief Compliance Officer,
A I M Advisors, Inc.; Vice President and
Chief Compliance Officer, A I M Capital
Management, Inc. and A I M Distributors,
Inc.; Vice President, AIM Investment
Services, Inc. and Fund Management
Company; Senior Vice President and Chief
Compliance Officer of The AIM Family of
Funds--Registered Trademark--; and
Senior Vice President and Compliance
Director, Delaware Investments Family of
Funds
- ------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Senior Vice President and General
Vice President Counsel, AMVESCAP PLC; Director, INVESCO
Funds Group, Inc.; and Vice President of
The AIM Family of Funds--Registered
Trademark--
Formerly: Director, Vice President and N/A
General Counsel, Fund Management
Company; Director, Senior Vice
President, Secretary and General
Counsel, A I M Management Group Inc. and
A I M Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Senior Vice President, A I M
Distributors, Inc.; Vice President,
A I M Capital Management, Inc. and AIM
Investment Services, Inc.; Senior Vice
President, Chief Legal Officer and
Secretary of The AIM Family of
Funds--Registered Trademark--; Chief
Executive Officer and President, INVESCO
Funds Group, Inc.; and Senior Vice
President, and General Counsel, Liberty
Financial Companies, Inc. and Senior
Vice President and General Counsel
Liberty Funds Group, LLC
- ------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President, Principal Advisors, Inc.; and Vice President,
Financial Officer and Treasurer and Principal Officer of The
Treasurer AIM Family of Funds--Registered
Trademark--
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
J. Philip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment Officer, A I M Advisors Inc.;
Director, Chairman, Chief Executive
Officer, President and Chief Investment
Officer, A I M Capital Management, Inc.;
Executive Vice President, A I M
Management Group Inc. and Vice President
of The AIM Family of Funds--Registered
Trademark--
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; and
Chief Equity Officer, Senior Vice
President and Senior Investment Officer,
A I M Capital Management, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc. and The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); and
President and Principal Executive
Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust Only)
Formerly: Vice President, The AIM Family N/A
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only)
- ------------------------------------------------------------------------------------------------------------------------------
Lance A. Rejsek -- 1967 2005 Anti-Money Laundering Compliance
Anti-Money Laundering Officer, A I M Advisors, Inc., A I M
Compliance Officer Capital Management, Inc., A I M
Distributors, Inc., AIM Investment
Services, Inc., AIM Private Asset
Management, Inc., Fund Management
Company and The AIM Family of
Funds--Registered Trademark--
Formerly: Manager of the Fraud N/A
Prevention Department, AIM Investment
Services, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
Todd L. Spillane -- 1958 2006 Senior Vice President, A I M Management N/A
Chief Compliance Officer Group Inc.; Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc.; and Vice President,
A I M Distributors, Inc., AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Global Head of Product
Development, AIG-Global Investment
Group, Inc.; Chief Compliance Officer
and Deputy General Counsel,
AIG-SunAmerica Asset Management; and
Chief Compliance Officer, Chief
Operating Officer and Deputy General
Counsel, American General Investment
Management
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers
Suite 100 11 Greenway Plaza Inc. LLP
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Ballard Spahr INDEPENDENT TRUSTEES AIM Investment State Street Bank and
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis Services, Inc. Trust Company
1735 Market Street, 51st & Frankel LLP P.O. Box 4739 225 Franklin Street
Floor 1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Philadelphia, PA 19103-7599 Americas
New York, NY 10036-2714
</Table>
DOMESTIC EQUITY AIM V.I. BASIC VALUE FUND
Large-Cap Value ANNUAL REPORT TO SHAREHOLDERS - DECEMBER 31, 2006
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 in Washington, D.C. You can [COVER GLOBE IMAGE]
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 AIM V.I. BASIC VALUE FUND seeks to provide
Web site, AIMinvestments.com. On the home page, long-term growth of capital.
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 UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT
click on Proxy Voting Activity. Next, select the IS AS OF DECEMBER 31, 2006, AND IS BASED ON TOTAL NET ASSETS.
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
[AIM INVESTMENTS LOGO] INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ
--REGISTERED TRADEMARK-- EACH CAREFULLY BEFORE INVESTING.
=========================================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
AIM V.I. BASIC VALUE FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE naturally be different than the market
========================================================================================= and peers and have little information
value since we don't own many of the same
PERFORMANCE SUMMARY stocks.
For the year ended December 31, 2006, Series I and Series II shares of AIM V.I. Basic MARKET CONDITIONS AND YOUR FUND
Value Fund, excluding variable product issuer charges, underperformed the S&P 500
- --Registered Trademark-- Index, the Russell 1000 --Registered Trademark-- Value Index Equity markets posted healthy gains
and the Lipper Large-Cap Value Funds Index. during the year as favorable economic
data and solid corporate profits
We attribute the Fund's underperformance versus its broad market and style-specific overshadowed housing market concerns and
indexes to below-market returns from selected investments in the information investor uncertainty regarding interest
technology, health care and industrials sectors. Top contributors to performance were rates and oil prices. The
selected investments in the financials and consumer discretionary sectors. telecommunication services and energy
sectors led the market for the year while
Your Fund's long-term performance appears on pages 4-5. information technology and health care
stocks generally trailed.
FUND VS. INDEXES
The Fund's largest contributors during
Total returns, 12/31/05 - 12/31/06, excluding variable product issuer charges. If the year were financial services holdings
variable product issuer charges were included, returns would be lower. MORGAN STANLEY, JP MORGAN AND MERRILL
LYNCH. All benefited from a robust
Series I Shares 13.20% capital markets environment and rotation
Series II Shares 12.94 to large-cap financials as investors
S&P 500 Index (Broad Market Index) 15.78 anticipated an end to Federal Reserve
Russell 1000 Value Index (Style-Specific Index) 22.25 Board interest rate increases. More
Lipper Large-Cap Value Funds Index (Peer Group Index) 18.28 important, Morgan Stanley and JP Morgan,
Source: Lipper Inc. under the leadership of new CEOs, showed
========================================================================================= signs of improved operating and financial
performance.
HOW WE INVEST - Market prices are more volatile than
business values, partly because investors The Fund's investment in WALT DISNEY
We seek to create wealth by maintaining a regularly overreact to negative news. also made a significant contribution to
long-term investment horizon and investing performance during the year. Disney's
in companies that are selling at a Since our application of this strategy is stock experienced a steady rise during
significant discount to their estimated highly disciplined and relatively unique, it 2006 and ended the year up 44% as
intrinsic value -- a value that is based is important to understand the benefits and virtually all of the company's business
on the estimated future cash flows limitations of our process. First, the lines experienced healthy market share
generated by the business. The Fund's investment strategy is intended to preserve and earnings growth. Of particular note
philosophy is based on two elements that your capital while growing it at were positive developments at Disney's
we believe have extensive empirical above-market rates over the long term. television networks, ABC and ESPN, theme
evidence: Second, our investments have little in parks and movie studios.
common with popular benchmark indexes and
- - Companies have a measurable estimated most of our peers. And third, the Fund's A modest number of Fund holdings posted
intrinsic value. Importantly, this short-term relative performance will price declines during the year. The
estimated fair value is independent of the Fund's largest detractors from
company's stock price. performance were CA and UNITEDHEALTH
GROUP. Enterprise software firm CA's
stock price declined during the year as a
result of investor concerns regarding
sen-
==================================================================================================================================
PORTFOLIO COMPOSITION TOP FIVE INDUSTRIES* TOP 10 EQUITY HOLDINGS*
By sector
Financials 22.4% 1.Pharmaceuticals 7.6% 1.UnitedHealth Group Inc. 4.2%
Health Care 18.0 2.Other Diversified Financial Services 6.7 2.Tyco International Ltd. 4.0
Consumer Discretionary 17.4 3.Industrial Conglomerates 6.6 3.JPMorgan Chase & Co. 3.7
Information Technology 13.5 4.Advertising 6.2 4.Cardinal Health, Inc. 3.6
Industrials 11.7 5.Investment Banking & Brokerage 5.5 5.Fannie Mae 3.5
Energy 7.1 6.Cemex S.A. de C.V.-ADR (Mexico) 3.2
Consumer Staples 5.6 Total Net Assets $828.81 million 7.Interpublic Group of Cos., Inc.
Materials 3.2 Total Number of Holdings* 43 (The) 3.2
Money Market Funds 8.Omnicom Group Inc. 3.0
Plus Other Assets Less Liabilities 1.1 9.Citigroup Inc. 3.0
10.Transocean Inc. 2.9
*Excluding money market fund holdings.
The Fund's holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
====================================================================================================================================
2
AIM V.I. BASIC VALUE FUND
ior management turnover, best indication that your Fund is positioned [STANLEY Bret W. Stanley Chartered
weaker-than-expected quarterly earnings to potentially achieve its objective of PHOTO] Financial Analyst, senior
and stock options issues. Despite these long-term growth of capital. portfolio manager, is lead
short-term headwinds, our estimate of CA's manager of AIM V.I. Basic Value Fund. He
fundamental intrinsic value remained CONTEXT FOR RESULTS began his investment career in 1988 and
unchanged. joined AIM in 1998. Mr. Stanley earned a
We know a long-term investment horizon and B.B.A. in finance from The University of
A stock options scandal and near-term attractive potential upside to our estimate Texas at Austin and an M.S. in finance
uncertainty regarding industry of portfolio intrinsic value are critical to from the University of Houston.
fundamentals caused UnitedHealth's stock creating wealth. But we understand
to decline 30% during the first half of maintaining a long-term investment horizon [COLEMAN R. Canon Coleman II
2006. By mid-year, the stock recovered is a challenge. So, when shareholders PHOTO] Chartered Financial
from its lows as implications of the consider our short-term results we encourage Analyst, portfolio manager,
options issue became clearer, a new CEO them to review our long-term results on is manager of AIM V.I. Basic Value Fund.
was announced and company operating pages 4 - 5. We are long-term investors who He began his investment career in 1996
fundamentals remained strong. UnitedHealth provide a portfolio that in our opinion is and joined AIM in 2000. Mr. Coleman
was among the first investments made by distinct from market indexes and most of our earned a B.S. and an M.S. in accounting
current management over seven years ago, peers. from the University of Florida. He also
and our long term investment case for the earned an M.B.A. from the Wharton School
company remained unchanged. We added to Recent studies have shown short-term at the University of Pennsylvania.
our position at mid year and UnitedHealth results have little information value and
was the Fund's largest holding at the the frequent trading of stocks or mutual [SEINSHEIMER Matthew W. Seinsheimer
close of the year. funds is a costly exercise -- reducing PHOTO] Chartered Financial
actual returns by several percentage points Analyst, senior portfolio
During the year, we continued to reduce per year as shareholders unknowingly manager, is manager of AIM V.I. Basic
the Fund's energy sector exposure because exchange tomorrow's winner for tomorrow's Value Fund. He began his investment
we concluded equity valuations warranted loser. In addition, a recent Yale University career in 1992 and joined AIM in 1998. He
less exposure to the sector. study reveals half of all mutual funds earned a B.B.A. from Southern Methodist
charge an active management fee for University and an M.B.A. from The
During the year, we also sold our essentially a closet-index portfolio. While University of Texas at Austin.
positions in AVIS BUDGET GROUP, CERIDIAN, this may create smooth and innocuous
HCA, MASCO, MGIC INVESTMENT CORPORATION, short-term relative performance, it [SIMON Michael J. Simon Chartered
PARKER HANNIFIN, RADIAN and WYNDAM typically leads to long-term PHOTO] Financial Analyst, senior
WORLDWIDE based on valuation and other underperformance. portfolio manager, is
portfolio considerations. We initiated manager of AIM V.I. Basic Value Fund. He
positions in Dell, Microsoft, Marsh & Considering these factors, your Fund is began his investment career in 1989 and
McLennan and Home Depot. While Dell's and doing something different and old fashioned joined AIM in 2001. Mr. Simon earned a
Microsoft's growth and business models are -- investing for the long term and following B.B.A. in finance from Texas Christian
in the early stages of a transition, we a common-sense approach that has produced a University and an M.B.A. from the
believed their market valuations did not portfolio that is different from common University of Chicago.
reflect the long-term positives of their stock market indexes and more attractively
dominant market positions and the valued, in our opinion. Assisted by the Basic Value Team
compelling economics of their businesses.
IN CLOSING
PORTFOLIO ASSESSMENT
We thank you for your investment in AIM V.I.
We believe the single most important Basic Value Fund and for sharing our
indicator of the way AIM V.I. Basic Value long-term horizon.
Fund is positioned for potential success
is not our historical investment results The views and opinions expressed in
or popular statistical measures, but the management's discussion of Fund performance
portfolio's estimated intrinsic value -- are those of A I M Advisors, Inc. These
the aggregate business value of the views and opinions are subject to change at
portfolio based on our estimate of any time based on factors such as market and
intrinsic value for each individual economic conditions. These views and
holding. At the close of the year, and in opinions may not be relied upon as
our opinion, the difference between the investment advice or recommendations, or as
market price and the estimated intrinsic an offer for a particular security. The
value of the portfolio was about average information is not a complete analysis of
by the Fund's historical standards, and we every aspect of any market, country,
believed this value content was greater industry, security or the Fund. Statements
than what was available in the broad of fact are from sources considered
market. While there is no assurance that reliable, but A I M Advisors, Inc. makes no
market value will ever reflect our representation or warranty as to their
estimate of the portfolio's intrinsic completeness or accuracy. Although
value, we believe this provides the historical performance is no guarantee of
future results, these insights may help you
understand our investment management
philosophy.
FOR A DISCUSSION OF THE RISKS OF
INVESTING IN YOUR FUND, INDEXES USED IN
THIS REPORT AND YOUR FUND'S LONG-TERM
PERFORMANCE, PLEASE SEE PAGES 4-5.
3
AIM V.I. BASIC VALUE FUND
YOUR FUND'S LONG-TERM PERFORMANCE
===========================================
AVERAGE ANNUAL TOTAL RETURNS THE PERFORMANCE OF THE FUND'S SERIES I AND OF THE FUND DIRECTLY. PERFORMANCE FIGURES
SERIES II SHARE CLASSES WILL DIFFER GIVEN REPRESENT THE FUND AND ARE NOT
As of 12/31/06 PRIMARILY DUE TO DIFFERENT CLASS EXPENSES. INTENDED TO REFLECT ACTUAL VARIABLE
SERIES I SHARES PRODUCT VALUES. THEY DO NOT REFLECT SALES
Inception (9/10/01) 6.82% THE PERFORMANCE DATA QUOTED REPRESENT PAST CHARGES, EXPENSES AND FEES ASSESSED IN
5 Years 6.70 PERFORMANCE AND CANNOT GUARANTEE COMPARABLE CONNECTION WITH A VARIABLE PRODUCT. SALES
1 Year 13.20 FUTURE RESULTS; CURRENT PERFORMANCE MAY BE CHARGES, EXPENSES AND FEES, WHICH ARE
LOWER OR HIGHER. PLEASE CONTACT YOUR DETERMINED BY THE VARIABLE PRODUCT
SERIES II SHARES VARIABLE PRODUCT ISSUER OR FINANCIAL ADVISOR ISSUERS, WILL VARY AND WILL LOWER THE
Inception (9/10/01) 6.57% FOR THE MOST RECENT MONTH-END VARIABLE TOTAL RETURN.
5 Years 6.44 PRODUCT PERFORMANCE. PERFORMANCE FIGURES
1 Year 12.94 REFLECT FUND EXPENSES, REINVESTED PER NASD REQUIREMENTS, THE MOST RECENT
=========================================== DISTRIBUTIONS AND CHANGES IN NET ASSET MONTH-END PERFORMANCE DATA AT THE FUND
VALUE. INVESTMENT RETURN AND PRINCIPAL VALUE LEVEL, EXCLUDING VARIABLE PRODUCT
CUMULATIVE TOTAL RETURNS WILL FLUCTUATE SO THAT YOU MAY HAVE A GAIN CHARGES, IS AVAILABLE ON THIS AIM
OR LOSS WHEN YOU SELL SHARES. AUTOMATED INFORMATION LINE, 866-702-4402.
6 months ended 12/31/06 AS MENTIONED ABOVE, FOR THE MOST RECENT
Series I Shares 12.12% AIM V.I. BASIC VALUE FUND, A SERIES MONTH-END PERFORMANCE INCLUDING VARIABLE
Series II Shares 11.94 PORTFOLIO OF AIM VARIABLE INSURANCE FUNDS, PRODUCT CHARGES, PLEASE CONTACT YOUR
IS CURRENTLY OFFERED THROUGH INSURANCE VARIABLE PRODUCT ISSUER OR FINANCIAL
COMPANIES ISSUING VARIABLE PRODUCTS. YOU ADVISOR.
CANNOT PURCHASE SHARES
====================================================================================================================================
PRINCIPAL RISKS OF INVESTING IN THE FUND Investing in a fund that invests in quently used as a general measure of U.S.
smaller companies involves risks not stock market performance.
Prices of equity securities change in associated with investing in more
response to many factors including the established companies, such as business In conjunction with the annual
historical and prospective earnings of the risk, stock price fluctuations and prospectus update on or about May 1,
issuer, the value of its assets, general illiquidity. 2007, the AIM V.I. Basic Value Fund
economic conditions, interest rates, prospectus will be amended to reflect
investor perceptions and market liquidity. ABOUT INDEXES USED IN THIS REPORT that the Fund has elected to use the
Lipper Variable Underlying Funds (VUF)
Foreign securities have additional The unmanaged LIPPER LARGE-CAP VALUE FUNDS Large-Cap Value Funds Index as its peer
risks, including exchange rate changes, INDEX represents an average of the group index rather than the Lipper
political and economic upheaval, the performance of the 30 largest large-capita Large-Cap Value Funds Index. The Lipper
relative lack of information about these lization value funds tracked by Lipper Inc., VUF Large-Cap Value Funds Index, recently
companies, relatively low market liquidity an independent mutual fund performance published by Lipper Inc., comprises the
and the potential lack of strict financial monitor. largest underlying funds in each variable
and accounting controls and standards. insurance category and does not include
The unmanaged RUSSELL 1000 VALUE INDEX is mortality and expense fees.
To the extent the Fund holds cash or a subset of the unmanaged RUSSELL 1000 --
cash equivalents rather than equity REGISTERED TRADEMARK-- Index, which The Fund is not managed to track the
securities for risk management purposes, represents the performance of the stocks of performance of any particular index,
the Fund may not achieve its investment large-capitalization companies; the Value including the indexes defined here, and
objective. subset measures the performance of Russell consequently, the performance of the Fund
1000 companies with lower price/book ratios may deviate significantly from the
If the seller of a repurchase agreement and lower forecasted growth values. The performance of the indexes.
in which the Fund invests defaults on its Russell 1000 Value Index and the Russell
obligation or declares bankruptcy, the 1000 Index are trademarks/service marks of A direct investment cannot be made in
Fund may experience delays in selling the the Frank Russell Company. Russell an index. Unless otherwise indicated,
securities underlying the repurchase --REGISTERED TRADEMARK-- is a trademark of index results include reinvested
agreement. the Frank Russell Company. dividends, and they do not reflect sales
charges. Performance of an index of funds
There is no guarantee that the The unmanaged STANDARD & POOR'S COMPOSITE reflects fund expenses; performance of a
investment techniques and risk analyses INDEX OF 500 STOCKS (the S&P 500 Index) is market index does not.
used by the Fund's portfolio managers will an index of common stocks fre-
produce the desired results.
Continued on page 5
4
AIM V.I. BASIC VALUE FUND
Past performance cannot guarantee each segment representing a percent change
comparable future results. in the value of the investment. In this
chart, each segment represents a doubling,
This chart, which is a logarithmic or 100% change, in the value of the
chart, presents the fluctuations in the investment. In other words, the space
value of the Fund and its indexes. We between $5,000 and $10,000 is the same size
believe that a logarithmic chart is more as the space between $10,000 and $20,000.
effective than other types of charts in
illustrating changes in value during the
early years shown in the chart. The
vertical axis, the one that indicates the
dollar value of an investment, is
constructed with
====================================================================================================================================
Continued from page 4
OTHER INFORMATION Industry classifications used in this
report are generally according to the Global
The returns shown in the management's Industry Classification Standard, which was
discussion of Fund performance are based developed by and is the exclusive property
on net asset values calculated for and a service mark of Morgan Stanley Capital
shareholder transactions. Generally International Inc. and Standard & Poor's.
accepted accounting principles require
adjustments to be made to the net assets The Chartered Financial Analyst
of the Fund at period end for financial --REGISTERED TRADEMARK-- (CFA --REGISTERED
reporting purposes, and as such, the net TRADEMARK--) designation is a globally
asset values for shareholder transactions recognized standard for measuring the
and the returns based on those net asset competence and integrity of investment
values may differ from the net asset professionals.
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.
5
===================================================================================================================================
[MOUNTAIN CHART]
RESULTS OF A $10,000 INVESTMENT
Index data from 8/31/01,Fund data from 09/10/01
AIM V.I. Basic Value Fund AIM V.I. Basic Value Fund Lipper Large-Cap Value
Date -Series I Shares -Series II Shares S&P 500 Index Russell 1000 Value Index Funds Index
- ----------------------------------------------------------------------------------------------------------------------------------
8/31/01 $ 10000 $ 10000 $ 10000
9/01 $ 9210 $ 9210 9193 9296 9220
10/01 9270 9270 9368 9216 9280
11/01 9950 9950 10086 9752 9875
12/01 10263 10258 10175 9982 10024
1/02 10183 10178 10026 9905 9839
2/02 9992 9987 9833 9921 9784
3/02 10723 10717 10203 10390 10216
4/02 10342 10337 9585 10034 9781
5/02 10292 10287 9514 10084 9794
6/02 9281 9267 8837 9505 9111
7/02 8289 8276 8148 8621 8324
8/02 8430 8426 8201 8687 8380
9/02 7418 7406 7311 7721 7411
10/02 7888 7876 7954 8293 7955
11/02 8509 8497 8421 8815 8454
12/02 7988 7966 7927 8432 8051
1/03 7808 7786 7720 8228 7860
2/03 7528 7506 7604 8009 7663
3/03 7497 7476 7677 8022 7658
4/03 8168 8147 8309 8728 8305
5/03 9008 8978 8747 9292 8816
6/03 9038 9007 8858 9408 8917
7/03 9308 9277 9015 9548 9041
8/03 9628 9597 9190 9697 9194
9/03 9428 9397 9093 9602 9090
10/03 9898 9857 9607 10190 9592
11/03 10089 10048 9691 10328 9710
12/03 10673 10618 10199 10964 10306
1/04 10833 10779 10387 11157 10462
2/04 11053 10998 10531 11396 10682
3/04 11013 10959 10372 11297 10555
4/04 10863 10799 10209 11021 10360
5/04 10963 10899 10349 11133 10436
6/04 11234 11170 10550 11396 10665
7/04 10623 10559 10201 11235 10409
8/04 10553 10489 10242 11395 10484
9/04 10682 10610 10353 11572 10608
10/04 10873 10799 10511 11764 10721
11/04 11443 11370 10936 12359 11187
12/04 11854 11770 11308 12773 11542
1/05 11644 11559 11033 12546 11318
2/05 11895 11800 11265 12962 11636
3/05 11675 11579 11066 12784 11446
4/05 11404 11309 10856 12555 11220
5/05 11624 11530 11201 12857 11482
6/05 11834 11740 11217 12998 11599
7/05 12225 12120 11634 13374 11977
8/05 12034 11930 11528 13316 11925
9/05 12145 12039 11621 13503 12040
10/05 11834 11719 11427 13160 11789
11/05 12294 12180 11859 13593 12194
12/05 12534 12409 11863 13674 12264
1/06 12980 12854 12177 14205 12622
2/06 12919 12794 12210 14292 12645
3/06 13162 13027 12362 14485 12805
4/06 13244 13107 12528 14853 13123
5/06 12788 12651 12168 14478 12802
6/06 12656 12520 12184 14571 12812
7/06 12616 12480 12259 14925 13008
8/06 12829 12692 12551 15175 13247
9/06 13164 13015 12874 15477 13556
10/06 13589 13431 13293 15984 13959
11/06 13792 13633 13545 16349 14200
12/06 14194 14014 13735 16716 14507
===================================================================================================================================
Source: Lipper Inc.
AIM V.I. BASIC VALUE FUND
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE ACTUAL EXPENSES Fund's actual return. The Fund's actual
cumulative total returns at net asset
As a shareholder of the Fund, you incur The table below provides information about value after expenses for the six months
ongoing costs, including management fees; actual account values and actual expenses. ended December 31, 2006, appear in the
distribution and/or service (12b-1) fees; You may use the information in this table, table "Cumulative Total Returns" on page
and other Fund expenses. This example is together with the amount you invested, to 4.
intended to help you understand your estimate the expenses that you paid over the
ongoing costs (in dollars) of investing in period. Simply divide your account value by The hypothetical account values and
the Fund and to compare these costs with $1,000 (for example, an $8,600 account value expenses may not be used to estimate the
ongoing costs of investing in other mutual divided by $1,000 = 8.6), then multiply the actual ending account balance or expenses
funds. The example is based on an result by the number in the table under the you paid for the period. You may use this
investment of $1,000 invested at the heading entitled "Actual Expenses Paid information to compare the ongoing costs
beginning of the period and held for the During Period" to estimate the expenses you of investing in the Fund and other funds.
entire period July 1, 2006, through paid on your account during this period. To do so, compare this 5% hypothetical
December 31, 2006. example with the 5% hypothetical examples
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES that appear in the shareholder reports of
The actual and hypothetical expenses in the other funds.
the examples below do not represent the The table below also provides information
effect of any fees or other expenses about hypothetical account values and Please note that the expenses shown in
assessed in connection with a variable hypothetical expenses based on the Fund's the table are meant to highlight your
product; if they did, the expenses shown actual expense ratio and an assumed rate of ongoing costs. Therefore, the
would be higher while the ending account return of 5% per year before expenses, which hypothetical information is useful in
values shown would be lower. is not the comparing ongoing costs, and will not
help you determine the relative total
costs of owning different funds.
====================================================================================================================================
HYPOTHETICAL
ACTUAL (5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (7/1/06) (12/31/06)(1) PERIOD(2) (12/31/06) PERIOD(2) RATIO
- -----------------------------------------------------------------------------------------------------------------------------------
Series I $1,000.00 $1,121.20 $5.19 $1,020.32 $4.94 0.97%
Series II 1,000.00 1,119.40 6.52 1,019.06 6.21 1.22
====================================================================================================================================
(1) The actual ending account value is based on the actual total return of the
Fund for the period July 1, 2006, through December 31, 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 December 31, 2006, appear in
the table "Cumulative Total Returns" on page 4.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above
multiplied by the average account value over the period, multiplied by
184/365 to reflect the most recent fiscal half year.
6
AIM V.I. BASIC VALUE FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
The Board of Trustees of AIM Variable - The nature and extent of the advisory Fund's Senior Officer (discussed below)
Insurance Funds (the "Board") oversees the services to be provided by AIM. The Board only considered Fund performance through
management of AIM V.I. Basic Value Fund reviewed the services to be provided by AIM the most recent calendar year, the Board
(the "Fund") and, as required by law, under the Advisory Agreement. Based on such also reviewed more recent Fund
determines annually whether to approve the review, the Board concluded that the range performance, which did not change their
continuance of the Fund's advisory of services to be provided by AIM under the conclusions.
agreement with A I M Advisors, Inc. Advisory Agreement was appropriate and that
("AIM"). Based upon the recommendation of AIM currently is providing services in - Meetings with the Fund's portfolio
the Investments Committee of the Board, at accordance with the terms of the Advisory managers and investment personnel. With
a meeting held on June 27, 2006, the Agreement. respect to the Fund, the Board is meeting
Board, including all of the independent periodically with such Fund's portfolio
trustees, approved the continuance of the - The quality of services to be provided by managers and/or other investment
advisory agreement (the "Advisory AIM. The Board reviewed the credentials and personnel and believes that such
Agreement") between the Fund and AIM for experience of the officers and employees of individuals are competent and able to
another year, effective July 1, 2006. AIM who will provide investment advisory continue to carry out their
services to the Fund. In reviewing the responsibilities under the Advisory
The Board considered the factors qualifications of AIM to provide investment Agreement.
discussed below in evaluating the fairness advisory services, the Board considered such
and reasonableness of the Advisory issues as AIM's portfolio and product review - Overall performance of AIM. The Board
Agreement at the meeting on June 27, 2006 process, various back office support considered the overall performance of AIM
and as part of the Board's ongoing functions provided by AIM and AIM's equity in providing investment advisory and
oversight of the Fund. In their and fixed income trading operations. Based portfolio administrative services to the
deliberations, the Board and the on the review of these and other factors, Fund and concluded that such performance
independent trustees did not identify any the Board concluded that the quality of was satisfactory.
particular factor that was controlling, services to be provided by AIM was
and each trustee attributed different appropriate and that AIM currently is - Fees relative to those of clients of
weights to the various factors. providing satisfactory services in AIM with comparable investment
accordance with the terms of the Advisory strategies. The Board reviewed the
One responsibility of the independent Agreement. effective advisory fee rate (before
Senior Officer of the Fund is to manage waivers) for the Fund under the Advisory
the process by which the Fund's proposed - The performance of the Fund relative to Agreement. The Board noted that this rate
management fees are negotiated to ensure comparable funds. The Board reviewed the was (i) above the effective advisory fee
that they are negotiated in a manner which performance of the Fund during the past one rates (before waivers) for three mutual
is at arms' length and reasonable. To that and three calendar years against the funds advised by AIM with investment
end, the Senior Officer must either performance of funds advised by other strategies comparable to those of the
supervise a competitive bidding process or advisors with investment strategies Fund; (ii) above the effective
prepare an independent written evaluation. comparable to those of the Fund. The Board sub-advisory fee rate for one offshore
The Senior Officer has recommended an noted that the Fund's performance in such fund advised and sub-advised by AIM
independent written evaluation in lieu of periods was above the median performance of affiliates with investment strategies
a competitive bidding process and, upon such comparable funds. Based on this review comparable to those of the Fund, although
the direction of the Board, has prepared and after taking account of all of the other the total advisory fees for such offshore
such an independent written evaluation. factors that the Board considered in fund were above those for the Fund; (iii)
Such written evaluation also considered determining whether to continue the Advisory above the effective sub-advisory fee rate
certain of the factors discussed below. In Agreement for the Fund, the Board concluded for one variable insurance fund
addition, as discussed below, the Senior that no changes should be made to the Fund sub-advised by an AIM affiliate and
Officer made a recommendation to the Board and that it was not necessary to change the offered to insurance company separate
in connection with such written Fund's portfolio management team at this accounts with investment strategies
evaluation. time. Although the independent written comparable to those of the Fund, although
evaluation of the Fund's Senior Officer the total advisory fees for such variable
The discussion below serves as a (discussed below) only considered Fund insurance fund were above those for the
summary of the Senior Officer's performance through the most recent calendar Fund; and (iv) comparable to or below the
independent written evaluation and year, the Board also reviewed more recent total advisory fee rates for three
recommendation to the Board in connection Fund performance, which did not change their separately managed accounts/wrap accounts
therewith, as well as a discussion of the conclusions. managed by an AIM affiliate with
material factors and the conclusions with investment strategies comparable to those
respect thereto that formed the basis for - The performance of the Fund relative to of the Fund and above the total advisory
the Board's approval of the Advisory indices. The Board reviewed the performance fee rates for 39 separately managed
Agreement. After consideration of all of of the Fund during the past one and three accounts/wrap accounts managed by an AIM
the factors below and based on its calendar years against the performance of affiliate with investment strategies
informed business judgment, the Board the Lipper Variable Underlying Fund comparable to those of the Fund. The
determined that the Advisory Agreement is Large-Cap Value Index. The Board noted that Board noted that AIM has agreed to waive
in the best interests of the Fund and its the Fund's performance in such periods was advisory fees of the Fund and to limit
shareholders and that the compensation to comparable to the performance of such Index. the Fund's total operating expenses, as
AIM under the Advisory Agreement is fair Based on this review and after taking discussed below. Based on this review,
and reasonable and would have been account of all of the other factors that the the Board concluded that the advisory fee
obtained through arm's length Board considered in determining whether to rate for the Fund under the Advisory
negotiations. continue the Advisory Agreement for the Agreement was fair and reasonable.
Fund, the Board concluded that no changes
Unless otherwise stated, information should be made to the Fund and that it was - Fees relative to those of comparable
presented below is as of June 27, 2006 and not necessary to change the Fund's portfolio funds with other advisors. The Board
does not reflect any changes that may have management team at this time. Although the reviewed the advisory fee rate for the
occurred since June 27, 2006, including independent written evaluation of the Fund under the Advisory Agreement. The
but not limited to changes to the Fund's Board compared effective contractual
performance, advisory fees, expense advisory fee rates at a common asset
limitations and/or fee waivers. level at the end of the past calendar
year and noted that the Fund's rate was
comparable to the median rate of the
funds advised by other advisors
(continued)
7
AIM V.I. BASIC VALUE FUND
with investment strategies comparable to exemptive order. The Board found that the - Benefits of soft dollars to AIM. The
those of the Fund that the Board reviewed. Fund may realize certain benefits upon Board considered the benefits realized by
The Board noted that AIM has agreed to investing cash balances in AIM advised money AIM as a result of brokerage transactions
waive advisory fees of the Fund and to market funds, including a higher net return, executed through "soft dollar"
limit the Fund's total operating expenses, increased liquidity, increased arrangements. Under these arrangements,
as discussed below. Based on this review, diversification or decreased transaction brokerage commissions paid by the Fund
the Board concluded that the advisory fee costs. The Board also found that the Fund and/or other funds advised by AIM are
rate for the Fund under the Advisory will not receive reduced services if it used to pay for research and execution
Agreement was fair and reasonable. invests its cash balances in such money services. This research may be used by
market funds. The Board noted that, to the AIM in making investment decisions for
- - Expense limitations and fee waivers. The extent the Fund invests uninvested cash in the Fund. The Board concluded that such
Board noted that AIM has contractually affiliated money market funds, AIM has arrangements were appropriate.
agreed to waive advisory fees of the Fund voluntarily agreed to waive a portion of the
through December 31, 2009 to the extent advisory fees it receives from the Fund - AIM's financial soundness in light of
necessary so that the advisory fees attributable to such investment. The Board the Fund's needs. The Board considered
payable by the Fund do not exceed a further determined that the proposed whether AIM is financially sound and has
specified maximum advisory fee rate, which securities lending program and related the resources necessary to perform its
maximum rate includes breakpoints and is procedures with respect to the lending Fund obligations under the Advisory Agreement,
based on net asset levels. The Board is in the best interests of the lending Fund and concluded that AIM has the financial
considered the contractual nature of this and its respective shareholders. The Board resources necessary to fulfill its
fee waiver and noted that it remains in therefore concluded that the investment of obligations under the Advisory Agreement.
effect until December 31, 2009. The Board cash collateral received in connection with
also noted that AIM has contractually the securities lending program in the money - Historical relationship between the
agreed to waive fees and/or limit expenses market funds according to the procedures is Fund and AIM. In determining whether to
of the Fund through April 30, 2008 so that in the best interests of the lending Fund continue the Advisory Agreement for the
total annual operating expenses are and its respective shareholders. Fund, the Board also considered the prior
limited to a specified percentage of relationship between AIM and the Fund, as
average daily net assets for each class of - Independent written evaluation and well as the Board's knowledge of AIM's
the Fund. The Board considered the recommendations of the Fund's Senior operations, and concluded that it was
contractual nature of this fee waiver and Officer. The Board noted that, upon their beneficial to maintain the current
noted that it remains in effect until direction, the Senior Officer of the Fund, relationship, in part, because of such
April 30, 2008. The Board considered the who is independent of AIM and AIM's knowledge. The Board also reviewed the
effect these fee waivers/expense affiliates, had prepared an independent general nature of the non-investment
limitations would have on the Fund's written evaluation in order to assist the advisory services currently performed by
estimated expenses and concluded that the Board in determining the reasonableness of AIM and its affiliates, such as
levels of fee waivers/expense limitations the proposed management fees of the AIM administrative, transfer agency and
for the Fund were fair and reasonable. Funds, including the Fund. The Board noted distribution services, and the fees
that the Senior Officer's written evaluation received by AIM and its affiliates for
- - Breakpoints and economies of scale. The had been relied upon by the Board in this performing such services. In addition to
Board reviewed the structure of the Fund's regard in lieu of a competitive bidding reviewing such services, the trustees
advisory fee under the Advisory Agreement, process. In determining whether to continue also considered the organizational
noting that it includes three breakpoints. the Advisory Agreement for the Fund, the structure employed by AIM and its
The Board reviewed the level of the Fund's Board considered the Senior Officer's affiliates to provide those services.
advisory fees, and noted that such fees, written evaluation and the recommendation Based on the review of these and other
as a percentage of the Fund's net assets, made by the Senior Officer to the Board that factors, the Board concluded that AIM and
have decreased as net assets increased the Board consider whether the advisory fee its affiliates were qualified to continue
because the Advisory Agreement includes waivers for certain equity AIM Funds, to provide non-investment advisory
breakpoints. The Board noted that, due to including the Fund, should be simplified. services to the Fund, including
the Fund's asset levels at the end of the The Board concluded that it would be administrative, transfer agency and
past calendar year and the way in which advisable to consider this issue and reach a distribution services, and that AIM and
the advisory fee breakpoints have been decision prior to the expiration date of its affiliates currently are providing
structured, the Fund has yet to fully such advisory fee waivers. satisfactory non-investment advisory
benefit from the breakpoints. The Board services.
noted that AIM has contractually agreed to - Profitability of AIM and its affiliates.
waive advisory fees of the Fund through The Board reviewed information concerning - Other factors and current trends. The
December 31, 2009 to the extent necessary the profitability of AIM's (and its Board considered the steps that AIM and
so that the advisory fees payable by the affiliates') investment advisory and other its affiliates have taken over the last
Fund do not exceed a specified maximum activities and its financial condition. The several years, and continue to take, in
advisory fee rate, which maximum rate Board considered the overall profitability order to improve the quality and
includes breakpoints and is based on net of AIM, as well as the profitability of AIM efficiency of the services they provide
asset levels. The Board concluded that the in connection with managing the Fund. The to the Funds in the areas of investment
Fund's fee levels under the Advisory Board noted that AIM's operations remain performance, product line
Agreement therefore reflect economies of profitable, although increased expenses in diversification, distribution, fund
scale and that it was not necessary to recent years have reduced AIM's operations, shareholder services and
change the advisory fee breakpoints in the profitability. Based on the review of the compliance. The Board concluded that
Fund's advisory fee schedule. profitability of AIM's and its affiliates' these steps taken by AIM have improved,
investment advisory and other activities and and are likely to continue to improve,
- - Investments in affiliated money market its financial condition, the Board concluded the quality and efficiency of the
funds. The Board also took into account that the compensation to be paid by the Fund services AIM and its affiliates provide
the fact that uninvested cash and cash to AIM under its Advisory Agreement was not to the Fund in each of these areas, and
collateral from securities lending excessive. support the Board's approval of the
arrangements, if any (collectively, "cash continuance of the Advisory Agreement for
balances") of the Fund may be invested in the Fund.
money market funds advised by AIM pursuant
to the terms of an SEC
8
AIM V.I. Basic Value Fund
SCHEDULE OF INVESTMENTS
December 31, 2006
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-98.95%
ADVERTISING-6.21%
Interpublic Group of Cos., Inc. (The)(a) 2,167,752 $ 26,533,284
- -----------------------------------------------------------------------
Omnicom Group Inc. 238,670 24,950,562
=======================================================================
51,483,846
=======================================================================
APPAREL RETAIL-2.01%
Gap, Inc. (The) 853,480 16,642,860
=======================================================================
ASSET MANAGEMENT & CUSTODY BANKS-2.03%
Bank of New York Co., Inc. (The) 426,976 16,810,045
=======================================================================
BREWERS-2.17%
Molson Coors Brewing Co.-Class B 235,096 17,970,738
=======================================================================
BUILDING PRODUCTS-2.52%
American Standard Cos. Inc. 455,493 20,884,354
=======================================================================
COMPUTER HARDWARE-2.80%
Dell Inc.(a) 926,106 23,236,000
=======================================================================
CONSTRUCTION MATERIALS-3.22%
Cemex S.A. de C.V.-ADR (Mexico)(a) 787,079 26,666,237
=======================================================================
CONSUMER ELECTRONICS-1.03%
Koninklijke (Royal) Philips Electronics
N.V.-New York Shares (Netherlands) 227,109 8,534,756
=======================================================================
DATA PROCESSING & OUTSOURCED SERVICES-4.59%
First Data Corp. 920,025 23,479,038
- -----------------------------------------------------------------------
Western Union Co. 648,950 14,549,459
=======================================================================
38,028,497
=======================================================================
ENVIRONMENTAL & FACILITIES SERVICES-2.58%
Waste Management, Inc. 582,781 21,428,857
=======================================================================
FOOD RETAIL-1.70%
Kroger Co. (The) 320,341 7,390,267
- -----------------------------------------------------------------------
Safeway Inc. 194,560 6,723,994
=======================================================================
14,114,261
=======================================================================
GENERAL MERCHANDISE STORES-2.82%
Target Corp. 410,496 23,418,797
=======================================================================
HEALTH CARE DISTRIBUTORS-4.08%
Cardinal Health, Inc. 465,533 29,994,291
- -----------------------------------------------------------------------
McKesson Corp. 74,941 3,799,509
=======================================================================
33,793,800
=======================================================================
HOME IMPROVEMENT RETAIL-1.63%
Home Depot, Inc. (The) 335,651 13,479,744
=======================================================================
</Table>
<Table>
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
INDUSTRIAL CONGLOMERATES-6.61%
General Electric Co. 575,129 $ 21,400,550
- -----------------------------------------------------------------------
Tyco International Ltd. 1,097,050 33,350,320
=======================================================================
54,750,870
=======================================================================
INSURANCE BROKERS-0.56%
Marsh & McLennan Cos., Inc. 152,100 4,663,386
=======================================================================
INVESTMENT BANKING & BROKERAGE-5.50%
Merrill Lynch & Co., Inc. 245,573 22,862,846
- -----------------------------------------------------------------------
Morgan Stanley 279,121 22,728,823
=======================================================================
45,591,669
=======================================================================
LIFE SCIENCES TOOLS & SERVICES-2.21%
Waters Corp.(a) 374,945 18,361,057
=======================================================================
MANAGED HEALTH CARE-4.18%
UnitedHealth Group Inc. 644,970 34,654,238
=======================================================================
MOVIES & ENTERTAINMENT-2.50%
Walt Disney Co. (The) 605,015 20,733,864
=======================================================================
MULTI-LINE INSURANCE-0.94%
Genworth Financial Inc.-Class A 227,502 7,782,843
=======================================================================
OIL & GAS DRILLING-2.86%
Transocean Inc.(a) 292,738 23,679,577
=======================================================================
OIL & GAS EQUIPMENT & SERVICES-4.26%
Halliburton Co. 607,075 18,849,679
- -----------------------------------------------------------------------
Weatherford International Ltd.(a) 393,880 16,460,245
=======================================================================
35,309,924
=======================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-6.67%
Citigroup Inc. 437,997 24,396,433
- -----------------------------------------------------------------------
JPMorgan Chase & Co. 639,657 30,895,433
=======================================================================
55,291,866
=======================================================================
PACKAGED FOODS & MEATS-1.70%
Unilever N.V. (Netherlands)(b) 515,587 14,084,156
=======================================================================
PHARMACEUTICALS-7.55%
Pfizer Inc. 721,082 18,676,024
- -----------------------------------------------------------------------
Sanofi-Aventis (France)(b) 237,064 21,832,963
- -----------------------------------------------------------------------
Wyeth 432,945 22,045,559
=======================================================================
62,554,546
=======================================================================
PROPERTY & CASUALTY INSURANCE-2.37%
ACE Ltd. 324,516 19,655,934
=======================================================================
REAL ESTATE MANAGEMENT & DEVELOPMENT-0.85%
Realogy Corp.(a) 232,395 7,046,216
=======================================================================
</Table>
AIM V.I. Basic Value Fund
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
SEMICONDUCTOR EQUIPMENT-1.79%
Novellus Systems, Inc.(a) 431,501 $ 14,852,265
=======================================================================
SPECIALIZED CONSUMER SERVICES-1.18%
H&R Block, Inc. 424,800 9,787,392
=======================================================================
SYSTEMS SOFTWARE-4.35%
CA Inc. 1,001,964 22,694,485
- -----------------------------------------------------------------------
Microsoft Corp. 446,613 13,335,864
=======================================================================
36,030,349
=======================================================================
</Table>
<Table>
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
THRIFTS & MORTGAGE FINANCE-3.48%
Fannie Mae 485,345 $ 28,824,640
=======================================================================
Total Common Stocks & Other Equity
Interests (Cost $587,386,627) 820,147,584
=======================================================================
MONEY MARKET FUNDS-1.59%
Liquid Assets Portfolio-Institutional
Class(c) 6,586,888 6,586,888
- -----------------------------------------------------------------------
Premier Portfolio-Institutional Class(c) 6,586,888 6,586,888
=======================================================================
Total Money Market Funds (Cost
$13,173,776) 13,173,776
=======================================================================
TOTAL INVESTMENTS-100.54% (Cost $600,560,403) 833,321,360
=======================================================================
OTHER ASSETS LESS LIABILITIES-(0.54)% (4,511,978)
=======================================================================
NET ASSETS-100.00% $828,809,382
_______________________________________________________________________
=======================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) In accordance with the procedures established by the Board of Trustees, the
foreign security is fair valued using adjusted closing market prices. The
aggregate value of these securities at December 31, 2006 was $35,917,119,
which represented 4.33% of the Fund's Net Assets. See Note 1A.
(c) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. Basic Value Fund
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2006
<Table>
ASSETS:
Investments, at value (cost $587,386,627) $820,147,584
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $13,173,776) 13,173,776
- -------------------------------------------------------------
Total investments (cost $600,560,403) 833,321,360
- -------------------------------------------------------------
Foreign currencies, at value (cost $30,932) 31,185
- -------------------------------------------------------------
Receivables for:
Fund shares sold 369,918
- -------------------------------------------------------------
Dividends 929,688
- -------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 20,163
=============================================================
Total assets 834,672,314
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 4,364,083
- -------------------------------------------------------------
Fund shares reacquired 574,307
- -------------------------------------------------------------
Trustee deferred compensation and retirement
plans 58,357
- -------------------------------------------------------------
Accrued administrative services fees 594,907
- -------------------------------------------------------------
Accrued distribution fees -- Series II 211,628
- -------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 5,587
- -------------------------------------------------------------
Accrued transfer agent fees 7,176
- -------------------------------------------------------------
Accrued operating expenses 46,887
=============================================================
Total liabilities 5,862,932
=============================================================
Net assets applicable to shares outstanding $828,809,382
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $554,432,588
- -------------------------------------------------------------
Undistributed net investment income 3,491,769
- -------------------------------------------------------------
Undistributed net realized gain from investment
securities and foreign currencies 38,122,717
- -------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 232,762,308
=============================================================
$828,809,382
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $489,351,956
_____________________________________________________________
=============================================================
Series II $339,457,426
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 36,642,765
_____________________________________________________________
=============================================================
Series II 25,642,540
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 13.35
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 13.24
_____________________________________________________________
=============================================================
</Table>
STATEMENT OF OPERATIONS
For the year ended December 31, 2006
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of
$202,862) $ 11,563,595
- -------------------------------------------------------------
Dividends from affiliated money market funds 843,504
=============================================================
Total investment income 12,407,099
=============================================================
EXPENSES:
Advisory fees 5,871,702
- -------------------------------------------------------------
Administrative services fees 2,219,812
- -------------------------------------------------------------
Custodian fees 93,321
- -------------------------------------------------------------
Distribution fees -- Series II 851,531
- -------------------------------------------------------------
Transfer agent fees 42,976
- -------------------------------------------------------------
Trustees' and officer's fees and benefits 39,078
- -------------------------------------------------------------
Other 123,330
=============================================================
Total expenses 9,241,750
=============================================================
Less: Fees waived and expense offset
arrangements (402,057)
=============================================================
Net expenses 8,839,693
=============================================================
Net investment income 3,567,406
=============================================================
REALIZED AND UNREALIZED GAIN FROM INVESTMENT
SECURITIES AND FOREIGN CURRENCIES:
Net realized gain from:
Investment securities (includes net gains
from securities sold to affiliates of
$212,589) 40,013,801
- -------------------------------------------------------------
Foreign currencies 20,938
=============================================================
40,034,739
=============================================================
Change in net unrealized appreciation of:
Investment securities 57,600,955
- -------------------------------------------------------------
Foreign currencies 1,119
=============================================================
57,602,074
=============================================================
Net gain from investment securities and foreign
currencies 97,636,813
=============================================================
Net increase in net assets resulting from
operations $101,204,219
_____________________________________________________________
=============================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. Basic Value Fund
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2006 and 2005
<Table>
<Caption>
2006 2005
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 3,567,406 $ 2,343,966
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 40,034,739 34,203,699
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities and foreign currencies 57,602,074 9,606,598
==========================================================================================
Net increase in net assets resulting from operations 101,204,219 46,154,263
==========================================================================================
Distributions to shareholders from net investment income:
Series I (1,857,288) (426,072)
- ------------------------------------------------------------------------------------------
Series ll (415,065) --
==========================================================================================
Total distributions from net investment income (2,272,353) --
==========================================================================================
Distributions to shareholders from net realized gains:
Series l (20,535,697) (5,437,294)
- ------------------------------------------------------------------------------------------
Series ll (14,423,526) (4,139,818)
==========================================================================================
Total distributions from net realized gains (34,959,223) (9,577,112)
==========================================================================================
Decrease in net assets resulting from distributions (37,231,576) (10,003,184)
==========================================================================================
Share transactions-net:
Series l (34,896,912) (30,575,554)
- ------------------------------------------------------------------------------------------
Series ll (50,991,677) (5,292,288)
==========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (85,888,589) (35,867,842)
==========================================================================================
Net increase (decrease) in net assets (21,915,946) 283,237
==========================================================================================
NET ASSETS:
Beginning of year 850,725,328 850,442,091
==========================================================================================
End of year (including undistributed net investment income
of $3,491,769 and $2,175,778, respectively) $828,809,382 $850,725,328
__________________________________________________________________________________________
==========================================================================================
</Table>
NOTES TO FINANCIAL STATEMENTS
December 31, 2006
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-one 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.
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 or official closing price as of the close of
the customary trading session on the exchange where the security is
principally traded, or lacking any sales or official closing price on a
particular day, the security may be valued at the closing bid price on that
day. Securities traded in the over-the-counter market 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. 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").
AIM V.I. Basic Value Fund
Investments in open-end 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 open-end and closed-end registered
investment companies that trade on an exchange are valued at the last sales
price or official closing price as of the close of the customary trading
session on the exchange where the security is principally traded.
Debt obligations (including convertible bonds) and unlisted equities 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.
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. If market quotations are available and reliable for
foreign exchange traded equity securities, the securities will be valued at
the market quotations. Because trading hours for certain foreign securities
end before the close of the NYSE, closing market quotations may become
unreliable. If between the time trading ends on a particular security and
the close of the customary trading session on the NYSE, events occur that
are significant and may make the closing price unreliable, the Fund may
fair value the security. 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 prices are not provided by any of the above
methods may be valued based upon quotes furnished by independent sources
and are valued at the last bid price in the case of equity securities and
in the case of debt obligations, the mean between the last bid and asked
prices.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
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 the 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 to distribute substantially all of the
Fund's taxable earnings to shareholders. As such, the Fund will not be
subject to federal income taxes on otherwise taxable income (including net
realized capital gain) that 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. ACCOUNTING ESTIMATES -- 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.
H. INDEMNIFICATIONS -- 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
AIM V.I. Basic Value Fund
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.
I. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in
foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from (i) sales
of foreign currencies, (ii) currency gains or losses realized between the
trade and settlement dates on securities transactions, and (iii) the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
The Fund may invest in foreign securities which may be subject to foreign
taxes on income, gains on investments or currency repatriation, a portion
of which may be recoverable. Taxes are accrued based on the Fund's current
interpretation of tax regulations and rates that exist in the foreign
markets in which the Fund invests.
J. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security.
Fluctuations in the value of these contracts are recorded as unrealized
appreciation (depreciation) until the contracts are closed. When these
contracts are closed, realized gains (losses) are recorded. Realized and
unrealized gains and losses on these contracts are included in the
Statement of Operations. The Fund could be exposed to risk, which may be in
excess of the amount reflected in the Statement of Assets and Liabilities,
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 at least 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. In addition, the Fund may also benefit from a one time credit
AIM V.I. Basic Value Fund
to be used to offset future custodian expenses. These credits are used to pay
certain expenses incurred by the Fund. AIM did not waive fees and/or reimburse
expenses during the period under this expense limitation.
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in
the amount of 25% of the advisory fee AIM receives from the affiliated money
market funds on investments by the Fund in such affiliated money market funds.
Voluntary fee waivers or reimbursements may be modified or discontinued at any
time upon consultation with the Board of Trustees without further notice to
investors.
For the year ended December 31, 2006, AIM waived advisory fees of $393,306.
At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the year ended December 31, 2006, AMVESCAP did not
reimburse any such expenses.
The Trust has entered into a master administrative services agreement with
AIM pursuant to which the Fund 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. The
Fund may reimburse AIM for up to 0.25% of average daily assets invested by each
insurance company providing administrative services to the Fund. Pursuant to
such agreement, for the year ended December 31, 2006, AIM was paid $198,820 for
accounting and fund administrative services and reimbursed $2,020,992 for
services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with AIM
Investment Services, Inc. ("AIS") pursuant to which the Fund has agreed to pay
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 year ended December 31, 2006, expenses incurred under the
agreement are shown in the Statement of Operations as transfer agent fees.
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 Plan payments, 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. For the year ended December 31, 2006, expenses
incurred under the Plan are shown in the Statement of Operations as distribution
fees.
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 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 year ended December 31, 2006.
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/05 AT COST FROM SALES (DEPRECIATION) 12/31/06 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-Institutional
Class $3,971,140 $ 97,595,667 $ (94,979,919) $ -- $ 6,586,888 $421,482 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
Premier
Portfolio-Institutional
Class -- 54,638,652 (48,051,764) -- 6,586,888 235,297 --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-Institutional
Class 3,971,140 62,646,682 (66,617,822) -- -- 186,725 --
==================================================================================================================================
Total
Investments
in
Affiliates $7,942,280 $214,881,001 $(209,649,505) $ -- $13,173,776 $843,504 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</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 year ended December 31, 2006, the Fund
engaged in securities sales of $1,290,319, which resulted in net realized gains
of $212,589, and securities purchases of $8,027,233.
NOTE 5--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) custodian credits which
result from periodic overnight cash balances at the custodian and (ii) a one
time custodian fee credit to be used to offset future custodian fees. For the
year ended December 31, 2006, the Fund received credits from these arrangements,
which resulted in the reduction of the Fund's total expenses of $8,751.
AIM V.I. Basic Value 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 year ended December 31, 2006, the Fund paid legal fees of $6,726
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended December 31, 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 bank 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 contractually agreed upon rate.
NOTE 8--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years December 31, 2006 and
2005 was as follows:
<Table>
<Caption>
2006 2005
- ----------------------------------------------------------------------------------------
Distributions paid from:
Ordinary income $ 4,476,018 $ 4,240,393
- ----------------------------------------------------------------------------------------
Long-term capital gain 32,755,558 5,762,791
========================================================================================
Total distributions $37,231,576 $10,003,184
________________________________________________________________________________________
========================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2006, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2006
- ----------------------------------------------------------------------------
Undistributed ordinary income $ 3,959,969
- ----------------------------------------------------------------------------
Undistributed long-term gain 40,654,668
- ----------------------------------------------------------------------------
Net unrealized appreciation -- investments 229,817,509
- ----------------------------------------------------------------------------
Temporary book/tax differences (55,352)
- ----------------------------------------------------------------------------
Shares of beneficial interest 554,432,588
============================================================================
Total net assets $828,809,382
____________________________________________________________________________
============================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales. The tax-basis net unrealized appreciation on investments amount
includes appreciation on foreign currencies of $1,351.
AIM V.I. Basic Value Fund
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan benefits.
The Fund does not have a capital loss carryforward as of December 31, 2006.
NOTE 9--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities,
U.S. Treasury obligations and money market funds, if any) purchased and sold by
the Fund during the year ended December 31, 2006 was $123,749,507 and
$232,339,862, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $237,587,516
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (7,771,358)
==============================================================================
Net unrealized appreciation of investment securities $229,816,158
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $603,505,202.
</Table>
NOTE 10-- RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions on December 31, 2006, undistributed net investment income was
increased by $20,938 and undistributed net realized gain was decreased by
$20,938. This reclassification had no effect on the net assets of the Fund.
NOTE 11--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- -------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
2006(A) 2005
---------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------------------------
Sold:
Series I 1,696,765 $ 21,715,334 8,650,711 $102,288,763
- -------------------------------------------------------------------------------------------------------------------------
Series II 7,249,058 88,895,732 5,591,052 65,583,748
=========================================================================================================================
Issued as reinvestment of dividends:
Series I 1,691,639 22,363,469 470,853 5,857,415
- -------------------------------------------------------------------------------------------------------------------------
Series II 1,131,836 14,838,368 335,752 4,139,818
=========================================================================================================================
Reacquired:
Series I (6,148,598) (78,975,715) (11,690,247) (138,721,732)
- -------------------------------------------------------------------------------------------------------------------------
Series II (12,371,865) (154,725,777) (6,368,816) (75,015,854)
=========================================================================================================================
(6,751,165) $ (85,888,589) (3,010,695) $(35,867,842)
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
(a) There are five entities that are each record owners of more than 5% of the
outstanding shares of the Fund and in aggregate they own 63% 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 for 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
currently intends for the Fund to adopt FIN 48 provisions during the fiscal year
ending December 31, 2007.
AIM V.I. Basic Value Fund
NOTE 13--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
----------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
2006 2005 2004 2003 2002
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.37 $ 11.84 $ 10.66 $ 7.98 $ 10.25
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.07(a) 0.05 0.02 0.00 0.02(a)
- ------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.54 0.63 1.16 2.68 (2.29)
========================================================================================================================
Total from investment operations 1.61 0.68 1.18 2.68 (2.27)
========================================================================================================================
Less distributions:
Dividends from net investment income (0.05) (0.01) -- (0.00) (0.00)
- ------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.58) (0.14) -- -- --
========================================================================================================================
Total distributions (0.63) (0.15) -- (0.00) (0.00)
========================================================================================================================
Net asset value, end of period $ 13.35 $ 12.37 $ 11.84 $ 10.66 $ 7.98
________________________________________________________________________________________________________________________
========================================================================================================================
Total return(b) 13.12% 5.74% 11.07% 33.63% (22.15)%
________________________________________________________________________________________________________________________
========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $489,352 $487,332 $496,837 $309,384 $97,916
________________________________________________________________________________________________________________________
========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.97%(c) 0.97% 1.02% 1.04% 1.16%
- ------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.02%(c) 1.02% 1.02% 1.04% 1.16%
========================================================================================================================
Ratio of net investment income to average net assets 0.54%(c) 0.38% 0.17% 0.01% 0.18%
________________________________________________________________________________________________________________________
========================================================================================================================
Portfolio turnover rate 15% 16% 14% 18% 22%
________________________________________________________________________________________________________________________
========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns do not reflect charges assessed
in connection with a variable product, which if included would reduce
total returns.
(c) Ratios are based on average daily net assets of $480,344,970.
<Table>
<Caption>
SERIES II
-----------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
2006 2005 2004 2003 2002
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.26 $ 11.76 $ 10.61 $ 7.96 $ 10.25
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.04(a) 0.02 (0.01) (0.02) (0.01)(a)
- -------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.54 0.62 1.16 2.67 (2.28)
=========================================================================================================================
Total from investment operations 1.58 0.64 1.15 2.65 (2.29)
=========================================================================================================================
Less distributions:
Dividends from net investment income (0.02) -- -- (0.00) (0.00)
- -------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.58) (0.14) -- -- --
=========================================================================================================================
Total distributions (0.60) (0.14) -- (0.00) (0.00)
=========================================================================================================================
Net asset value, end of period $ 13.24 $ 12.26 $ 11.76 $ 10.61 $ 7.96
_________________________________________________________________________________________________________________________
=========================================================================================================================
Total return(b) 12.94% 5.43% 10.84% 33.29% (22.34)%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $339,457 $363,393 $353,605 $253,877 $104,597
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.22%(c) 1.22% 1.27% 1.29% 1.41%
- -------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.27%(c) 1.27% 1.27% 1.29% 1.41%
=========================================================================================================================
Ratio of net investment income (loss) to average net assets 0.29%(c) 0.13% (0.08)% (0.24)% (0.07)%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Portfolio turnover rate 15% 16% 14% 18% 22%
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns do not reflect charges assessed
in connection with a variable product, which if included would reduce
total returns.
(c) Ratios are based on average daily net assets of $340,612,509.
AIM V.I. Basic Value 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. 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 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; 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. On September 15, 2006, the
MDL Court granted the AMVESCAP defendants' motion to dismiss the Amended Class
Action Complaint for Violations of ERISA and dismissed such Complaint. The
plaintiff has commenced an appeal from that decision.
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.
AIM V.I. Basic Value Fund
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V.I. Basic Value Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM V.I. Basic Value Fund (one of
the funds constituting AIM Variable Insurance Funds, hereafter referred to as
the "Fund") at December 31, 2006, the results of its operations for the year
then ended and the changes in its net assets and the financial highlights for
each of the two years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2006 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion. The financial highlights for each of the periods ended on or before
December 31, 2004 were audited by another independent registered public
accounting firm whose report dated February 4, 2005 expressed an unqualified
opinion on those statements.
PRICEWATERHOUSECOOPERS LLP
February 14, 2007
Houston, Texas
AIM V.I. Basic Value Fund
TAX INFORMATION
Form 1099-DIV, Form 1042-S and other year-end tax information provide
shareholders with actual calendar year amounts that should be included in their
tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the
Internal Revenue Code or to meet a specific state's requirement.
The Fund designates the following amounts or, if subsequently determined to be
different, the maximum amount allowable for its fiscal year ended December 31,
2006:
<Table>
FEDERAL AND STATE INCOME TAX
Long-Term Capital Gain Dividends $32,755,558
Corporate Dividends Received
Deduction* 100%
</Table>
* The above percentage is based on ordinary income dividends paid to
shareholders during the Fund's fiscal year.
AIM V.I. Basic Value Fund
TRUSTEES AND OFFICERS
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management None
Trustee and Vice Chair Group Inc. (financial services holding
company); Director and Vice Chairman,
AMVESCAP PLC; Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm) and
Trustee and Vice Chair of The AIM Family
of Funds--Registered Trademark--
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer);
Chief Executive Officer, AMVESCAP
PLC -- Managed Products; and President
and Principal Executive Officer of The
AIM Family of Funds--Registered
Trademark--
- -------------------------------------------------------------------------------------------------------------------------------
Philip A. Taylor(2) -- 1954 2006 Director, Chief Executive Officer and None
Trustee, President and President, A I M Management Group Inc.,
Principal AIM Mutual Fund Dealer Inc. (registered
Executive Officer broker dealer), AIM Funds Management
Inc. (registered investment advisor) and
1371 Preferred Inc. (holding company);
Director and President, A I M Advisors,
Inc., INVESCO Funds Group, Inc.
(registered investment advisor and
register transfer agent) and AIM GP
Canada Inc. (general partner for a
limited partnership); Director, A I M
Capital Management, Inc. and A I M
Distributors, Inc.; Director and
Chairman, AIM Investment Services, Inc.,
Fund Management Company and INVESCO
Distributors, Inc. (registered broker
dealer); Director, President and
Chairman, AVZ Callco Inc. (holding
company); AMVESCAP Inc. (holding
company) and AIM Canada Holdings Inc.
(holding company); Director and Chief
Executive Officer, AIM Trimark Corporate
Class Inc. (formerly AIM Trimark Global
Fund Inc.) (corporate mutual fund
company) and AIM Trimark Canada Fund
Inc. (corporate mutual fund company);
Trustee, President and Principal
Executive Officer of The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); Trustee and
Executive Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); and Manager,
Powershares Capital Management LLC
Formerly: President and Principal
Executive Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); Chairman, AIM
Canada Holdings, Inc.; Executive Vice
President and Chief Operations Officer,
AIM Funds Management Inc.; President,
AIM Trimark Global Fund Inc. and AIM
Trimark Canada Fund Inc.; and Director,
Trimark Trust (federally regulated
Canadian Trust Company)
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company
Formerly: Partner, law firm of Baker & (2 portfolios))
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Founder, Green, Manning & Bunch Ltd., None
Trustee (investment banking firm); and Director,
Policy Studies, Inc. and Van Gilder
Insurance Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and None
Trustee private business corporations, including
the Boss Group Ltd. (private investment
and management); Cortland Trust, Inc.
(Chairman) (registered investment
company (3 portfolios)); Annuity and
Life Re (Holdings), Ltd. (insurance
company); CompuDyne Corporation
(provider of products and services to
the public security market); and
Homeowners of America Holding
Corporation (property casualty company)
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and Director of various
affiliated Volvo companies; and
Director, Magellan Insurance Company
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund
company); and Owner, Dos Angelos Ranch, (non-profit)
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- -------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company
(3 portfolios))
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired Director, Mainstay VP Series
Trustee Formerly: Partner, Deloitte & Touche Funds, Inc. (21 portfolios)
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
(2) Mr. Taylor is considered an interested person of the Trust because he is an
officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
TRUSTEES AND OFFICERS--(CONTINUED)
AIM V.I. Basic Value Fund
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Senior Vice President and Senior Officer N/A
Senior Vice President and of The AIM Family of Funds--Registered
Senior Officer Trademark--
Formerly: Director of Compliance and
Assistant General Counsel, ICON
Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
John M. Zerr -- 1962 2006 Director, Senior Vice President, N/A
Senior Vice President, Chief Secretary and General Counsel, A I M
Legal Officer and Secretary Management Group Inc. and A I M
Advisors, Inc.; Director, Vice President
and Secretary, INVESCO Distributors,
Inc.; Vice President and Secretary,
A I M Capital Management, Inc., AIM
Investment Services, Inc., and Fund
Management Company; Senior Vice
President and Secretary, A I M
Distributors, Inc.; Director and Vice
President, INVESCO Funds Group Inc.;
Senior Vice President, Chief Legal
Officer and Secretary of The AIM Family
of Funds--Registered Trademark--; and
Manager, Powershares Capital Management
LLC
Formerly: Chief Operating Officer,
Senior Vice President, General Counsel,
and Secretary, Liberty Ridge Capital,
Inc. (an investment adviser); Vice
President and Secretary, PBHG Funds (an
investment company); Vice President and
Secretary, PBHG Insurance Series Fund
(an investment company); General Counsel
and Secretary, Pilgrim Baxter Value
Investors (an investment adviser); Chief
Operating Officer, General Counsel and
Secretary, Old Mutual Investment
Partners (a broker-dealer); General
Counsel and Secretary, Old Mutual Fund
Services (an administrator); General
Counsel and Secretary, Old Mutual
Shareholder Services (a shareholder
servicing center); Executive Vice
President, General Counsel and
Secretary, Old Mutual Capital, Inc. (an
investment adviser); and Vice President
and Secretary, Old Mutual Advisors Funds
(an investment company)
- ------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Global Compliance Director, AMVESCAP N/A
Vice President PLC; and Vice President of The AIM
Family of Funds--Registered Trademark--
Formerly: Senior Vice President, A I M
Management Group Inc. (financial
services holding company); Senior Vice
President and Chief Compliance Officer,
A I M Advisors, Inc. and The AIM Family
of Funds--Registered Trademark--; Vice
President and Chief Compliance Officer,
A I M Capital Management, Inc. and A I M
Distributors, Inc.; Vice President, AIM
Investment Services, Inc. and Fund
Management Company; Senior Vice
President and Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; and Senior Vice President
and Compliance Director, Delaware
Investments Family of Funds
- ------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Senior Vice President and General
Vice President Counsel, AMVESCAP PLC; Director, INVESCO
Funds Group, Inc.; and Vice President of
The AIM Family of Funds--Registered
Trademark--
Formerly: Director, Vice President and N/A
General Counsel, Fund Management
Company; Director, Senior Vice
President, Secretary and General
Counsel, A I M Management Group Inc. and
A I M Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Senior Vice President, A I M
Distributors, Inc.; Vice President,
A I M Capital Management, Inc. and AIM
Investment Services, Inc.; Senior Vice
President, Chief Legal Officer and
Secretary of The AIM Family of
Funds--Registered Trademark--; Chief
Executive Officer and President, INVESCO
Funds Group, Inc.; and Senior Vice
President, and General Counsel, Liberty
Financial Companies, Inc. and Senior
Vice President and General Counsel
Liberty Funds Group, LLC
- ------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President, Principal Advisors, Inc.; and Vice President,
Financial Officer and Treasurer and Principal Officer of The
Treasurer AIM Family of Funds--Registered
Trademark--
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
J. Philip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment Officer, A I M Advisors Inc.;
Director, Chairman, Chief Executive
Officer, President and Chief Investment
Officer, A I M Capital Management, Inc.;
Executive Vice President, A I M
Management Group Inc. and Vice President
of The AIM Family of Funds--Registered
Trademark--
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; and
Chief Equity Officer, Senior Vice
President and Senior Investment Officer,
A I M Capital Management, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc. and The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); and
President and Principal Executive
Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust Only)
Formerly: Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only)
- ------------------------------------------------------------------------------------------------------------------------------
Lance A. Rejsek -- 1967 2005 Anti-Money Laundering Compliance N/A
Anti-Money Laundering Officer, A I M Advisors, Inc., A I M
Compliance Officer Capital Management, Inc., A I M
Distributors, Inc., AIM Investment
Services, Inc., AIM Private Asset
Management, Inc., Fund Management
Company and The AIM Family of
Funds--Registered Trademark--
Formerly: Manager of the Fraud
Prevention Department, AIM Investment
Services, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
Todd L. Spillane -- 1958 2006 Senior Vice President, A I M Management N/A
Chief Compliance Officer Group Inc.; Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc.; and Vice President,
A I M Distributors, Inc., AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Global Head of Product
Development, AIG-Global Investment
Group, Inc.; Chief Compliance Officer
and Deputy General Counsel,
AIG-SunAmerica Asset Management; and
Chief Compliance Officer, Chief
Operating Officer and Deputy General
Counsel, American General Investment
Management
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers
Suite 100 11 Greenway Plaza Inc. LLP
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Ballard Spahr INDEPENDENT TRUSTEES AIM Investment State Street Bank and
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis Services, Inc. Trust Company
1735 Market Street, 51st & Frankel LLP P.O. Box 4739 225 Franklin Street
Floor 1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Philadelphia, PA 19103-7599 Americas
New York, NY 10036-2714
</Table>
DOMESTIC EQUITY AIM V.I. CAPITAL APPRECIATION FUND
LARGE-CAP GROWTH
Annual Report to Shareholders - December 31, 2006
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 [COVER GLOBE IMAGE]
Forms N-Q may be reviewed and copied at the SEC
Public Reference Room in Washington, D.C.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, AIM V.I. CAPITAL APPRECIATION FUND
scroll down and click on AIM Funds Proxy Policy. seeks to achieve growth of capital.
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 UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT IS AS
Fund from the drop-down menu. The information is OF DECEMBER 31, 2006, AND IS BASED ON TOTAL NET ASSETS.
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
[AIM INVESTMENTS LOGO] INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ
--Registered Trademark-- EACH CAREFULLY BEFORE INVESTING.
==========================================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE AIM V.I. CAPITAL APPRECIATION FUND
==========================================================================================
Stocks ranked highest by our
PER FORMANCE SUMMARY quantitative model are the primary focus
of our fundamental research, which seeks
For the year ended December 31, 2006, AIM V.I. Capital Appreciation Fund produced positive to determine the company's earnings
returns but underperformed the S&P 500 --Registered Trademark-- Index and the Russell 1000 drivers and to identify potential
- --Registered Trademark-- Growth Index. upside-to-earnings estimates. Our team
meets with company management to
The Fund underperformed its broad market index and its style-specific index largely evaluate products and services and the
due to stock selection in the health care and information technology (IT) sectors. The quality of management. We also analyze
Fund's holdings generally underperformed those of the indexes in each of these sectors. relevant trends within the respective
Overweight positions in these two sectors also detracted from the Fund's performance industry, as well evaluate the
relative to the S&P 500 Index. competitive landscape. We believe stocks
that pass our quantitative and
Your Fund's long-term performance appears on pages 4 - 5. fundamental screens are more likely to
outperform over time.
FUND VS. INDEXES
We construct the portfolio using a
TOTAL RETURNS, 12/31/05 - 12/31/06, EXCLUDING VARIABLE PRODUCT ISSUER CHARGES. IF VARIABLE bottom-up strategy -- focusing on stocks
PRODUCT ISSUER CHARGES WERE INCLUDED, RETURNS WOULD BE LOWER. rather than industries or sectors. While
there are no formal sector guidelines or
Series I Shares 6.30% constraints, internal controls and
Series II Shares 6.06 proprietary software help us monitor
S&P 500 Index (Broad Market Index) 15.78 risk levels and sector concentration.
Russell 1000 Growth Index (Style-Specific Index) 9.07
Lipper Multi-Cap Growth Funds Index (Peer Group Index) 9.21 Our sell process is designed to
SOURCE: LIPPER INC. avoid high-risk situations we believe
========================================================================================== lead to underperformance, including:
HOW WE INVEST - Earnings. We focus on companies exhibiting - Deteriorating business prospects.
strong growth in revenues, earnings and cash
We believe a growth investment strategy is flows. - Extended valuation.
an essential component of a diversified
portfolio. - Quality. We seek companies with - Slowing earnings growth.
sustainable earnings growth and management
Our investment process combines teams with efficient capital allocation that - Weakened balance sheet and cash flow
quantitative and fundamental analysis to creates long-term value for shareholders. statement.
uncover companies exhibiting long-term,
sustainable earnings and cash flow growth - Valuation. We focus on companies that are MARKET CONDITIONS AND YOUR FUND
that is not yet reflected in investor attractively valued given their growth
expectations or equity valuations. potential. Domestic equities posted solid returns
during the 12-month reporting period,
Our quantitative model ranks companies - Risk assessment. We seek to avoid with several major market indexes
based on factors we have found to be highly high-risk companies as defined below. reaching near-multiyear highs. Strong
correlated with outperformance in the growth economic growth, favorable corporate
universe, including: earnings results and continued benign
inflation supported equities, despite
high energy prices, a
====================================================================================================================================
PORTFOLIO COMPOSITION TOP FIVE INDUSTRIES* TOP 10 EQUITY HOLDINGS*
- ------------------------------------------------------------------------------------------------------------------------------------
By sector
Information Technology 27.7% 1.Pharmaceuticals 8.5% 1. Cisco Systems, Inc. 2.8%
Health Care 16.4 2 Aerospace & Defense 6.4 2. Amdocs Ltd. 2.3
Industrials 14.7 3.Investment Banking & Brokerage 5.8 3. Apple Computer, Inc. 2.2
Consumer Discretionary 13.4 4.Computer Hardware 5.1 4. JPMorgan Chase & Co. 2.0
Financials 11.8 5 Communications Equipment 5.1 5. Microsoft Corp. 2.0
Energy 5.1 6. Goldman Sachs Group, Inc. (The) 2.0
Consumer Staples 3.3 Total Net Assets $1.58 billion 7. Roche Holding A.G. (Switzerland) 2.0
Materials 3.2 8. Hewlett-Packard Co. 1.8
Telecommunication Services 2.2 Total Number of Holdings* 95 9. Merrill Lynch & Co., Inc. 1.8
Money Market Funds Plus 10. Health Net Inc. 1.7
Other Assets Less Liabilities 2.2
The Fund's holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
====================================================================================================================================
2
AIM V.I. CAPITAL APPRECIATION FUND
slowing housing market and the U.S. Federal Some of the underperformance in the Lanny H. Sachnowitz
Reserve Board's (the Fed) tightening health care and IT sectors was offset by [SACHNOWITZ Senior portfolio manager,
campaign. outperformance in other sectors, including PHOTO] is lead manager of AIM
industrials, financials and materials. The V.I. Capital Appreciation
Although mixed signals from the Fed Fund outperformed the Russell 1000 Growth Fund. He joined AIM in 1987 as a money
created some market volatility in May and Index by the widest margin in the market trader and research analyst. In
June, the market began to rally when the Fed industrials sector due mostly to strong 1990, Mr. Sachnowitz's trading
left interest rates unchanged at several stock selection in several industries that responsibilities were expanded to
meetings beginning in August. In addition, benefited from solid global economic include head of equity trading. He was
the price of crude oil and other commodities expansion. Many of the better-performing named a portfolio manager in 1991. Mr.
stabilized. industrials stocks were from the electrical Sachnowitz earned a B.S. in finance from
equipment industry, including Fund holdings the University of Southern California
For the year, small-cap stocks led the EMERSON ELECTRIC and ABB LTD. and an M.B.A. from the University of
market higher, large- and mid-cap stocks Houston.
also had double-digit returns. Additionally, In the materials sector, the Fund's
value stocks outperformed growth stocks. outperformance was driven by an overweight Kirk L. Anderson
Positive performance was broad among S&P 500 position in metals and mining stocks and [ANDERSON Portfolio manager, is
sectors, with the highest returns in stock selection in the chemicals industry. PHOTO] manager of AIM V.I.
telecommunication services, energy, Many metals and mining stocks, including Capital Appreciation
utilities and financials. Brazilian steel holding COMPANHIA VALE DO Fund. He joined AIM in 1994 and was
RIO DOCE, performed well due to rising named a portfolio manager in 2003. Mr.
The Fund benefited from positive commodity prices. Chemical holding SYNGENTA Anderson earned a B.A. in political
absolute performance in eight of 10 market also performed well. science from Texas A&M University and an
sectors, with the greatest positive impact M.S. in finance from the University of
on performance coming from holdings in the Our investment process resulted in an Houston.
industrials, financials and consumer overweight position in the financials
discretionary sectors. Overall, the Fund sector. Fund holdings that contributed to James G. Birdsall
underperformed the Russell 1000 Growth performance included GOLDMAN SACHS, MERRILL Portfolio manager, is
Index, largely as a result of stock LYNCH and MORGAN STANLEY. Favorable capital [BIRDSALL manager of AIM V.I.
selection in two sectors -- health care and markets and solid merger and acquisition PHOTO] Capital Appreciation
IT. activity continued to drive these stocks Fund. He has been
during the reporting period. associated with AIM since 1995 and was
In the health care sector, much of the named a portfolio manager in 1999. Mr.
Fund's underperformance was due to weak We reduced our exposure to the energy, Birdsall earned a B.B.A. with a
performance by several health care provider materials and health care sectors due to concentration in finance from Stephen F.
and services holdings, including insurers less upside-to-earnings estimates. Proceeds Austin State University before earning
Aetna and Cigna. We sold both stocks from these sales were invested primarily in an M.B.A with a concentration in finance
following disappointing earnings results and attractive opportunities in the and international business from the
reduced confidence in their management telecommunication services and IT sectors. University of St. Thomas.
teams. Additionally, eye-care company Alcon
was a significant detractor from Fund In closing Robert J. Lloyd
performance, and we sold this holding before Chartered Financial
the close of the year. We are pleased to have provided positive [LLOYD Analyst, portfolio
returns for the year and thank you for your PHOTO] manager, is manager of
Despite posting positive IT sector commitment to AIM V.I. Capital Appreciation AIM V.I. Capital
returns, the Fund also underperformed the Fund. Appreciation Fund. He joined AIM in 2000
Russell 1000 Growth Index in this sector. and was named portfolio manager in 2001.
Underperformance resulted largely from The views and opinions expressed in He served eight years in the U.S. Navy
weakness in software holdings RED HAT and management's discussion of Fund performance as a Naval Flight Officer flying the
CITRIX SYSTEMS, semiconductor holdings PMC are those of A I M Advisors, Inc. These S-3B Viking. Mr. Lloyd earned a B.B.A.
SIERRA and ANALOG DEVICES and internet views and opinions are subject to change at degree from the University of Notre Dame
services firm EBAY. All of these holdings any time based on factors such as market and and an M.B.A. from the University of
were subsequently sold. However, some of economic conditions. These views and Chicago.
this underperformance was offset by opinions may not be relied upon as
contributions from other IT holdings, investment advice or recommendations, or as Assisted by the Large/Multi-Cap Growth
including CISCO SYSTEMS, FREESCALE an offer for a particular security. The Team
SEMICONDUCTOR and AMDOCS. Freescale's stock information is not a complete analysis of
price appreciated dramatically following the every aspect of any market, country,
announcement that a consortium of private industry, security or the Fund. Statements
equity firms was acquiring the company. We of fact are from sources considered
subsequently sold the stock to lock in our reliable, but A I M Advisors, Inc. makes no
gains. representation or warranty as to their
completeness or accuracy. Although
historical performance is no guarantee of FOR A DISCUSSION OF THE RISKS OF
future results, these insights may help you INVESTING IN YOUR FUND, INDEXES USED IN
understand our investment management THIS REPORT AND YOUR FUND'S LONG-TERM
philosophy. PERFORMANCE, PLEASE SEE PAGES 4-5.
3
YOUR FUND'S LONG-TERM PERFORMANCE AIM V.I. CAPITAL APPRECIATION FUND
============================================
AVERAGE ANNUAL TOTAL RETURNS SERIES II SHARES INCEPTION DATE IS AUGUST AIM V.I. CAPITAL APPRECIATION
21, 2001. RETURNS SINCE THAT DATE ARE FUND, A SERIES PORTFOLIO OF AIM VARIABLE
As of 12/31/06 HISTORICAL. ALL OTHER RETURNS ARE THE INSURANCE FUNDS, IS CURRENTLY OFFERED
SERIES I SHARES BLENDED RETURNS OF THE HISTORICAL THROUGH INSURANCE COMPANIES ISSUING
Inception (5/5/93) 8.79% PERFORMANCE OF SERIES II SHARES SINCE VARIABLE PRODUCTS. YOU CANNOT PURCHASE
10 Years 4.93 THEIR INCEPTION AND THE RESTATED SHARES OF THE FUND DIRECTLY.
5 Years 3.86 HISTORICAL PERFORMANCE OF SERIES I
1 Year 6.30 SHARES (FOR PERIODS PRIOR TO INCEPTION OF PERFORMANCE FIGURES GIVEN
SERIES II SHARES) ADJUSTED TO REFLECT THE REPRESENT THE FUND AND ARE NOT INTENDED
SERIES II SHARES RULE 12B-1 FEES APPLICABLE TO SERIES II TO REFLECT ACTUAL VARIABLE PRODUCT
10 Years 4.67% SHARES. THE INCEPTION DATE OF SERIES I VALUES. THEY DO NOT REFLECT SALES
5 Years 3.61 SHARES IS MAY 5, 1993. THE PERFORMANCE OF CHARGES, EXPENSES AND FEES ASSESSED IN
1 Year 6.06 THE FUND'S SERIES I AND SERIES II SHARE CONNECTION WITH A VARIABLE PRODUCT.
============================================ CLASSES WILL DIFFER PRIMARILY DUE TO SALES CHARGES, EXPENSES AND FEES, WHICH
DIFFERENT CLASS EXPENSES. ARE DETERMINED BY THE VARIABLE PRODUCT
============================================ ISSUERS, WILL VARY AND WILL LOWER THE
CUMULATIVE TOTAL RETURNS TOTAL RETURN.
THE PERFORMANCE DATA QUOTED REPRESENT
6 months ended 12/31/06 PAST PERFORMANCE AND CANNOT GUARANTEE PER NASD REQUIREMENTS, THE MOST
Series I Shares 6.69% COMPARABLE FUTURE RESULTS; CURRENT RECENT MONTH-END PERFORMANCE DATA AT THE
Series II Shares 6.58 PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE FUND LEVEL, EXCLUDING VARIABLE PRODUCT
CONTACT YOUR VARIABLE PRODUCT ISSUER OR CHARGES, IS AVAILABLE ON THIS AIM
FINANCIAL ADVISOR FOR THE MOST RECENT AUTOMATED INFORMATION LINE,
MONTH-END VARIABLE PRODUCT PERFORMANCE. 866-702-4402. AS MENTIONED ABOVE, FOR
PERFORMANCE FIGURES REFLECT FUND EXPENSES, THE MOST RECENT MONTH-END PERFORMANCE
REINVESTED DISTRIBUTIONS AND CHANGES IN NET INCLUDING VARIABLE PRODUCT CHARGES,
ASSET VALUE. INVESTMENT RETURN AND PRINCIPAL PLEASE CONTACT YOUR VARIABLE PRODUCT
VALUE WILL FLUCTUATE SO THAT YOU MAY HAVE A ISSUER OR FINANCIAL ADVISOR.
GAIN OR LOSS WHEN YOU SELL SHARES.
====================================================================================================================================
PRINCIPAL RISKS OF INVESTING IN THE FUND risk management purposes, the Fund may not is a trademark/service mark of the Frank
achieve its investment objective. Russell Company. Russell --REGISTERED
Prices of equity securities change in TRADEMARK-- is a trademark of the Frank
response to many factors including the If the seller of a repurchase Russell Company.
historical and prospective earnings of the agreement in which the Fund invests defaults
issuer, the value of its assets, general on its obligation or declares bankruptcy, The unmanaged LIPPER MULTI-CAP
economic conditions, interest rates, the Fund may experience delays in selling GROWTH FUNDS INDEX represents an average
investor perceptions and market liquidity. the securities underlying the repurchase of the performance of the 30 largest
agreement. multi-capitalization growth funds
Investing in a fund that invests in tracked by Lipper Inc., an independent
smaller companies involves risks not There is no guarantee that the mutual fund performance monitor.
associated with investing in more investment techniques and risk analyses used
established companies, such as business by the Fund's portfolio managers will In conjunction with the annual
risk, stock price fluctuations and produce the desired results. prospectus update on or about May 1,
illiquidity. 2007, the AIM V.I. Capital Appreciation
ABOUT INDEXES USED IN THIS REPORT Fund prospectus will be amended to
Foreign securities have additional reflect that the Fund has elected to use
risks, including exchange rate changes, The unmanaged STANDARD & POOR'S Composite the Lipper Variable Underlying Funds
political and economic upheaval, the Index of 500 Stocks (the S&P 500 Index) is (VUF) Multi-Cap Growth Funds Category
relative lack of information about these an index of common stocks frequently used as Average as its peer group rather than
companies, relatively low market liquidity a general measure of U.S. stock market the Lipper Multi-Cap Growth Funds Index.
and the potential lack of strict financial performance. The Lipper VUF Multi-Cap Growth Funds
and accounting controls and standards. Category Average, recently published by
The unmanaged RUSSELL 1000 GROWTH Lipper Inc., comprises the underlying
Investing in emerging markets involves INDEX is a subset of the unmanaged RUSSELL funds in each variable insurance
greater risk than investing in more 1000 --Registered Trademark-- Index, which category and does not include mortality
established markets. The risks include the represents the performance of the stocks of and expense fees.
relatively smaller size and lesser liquidity large-capitalization companies; the Growth
of these markets, high inflation rates, subset measures the performance of Russell The Fund is not managed to track
adverse political developments and lack of 1000 companies with higher price/book ratios the performance of any particular index,
timely information. and higher forecasted growth values. The including the indexes defined here, and
Russell 1000 Growth Index consequently, the performance of the
To the extent the Fund holds cash or Fund may deviate significantly from the
cash equivalents rather than equity performance of the indexes.
securities for
Continued on page 5
4
AIM V.I. CAPITAL APPRECIATION FUND
Past performance cannot guarantee comparable value of an investment, is constructed with
future results. each segment representing a percent change
in the value of the investment. In this
This chart, which is a logarithmic chart, each segment represents a doubling,
chart, presents the fluctuations in the or 100% change, in the value of the
value of the Fund and its indexes. We investment. In other words, the space
believe that a logarithmic chart is more between $5,000 and $10,000 is the same size
effective than other types of charts in as the space between $10,000 and $20,000,
illustrating changes in value during the and so on.
early years shown in the chart. The vertical
axis, the one that indicates the dollar
====================================================================================================================================
Continued from page 4
A direct investment cannot be made in principles require adjustments to be made to Industry classifications used in
an index. Unless otherwise indicated, index the net assets of the Fund at period end for this report are generally according to
results include reinvested dividends, and financial reporting purposes, and as such, the Global Industry Classification
they do not reflect sales charges. the net asset values for shareholder Standard, which was developed by and is
Performance of an index of funds reflects transactions and the returns based on those the exclusive property and a service
fund expenses; performance of a market index net asset values may differ from the net mark of Morgan Stanley Capital
does not. asset values and returns reported in the International Inc. and Standard &
Financial Highlights. Additionally, the Poor's.
OTHER INFORMATION returns and net asset values shown
throughout this report are at the Fund level The Chartered Financial Analyst
The returns shown in management's discussion only and do not include variable product --Registered Trademark-- (CFA
of Fund performance are based on net asset issuer charges. If such charges were --Registered Trademark--) designation is
values calculated for shareholder included, the total returns would be lower. a globally recognized standard for
transactions. Generally accepted accounting measuring the competence and integrity
of investment professionals.
5
============================================================================================================
[MOUNTAIN CHART]
RESULTS OF A $10,000 INVESTMENT
INDEX DATA FROM 4/30/93, FUND DATA FROM 5/5/93
AIM V.I.
CAPITAL APPRECIATION FUND LIPPER MULTI-CAP
DATE -SERIES I SHARES S&P 500 INDEX RUSSELL 1000 GROWTH INDEX GROWTH FUNDS INDEX
4/30/93 $10000 $10000 $10000
5/93 $10320 10267 10350 10544
6/93 10200 10297 10256 10645
7/93 10390 10255 10072 10648
8/93 10990 10644 10486 11184
9/93 11370 10562 10409 11422
10/93 11440 10780 10698 11555
11/93 11261 10678 10626 11206
12/93 11950 10807 10809 11583
1/94 12590 11174 11060 11968
2/94 12831 10871 10857 11776
3/94 11820 10398 10332 11144
4/94 11940 10531 10380 11154
5/94 11770 10703 10537 11119
6/94 11099 10441 10225 10657
7/94 11378 10784 10575 10962
8/94 12209 11225 11163 11570
9/94 12239 10950 11012 11391
10/94 12620 11196 11271 11614
11/94 12070 10789 10910 11161
12/94 12249 10949 11092 11256
1/95 12098 11232 11330 11253
2/95 12750 11670 11804 11708
3/95 13343 12013 12149 12089
4/95 13624 12367 12414 12336
5/95 13996 12860 12846 12658
6/95 15101 13159 13342 13428
7/95 16537 13595 13897 14286
8/95 16677 13629 13912 14404
9/95 17259 14204 14553 14801
10/95 16888 14153 14563 14613
11/95 17089 14773 15129 15099
12/95 16621 15058 15216 15052
1/96 16772 15570 15725 15280
2/96 17666 15715 16013 15730
3/96 17647 15866 16033 15823
4/96 18732 16100 16455 16526
5/96 19324 16514 17030 16980
6/96 18601 16577 17053 16615
7/96 17005 15845 16054 15411
8/96 17980 16180 16468 16087
9/96 19346 17090 17667 17131
10/96 19035 17561 17774 17091
11/96 19979 18887 19108 18066
12/96 19547 18513 18734 17739
1/97 20403 19669 20048 18590
2/97 19559 19824 19913 18077
3/97 18362 19011 18835 17144
4/97 18694 20144 20086 17688
5/97 20535 21376 21535 19188
6/97 21180 22326 22397 19908
7/97 23353 24102 24378 21741
8/97 23082 22753 22951 21146
9/97 24190 23998 24080 22484
10/97 22649 23198 23190 21490
11/97 22398 24271 24175 21626
12/97 22192 24687 24446 21810
1/98 21764 24960 25177 21905
2/98 23814 26759 27071 23728
3/98 24609 28129 28150 24885
4/98 25222 28417 28540 25173
5/98 24069 27929 27730 24217
6/98 25039 29063 29428 25461
7/98 24163 28755 29234 24841
8/98 19683 24601 24846 20242
9/98 21346 26178 26755 21701
10/98 22388 28304 28905 22922
11/98 23736 30019 31104 24517
12/98 26480 31748 33909 27218
1/99 26954 33075 35900 28891
2/99 25250 32047 34260 27385
3/99 26386 33329 36064 28944
4/99 27228 34620 36110 29647
5/99 27114 33803 35000 29074
6/99 29006 35674 37452 31108
7/99 28156 34565 36262 30407
8/99 28018 34394 36854 30103
============================================================================================================
Source: Lipper Inc.
====================================================================================================================================
[MOUNTAIN CHART]
9/99 28206 33452 36080 29930
10/99 30257 35568 38805 32039
11/99 32853 36291 40898 34608
12/99 38300 38425 45152 39834
1/00 37645 36495 43035 39430
2/00 42576 35805 45139 45734
3/00 43619 39305 48369 45554
4/00 40283 38123 46068 41735
5/00 37874 37342 43748 38920
6/00 41456 38261 47064 42780
7/00 41046 37664 45102 41437
8/00 46439 40002 49185 45925
9/00 43834 37891 44533 43135
10/00 40854 37730 42425 40630
11/00 33124 34757 36172 33975
12/00 34124 34928 35027 35033
1/01 35783 36166 37447 35743
2/01 30229 32871 31090 30511
3/01 26910 30790 27706 27241
4/01 29588 33180 31211 30567
5/01 29289 33403 30751 30402
6/01 28759 32590 30039 29861
7/01 27675 32269 29288 28249
8/01 25306 30251 26893 25811
9/01 22120 27809 24208 21975
10/01 23391 28339 25478 23548
11/01 25738 30512 27926 25816
12/01 26180 30780 27873 26218
1/02 25722 30331 27381 25478
2/02 24624 29746 26245 23896
3/02 26119 30865 27152 25321
4/02 24611 28994 24936 23783
5/02 24154 28781 24333 23093
6/02 22465 26732 22082 20940
7/02 20417 24649 20868 18973
8/02 20368 24810 20931 18829
9/02 18789 22116 18759 17369
10/02 20465 24061 20480 18696
11/02 21296 25476 21593 19866
12/02 19801 23980 20101 18399
1/03 19270 23353 19613 18095
2/03 19185 23002 19523 17972
3/03 19450 23225 19887 18258
4/03 20751 25137 21357 19592
5/03 21777 26460 22423 21032
6/03 22053 26798 22732 21275
7/03 22874 27271 23297 21935
8/03 23740 27801 23877 22812
9/03 22945 27507 23621 22372
10/03 24583 29062 24948 23957
11/03 25102 29318 25209 24394
12/03 25625 30854 26081 24909
1/04 26094 31420 26614 25531
2/04 26300 31857 26783 25868
3/04 25856 31376 26286 25790
4/04 25049 30885 25980 24925
5/04 25567 31308 26465 25513
6/04 26158 31916 26795 26060
7/04 24544 30860 25281 24220
8/04 24122 30984 25156 23879
9/04 24834 31319 25395 24800
10/04 25447 31798 25791 25333
11/04 26602 33084 26678 26697
12/04 27326 34209 27724 27715
1/05 26555 33376 26800 26715
2/05 27073 34077 27085 27017
3/05 26410 33475 26591 26446
4/05 25470 32840 26085 25476
5/05 26649 33884 27347 27043
6/05 26710 33933 27246 27189
7/05 28096 35194 28578 28796
8/05 28071 34873 28210 28659
9/05 28854 35155 28340 29121
10/05 28361 34569 28064 28590
11/05 29518 35875 29275 30119
12/05 29739 35888 29183 30244
1/06 31185 36838 29695.7 31805.4
2/06 30789 36938 29649 31277
3/06 31512 37397 30086 31987
4/06 31704 37899 30045 32238
5/06 29837 36810 29027 30353
6/06 29631 36859 28912 30285
7/06 28644 37086 28362 29365
8/06 29272 37967 29247 30095
9/06 30188 38945 30050 30786
10/06 30828 40213 31107 32052
11/06 31540 40976 31724 33037
12/06 31610 41551 31831 33029
====================================================================================================================================
CALCULATING YOUR ONGOING FUND EXPENSES AIM V.I. CAPITAL APPRECIATION FUND
EXAMPLE ACTUAL EXPENSES Fund's actual return. The Fund's actual
cumulative total returns at net asset
As a shareholder of the Fund, you incur The table below provides information about value after expenses for the six months
ongoing costs, including management fees; actual account values and actual expenses. ended December 31, 2006, appear in the
distribution and/or service fees (12b-1); You may use the information in this table, table "Cumulative Total Returns" on page
and other Fund expenses. This example is together with the amount you invested, to 4.
intended to help you understand your ongoing estimate the expenses that you paid over the
costs (in dollars) of investing in the Fund period. Simply divide your account value by The hypothetical account values
and to compare these costs with ongoing $1,000 (for example, an $8,600 account value and expenses may not be used to estimate
costs of investing in other mutual funds. divided by $1,000 = 8.6), then multiply the the actual ending account balance or
The example is based on an investment of result by the number in the table under the expenses you paid for the period. You
$1,000 invested at the beginning of the heading entitled "Actual Expenses Paid may use this information to compare the
period and held for the entire period July During Period" to estimate the expenses you ongoing costs of investing in the Fund
1, 2006, through December 31, 2006. paid on your account during this period. and other funds. To do so, compare this
5% hypothetical example with the 5%
The actual and hypothetical expenses HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES hypothetical examples that appear in the
in the examples below do not represent the shareholder reports of the other funds.
effect of any fees or other expenses The table below also provides information
assessed in connection with a variable about hypothetical account values and Please note that the expenses
product; if they did, the expenses shown hypothetical expenses based on the Fund's shown in the table are meant to
would be higher while the ending account actual expense ratio and an assumed rate of highlight your ongoing costs. Therefore,
values shown would be lower. return of 5% per year before expenses, which the hypothetical information is useful
is not the in comparing ongoing costs only, and
will not help you determine the relative
total costs of owning different funds.
=================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (7/1/06) (12/31/06)(1) PERIOD(2) (12/31/06) PERIOD(2) RATIO
Series I $ 1,000.00 $ 1,066.90 $ 4.74 $ 1,020.62 $ 4.63 0.91%
Series II 1,000.00 1,065.80 6.04 1,019.36 5.90 1.16
(1) The actual ending account value is based on the actual total return of the
Fund for the period July 1, 2006, through December 31, 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 December 31, 2006,
appear in the table "Cumulative Total Returns" on page 4.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated
above multiplied by the average account value over the period, multiplied
by 184/365 to reflect the most recent fiscal half year.
================================================================================
6
APPROVAL OF INVESTMENT ADVISORY AGREEMENT AIM V.I. CAPITAL APPRECIATION FUND
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 the services to be provided by AIM under the management team at this time. Although
management of AIM V.I. Capital Appreciation Advisory Agreement. Based on such review, the independent written evaluation of
Fund (the "Fund") and, as required by law, the Board concluded that the range of the Fund's Senior Officer (discussed
determines annually whether to approve the services to be provided by AIM under the below) only considered Fund performance
continuance of the Fund's advisory agreement Advisory Agreement was appropriate and that through the most recent calendar year,
with A I M Advisors, Inc. ("AIM"). Based AIM currently is providing services in the Board also reviewed more recent Fund
upon the recommendation of the Investments accordance with the terms of the Advisory performance, which did not change their
Committee of the Board, at a meeting held on Agreement. conclusions.
June 27, 2006, the Board, including all of
the independent trustees, approved the - The quality of services to be provided by - Meetings with the Fund's portfolio
continuance of the advisory agreement (the AIM. The Board reviewed the credentials and managers and investment personnel. With
"Advisory Agreement") between the Fund and experience of the officers and employees of respect to the Fund, the Board is
AIM for another year, effective July 1, AIM who will provide investment advisory meeting periodically with such Fund's
2006. services to the Fund. In reviewing the portfolio managers and/or other
qualifications of AIM to provide investment investment personnel and believes that
The Board considered the factors advisory services, the Board considered such such individuals are competent and able
discussed below in evaluating the fairness issues as AIM's portfolio and product review to continue to carry out their
and reasonableness of the Advisory Agreement process, various back office support responsibilities under the Advisory
at the meeting on June 27, 2006 and as part functions provided by AIM and AIM's equity Agreement.
of the Board's ongoing oversight of the and fixed income trading operations. Based
Fund. In their deliberations, the Board and on the review of these and other factors, - Overall performance of AIM. The Board
the independent trustees did not identify the Board concluded that the quality of considered the overall performance of
any particular factor that was controlling, services to be provided by AIM was AIM in providing investment advisory and
and each trustee attributed different appropriate and that AIM currently is portfolio administrative services to the
weights to the various factors. providing satisfactory services in Fund and concluded that such performance
accordance with the terms of the Advisory was satisfactory.
One responsibility of the independent Agreement.
Senior Officer of the Fund is to manage the - Fees relative to those of clients of
process by which the Fund's proposed - 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 which performance of the Fund during the past one, effective advisory fee rate (before
is at arms' length and reasonable. To that three and five calendar years against the waivers) for the Fund under the Advisory
end, the Senior Officer must either performance of funds advised by other Agreement. The Board noted that this
supervise a competitive bidding process or advisors with investment strategies rate was (i) comparable to the effective
prepare an independent written evaluation. comparable to those of the Fund. The Board advisory fee rates (before waivers) for
The Senior Officer has recommended an noted that the Fund's performance was above two mutual funds advised by AIM with
independent written evaluation in lieu of a the median performance of such comparable investment strategies comparable to
competitive bidding process and, upon the funds for the one and five year periods and those of the Fund; (ii) below the
direction of the Board, has prepared such an below such median performance for the three effective advisory fee rate (before
independent written evaluation. Such written year period. Based on this review and after waivers) for a variable insurance fund
evaluation also considered certain of the taking account of all of the other factors advised by AIM and offered to insurance
factors discussed below. In addition, as that the Board considered in determining company separate accounts with
discussed below, the Senior Officer made a whether to continue the Advisory Agreement investment strategies comparable to
recommendation to the Board in connection for the Fund, the Board concluded that no those of the Fund; (iii) above the
with such written evaluation. changes should be made to the Fund and that effective sub-advisory fee rate for one
it was not necessary to change the Fund's offshore fund advised and sub-advised by
The discussion below serves as a portfolio management team at this time. AIM affiliates with investment
summary of the Senior Officer's independent Although the independent written evaluation strategies comparable to those of the
written evaluation and recommendation to the of the Fund's Senior Officer (discussed Fund, although the total advisory fees
Board in connection therewith, as well as a below) only considered Fund performance for such offshore fund were above those
discussion of the material factors and the through the most recent calendar year, the for the Fund; (iv) above the effective
conclusions with respect thereto that formed Board also reviewed more recent Fund sub-advisory fee rates for five variable
the basis for the Board's approval of the performance, which did not change their insurance funds sub-advised by an AIM
Advisory Agreement. After consideration of conclusions. affiliate and offered to insurance
all of the factors below and based on its company separate accounts with
informed business judgment, the Board - The performance of the Fund relative to investment strategies comparable to
determined that the Advisory Agreement is in indices. The Board reviewed the performance those of the Fund, although the total
the best interests of the Fund and its of the Fund during the past one, three and advisory fees for such variable
shareholders and that the compensation to five calendar years against the performance insurance funds were above those for the
AIM under the Advisory Agreement is fair and of the Lipper Variable Underlying Fund Multi Fund; and (v) above the total advisory
reasonable and would have been obtained Cap Growth Index. The Board noted that the fee rate for a separately managed
through arm's length negotiations. Fund's performance was below the performance account/wrap account managed by an AIM
of such Index for the one and three year affiliate with investment strategies
Unless otherwise stated, information periods and comparable to such Index for the comparable to those of the Fund. The
presented below is as of June 27, 2006 and five year period. Based on this review and Board noted that AIM has agreed to waive
does not reflect any changes that may have after taking account of all of the other advisory fees of the Fund and to limit
occurred since June 27, 2006, including but factors that the Board considered in the Fund's total operating expenses, as
not limited to changes to the Fund's determining whether to continue the Advisory discussed below. Based on this review,
performance, advisory fees, expense Agreement for the Fund, the Board concluded the Board concluded that the advisory
limitations and/or fee waivers. that no changes should be made to the Fund fee rate for the Fund under the Advisory
and that it was not nec- Agreement was fair and reasonable.
- - The nature and extent of the advisory
services to be - Fees relative to those of comparable
funds with other advisors. The Board
reviewed the advisory fee rate for the
Fund under the Advisory Agreement. The
Board compared effective contractual
advisory fee rates at a common asset
level at the end of the past calendar
(continued)
7
AIM V.I. CAPITAL APPRECIATION FUND
year and noted that the Fund's rate was realize certain benefits upon investing cash - Benefits of soft dollars to AIM. The
below the median rate of the funds advised balances in AIM advised money market funds, Board considered the benefits realized
by other advisors with investment strategies including a higher net return, increased by AIM as a result of brokerage
comparable to those of the Fund that the liquidity, increased diversification or transactions executed through "soft
Board reviewed. The Board noted that AIM has decreased transaction costs. The Board also dollar" arrangements. Under these
agreed to waive advisory fees of the Fund found that the Fund will not receive reduced arrangements, brokerage commissions pai
and to limit the Fund's total operating services if it invests its cash balances in by the Fund and/or other funds advised
expenses, as discussed below. Based on this such money market funds. The Board noted by AIM are used to pay for research and
review, the Board concluded that the that, to the extent the Fund invests execution services. This research may be
advisory fee rate for the Fund under the uninvested cash in affiliated money market used by AIM in making investment
Advisory Agreement was fair and reasonable. funds, AIM has voluntarily agreed to waive a decisions for the Fund. The Board
portion of the advisory fees it receives concluded that such arrangements were
- - Expense limitations and fee waivers. The from the Fund attributable to such appropriate.
Board noted that AIM has contractually investment. The Board further determined
agreed to waive advisory fees of the Fund that the proposed securities lending program - AIM's financial soundness in light of
through December 31, 2009 to the extent and related procedures with respect to the the Fund's needs. The Board considered
necessary so that the advisory fees payable lending Fund is in the best interests of the whether AIM is financially sound and has
by the Fund do not exceed a specified lending Fund and its respective the resources necessary to perform its
maximum advisory fee rate, which maximum shareholders. The Board therefore concluded obligations under the Advisory
rate includes breakpoints and is based on that the investment of cash collateral Agreement, and concluded that AIM has
net asset levels. The Board considered the received in connection with the securities the financial resources necessary to
contractual nature of this fee waiver and lending program in the money market funds fulfill its obligations under the
noted that it remains in effect until according to the procedures is in the best Advisory Agreement.
December 31, 2009. The Board noted that AIM interests of the lending Fund and its
has contractually agreed to waive fees respective shareholders. - Historical relationship between the
and/or limit expenses of the Fund through Fund and AIM. In determining whether to
April 30, 2008 in an amount necessary to - Independent written evaluation and continue the Advisory Agreement for the
limit total annual operating expenses to a recommendations of the Fund's Senior Fund, the Board also considered the
specified percentage of average daily net Officer. The Board noted that, upon their prior relationship between AIM and the
assets for each class of the Fund. The Board direction, the Senior Officer of the Fund, Fund, as well as the Board's knowledge
considered the contractual nature of this who is independent of AIM and AIM's of AIM's operations, and concluded that
fee waiver/expense limitation and noted that affiliates, had prepared an independent it was beneficial to maintain the
it remains in effect until April 30, 2008. written evaluation in order to assist the current relationship, in part, because
The Board considered the effect these fee Board in determining the reasonableness of of such knowledge. The Board also
waivers/expense limitations would have on the proposed management fees of the AIM reviewed the general nature of the
the Fund's estimated expenses and concluded Funds, including the Fund. The Board noted non-investment advisory services
that the levels of fee waivers/expense that the Senior Officer's written evaluation currently performed by AIM and its
limitations for the Fund were fair and had been relied upon by the Board in this affiliates, such as administrative,
reasonable. regard in lieu of a competitive bidding transfer agency and distribution
process. In determining whether to continue services, and the fees received by AIM
- - Breakpoints and economies of scale. The the Advisory Agreement for the Fund, the and its affiliates for performing such
Board reviewed the structure of the Fund's Board considered the Senior Officer's services. In addition to reviewing such
advisory fee under the Advisory Agreement, written evaluation and the recommendation services, the trustees also considered
noting that it includes one breakpoint. The made by the Senior Officer to the Board that the organizational structure employed by
Board reviewed the level of the Fund's the Board consider whether the advisory fee AIM and its affiliates to provide those
advisory fees, and noted that such fees, as waivers for certain equity AIM Funds, services. Based on the review of these
a percentage of the Fund's net assets, have including the Fund, should be simplified. and other factors, the Board concluded
decreased as net assets increased because The Board concluded that it would be that AIM and its affiliates were
the Advisory Agreement includes a advisable to consider this issue and reach a qualified to continue to provide
breakpoint. The Board noted that AIM has decision prior to the expiration date of non-investment advisory services to the
contractually agreed to waive advisory fees such advisory fee waivers. Fund, including administrative, transfer
of the Fund through December 31, 2009 to the agency and distribution services, and
extent necessary so that the advisory fees - Profitability of AIM and its affiliates. that AIM and its affiliates currently
payable by the Fund do not exceed a The Board reviewed information concerning are providing satisfactory
specified maximum advisory fee rate, which the profitability of AIM's (and its non-investment advisory services.
maximum rate includes breakpoints and is affiliates') investment advisory and other
based on net asset levels. The Board activities and its financial condition. The - Other factors and current trends. The
concluded that the Fund's fee levels under Board considered the overall profitability Board considered the steps that AIM and
the Advisory Agreement therefore reflect of AIM, as well as the profitability of AIM its affiliates have taken over the last
economies of scale and that it was not in connection with managing the Fund. The several years, and continue to take, in
necessary to change the advisory fee Board noted that AIM's operations remain order to improve the quality and
breakpoints in the Fund's advisory fee profitable, although increased expenses in efficiency of the services they provide
schedule. recent years have reduced AIM's to the Funds in the areas of investment
profitability. Based on the review of the performance, product line
- - Investments in affiliated money market profitability of AIM's and its affiliates' diversification, distribution, fund
funds. The Board also took into account the investment advisory and other activities and operations, shareholder services and
fact that uninvested cash and cash its financial condition, the Board concluded compliance. The Board concluded that
collateral from securities lending that the compensation to be paid by the Fund these steps taken by AIM have improved,
arrangements, if any (collectively, "cash to AIM under its Advisory Agreement was not and are likely to continue to improve,
balances") of the Fund may be invested in excessive. the quality and efficiency of the
money market funds advised by AIM pursuant services AIM and its affiliates provide
to the terms of an SEC exemptive order. The to the Fund in each of these areas, and
Board found that the Fund may support the Board's approval of the
continuance of the Advisory Agreement
for the Fund.
8
AIM V.I. Capital Appreciation Fund
SCHEDULE OF INVESTMENTS
December 31, 2006
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------
DOMESTIC COMMON STOCKS-85.20%
AEROSPACE & DEFENSE-6.42%
Boeing Co. (The) 145,102 $ 12,890,862
- --------------------------------------------------------------------------
General Dynamics Corp. 292,679 21,760,684
- --------------------------------------------------------------------------
Precision Castparts Corp. 259,082 20,280,939
- --------------------------------------------------------------------------
Spirit Aerosystems Holdings Inc.-Class A(a) 575,000 19,245,250
- --------------------------------------------------------------------------
United Technologies Corp. 432,982 27,070,034
==========================================================================
101,247,769
==========================================================================
APPAREL RETAIL-2.13%
Aeropostale, Inc.(a) 410,733 12,679,328
- --------------------------------------------------------------------------
DSW Inc.-Class A(a)(b) 215,188 8,299,801
- --------------------------------------------------------------------------
Limited Brands, Inc. 436,185 12,623,194
==========================================================================
33,602,323
==========================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-0.75%
Carter's, Inc.(a) 462,946 11,805,123
==========================================================================
APPLICATION SOFTWARE-4.10%
Adobe Systems Inc.(a) 391,766 16,109,418
- --------------------------------------------------------------------------
Amdocs Ltd.(a) 933,250 36,163,437
- --------------------------------------------------------------------------
BEA Systems, Inc.(a) 975,000 12,265,500
==========================================================================
64,538,355
==========================================================================
BIOTECHNOLOGY-2.60%
Amgen Inc.(a) 285,988 19,535,840
- --------------------------------------------------------------------------
Gilead Sciences, Inc.(a) 329,596 21,400,669
==========================================================================
40,936,509
==========================================================================
COMMUNICATIONS EQUIPMENT-4.06%
Cisco Systems, Inc.(a) 1,610,000 44,001,300
- --------------------------------------------------------------------------
Motorola, Inc. 971,014 19,964,048
==========================================================================
63,965,348
==========================================================================
COMPUTER & ELECTRONICS RETAIL-1.30%
Best Buy Co., Inc. 416,349 20,480,207
==========================================================================
COMPUTER HARDWARE-5.11%
Apple Computer, Inc.(a) 415,000 35,208,600
- --------------------------------------------------------------------------
Dell Inc.(a) 650,000 16,308,500
- --------------------------------------------------------------------------
Hewlett-Packard Co. 703,709 28,985,774
==========================================================================
80,502,874
==========================================================================
COMPUTER STORAGE & PERIPHERALS-1.00%
Seagate Technology 597,423 15,831,709
==========================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-1.02%
Terex Corp.(a) 247,925 16,010,996
==========================================================================
</Table>
<Table>
SHARES VALUE
- --------------------------------------------------------------------------
<Caption>
DATA PROCESSING & OUTSOURCED SERVICES-1.14%
Global Payments Inc. 156,290 $ 7,236,227
- --------------------------------------------------------------------------
VeriFone Holdings, Inc.(a)(b) 302,701 10,715,615
==========================================================================
17,951,842
==========================================================================
DEPARTMENT STORES-2.30%
J.C. Penney Co., Inc. 310,000 23,981,600
- --------------------------------------------------------------------------
Nordstrom, Inc. 246,991 12,186,536
==========================================================================
36,168,136
==========================================================================
DRUG RETAIL-0.56%
Longs Drug Stores Corp. 209,220 8,866,744
==========================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-2.97%
Acuity Brands, Inc. 169,033 8,796,477
- --------------------------------------------------------------------------
Cooper Industries, Ltd.-Class A 190,661 17,241,474
- --------------------------------------------------------------------------
Emerson Electric Co. 472,683 20,840,594
==========================================================================
46,878,545
==========================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-1.10%
Amphenol Corp.-Class A 211,699 13,142,274
- --------------------------------------------------------------------------
Mettler-Toledo International Inc.(a) 53,589 4,225,493
==========================================================================
17,367,767
==========================================================================
ENVIRONMENTAL & FACILITIES SERVICES-0.86%
Waste Management, Inc. 370,083 13,607,952
==========================================================================
GENERAL MERCHANDISE STORES-1.42%
Family Dollar Stores, Inc. 760,666 22,310,334
==========================================================================
HEALTH CARE EQUIPMENT-0.73%
Becton, Dickinson and Co. 163,691 11,482,924
==========================================================================
HEALTH CARE FACILITIES-1.29%
Manor Care, Inc. 224,366 10,527,253
- --------------------------------------------------------------------------
VCA Antech, Inc.(a) 303,424 9,767,218
==========================================================================
20,294,471
==========================================================================
HEALTH CARE SERVICES-0.81%
Quest Diagnostics Inc. 239,460 12,691,380
==========================================================================
HOME ENTERTAINMENT SOFTWARE-1.20%
Electronic Arts Inc.(a) 376,862 18,978,770
==========================================================================
HOUSEHOLD PRODUCTS-1.03%
Colgate-Palmolive Co. 248,005 16,179,846
==========================================================================
HYPERMARKETS & SUPER CENTERS-1.00%
Costco Wholesale Corp. 298,023 15,756,476
==========================================================================
</Table>
AIM V.I. Capital Appreciation Fund
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------
INDUSTRIAL CONGLOMERATES-1.07%
McDermott International, Inc.(a) 331,704 $ 16,870,465
==========================================================================
INTEGRATED OIL & GAS-1.42%
Occidental Petroleum Corp. 459,471 22,435,969
==========================================================================
INTERNET SOFTWARE & SERVICES-1.08%
Google Inc.-Class A(a) 37,000 17,037,760
==========================================================================
INVESTMENT BANKING & BROKERAGE-5.81%
Goldman Sachs Group, Inc. (The) 156,000 31,098,600
- --------------------------------------------------------------------------
Merrill Lynch & Co., Inc. 302,053 28,121,134
- --------------------------------------------------------------------------
Morgan Stanley 245,606 19,999,697
- --------------------------------------------------------------------------
Schwab (Charles) Corp. (The) 635,000 12,280,900
==========================================================================
91,500,331
==========================================================================
IT CONSULTING & OTHER SERVICES-1.01%
Accenture Ltd.-Class A 431,573 15,937,991
==========================================================================
MANAGED HEALTH CARE-2.49%
Health Net Inc.(a) 560,582 27,277,920
- --------------------------------------------------------------------------
UnitedHealth Group Inc. 223,000 11,981,790
==========================================================================
39,259,710
==========================================================================
MOVIES & ENTERTAINMENT-1.34%
News Corp.-Class A 985,308 21,164,416
==========================================================================
MULTI-LINE INSURANCE-1.91%
Assurant, Inc. 356,049 19,671,707
- --------------------------------------------------------------------------
HCC Insurance Holdings, Inc. 324,589 10,416,061
==========================================================================
30,087,768
==========================================================================
OIL & GAS EQUIPMENT & SERVICES-2.95%
Baker Hughes Inc. 206,754 15,436,254
- --------------------------------------------------------------------------
BJ Services Co. 258,704 7,585,201
- --------------------------------------------------------------------------
Cameron International Corp.(a) 172,047 9,127,094
- --------------------------------------------------------------------------
National-Oilwell Varco Inc.(a) 233,735 14,299,907
==========================================================================
46,448,456
==========================================================================
OIL & GAS REFINING & MARKETING-0.75%
Valero Energy Corp. 230,000 11,766,800
==========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-2.03%
JPMorgan Chase & Co. 663,233 32,034,154
==========================================================================
PHARMACEUTICALS-5.28%
Abbott Laboratories 252,436 12,296,158
- --------------------------------------------------------------------------
Johnson & Johnson 193,916 12,802,334
- --------------------------------------------------------------------------
Merck & Co. Inc. 427,859 18,654,652
- --------------------------------------------------------------------------
</Table>
<Table>
SHARES VALUE
- --------------------------------------------------------------------------
<Caption>
PHARMACEUTICALS-(CONTINUED)
Pfizer Inc. 761,100 $ 19,712,490
- --------------------------------------------------------------------------
Wyeth 386,155 19,663,013
==========================================================================
83,128,647
==========================================================================
PROPERTY & CASUALTY INSURANCE-0.81%
Chubb Corp. (The) 242,696 12,841,045
==========================================================================
REGIONAL BANKS-0.50%
Cullen/Frost Bankers, Inc. 140,717 7,854,823
==========================================================================
RESTAURANTS-2.23%
Burger King Holdings Inc.(a)(b) 732,146 15,448,280
- --------------------------------------------------------------------------
Darden Restaurants, Inc. 492,017 19,764,323
==========================================================================
35,212,603
==========================================================================
SEMICONDUCTORS-2.51%
Microchip Technology Inc. 470,717 15,392,446
- --------------------------------------------------------------------------
Texas Instruments Inc. 548,684 15,802,099
- --------------------------------------------------------------------------
Xilinx, Inc. 351,892 8,378,549
==========================================================================
39,573,094
==========================================================================
SOFT DRINKS-0.74%
PepsiCo, Inc. 185,811 11,622,478
==========================================================================
SPECIALTY STORES-1.98%
Office Depot, Inc.(a) 61,178 2,335,164
- --------------------------------------------------------------------------
OfficeMax Inc. 260,447 12,931,194
- --------------------------------------------------------------------------
PetSmart, Inc. 550,111 15,876,203
==========================================================================
31,142,561
==========================================================================
SYSTEMS SOFTWARE-4.39%
MICROS Systems, Inc.(a) 144,944 7,638,549
- --------------------------------------------------------------------------
Microsoft Corp. 1,059,367 31,632,699
- --------------------------------------------------------------------------
Sybase, Inc.(a) 257,290 6,355,063
- --------------------------------------------------------------------------
Symantec Corp.(a) 1,130,144 23,563,502
==========================================================================
69,189,813
==========================================================================
Total Domestic Common Stocks (Cost
$1,123,033,829) 1,342,565,284
==========================================================================
FOREIGN COMMON STOCKS & OTHER EQUITY
INTERESTS-12.57%
AUSTRALIA-0.74%
BHP Billiton Ltd. (Diversified Metals &
Mining)(c) 583,038 11,592,478
==========================================================================
BRAZIL-0.77%
Companhia Vale do Rio Doce-ADR (Steel)(b) 405,000 12,044,700
==========================================================================
CANADA-1.01%
Research In Motion Ltd. (Communications
Equipment)(a) 125,000 15,972,500
==========================================================================
HONG KONG-0.70%
China Mobile Ltd. (Wireless Telecommunication
Services)(c) 1,273,000 11,003,313
==========================================================================
</Table>
AIM V.I. Capital Appreciation Fund
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------
&x
JAPAN-2.43%
FANUC Ltd. (Industrial Machinery)(c) 152,369 $ 14,942,323
- --------------------------------------------------------------------------
KDDI Corp. (Wireless Telecommunication
Services)(c) 1,900 12,895,851
- --------------------------------------------------------------------------
Komatsu Ltd. (Construction & Farm Machinery &
Heavy Trucks)(c) 522,252 10,519,531
==========================================================================
38,357,705
==========================================================================
MEXICO-0.64%
America Movil S.A. de C.V.-Series L-ADR
(Wireless Telecommunication Services) 224,475 10,150,759
==========================================================================
SWITZERLAND-5.47%
ABB Ltd. (Heavy Electrical Equipment)(c) 610,158 10,935,133
- --------------------------------------------------------------------------
Novartis A.G.-ADR (Pharmaceuticals) 320,604 18,415,494
- --------------------------------------------------------------------------
Roche Holding A.G. (Pharmaceuticals)(c) 172,041 30,781,766
- --------------------------------------------------------------------------
Syngenta A.G. (Fertilizers & Agricultural
Chemicals)(a)(c) 75,835 14,105,497
- --------------------------------------------------------------------------
UBS A.G. (Diversified Capital Markets)(c) 196,896 11,921,081
==========================================================================
86,158,971
==========================================================================
UNITED KINGDOM-0.81%
Rio Tinto PLC (Diversified Metals &
Mining)(c) 223,817 11,894,759
- --------------------------------------------------------------------------
Shire PLC (Pharmaceuticals)(c) 43,985 908,851
==========================================================================
12,803,610
==========================================================================
Total Foreign Common Stocks & Other
Equity Interests (Cost $166,427,609) 198,084,036
==========================================================================
</Table>
<Table>
SHARES VALUE
- --------------------------------------------------------------------------
<Caption>
MONEY MARKET FUNDS-1.27%
Liquid Assets Portfolio-Institutional
Class(d) 10,033,388 $ 10,033,388
- --------------------------------------------------------------------------
Premier Portfolio-Institutional Class(d) 10,033,388 10,033,388
==========================================================================
Total Money Market Funds (Cost
$20,066,776) 20,066,776
==========================================================================
TOTAL INVESTMENTS (excluding investments
purchased with cash collateral from
securities loaned)-99.04% (Cost
$1,309,528,214) 1,560,716,096
==========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED-1.54%
MONEY MARKET FUNDS-1.54%
Liquid Assets Portfolio-Institutional
Class(d)(e) 24,258,490 24,258,490
==========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $24,258,490) 24,258,490
==========================================================================
TOTAL INVESTMENTS-100.58% (Cost
$1,333,786,704) 1,584,974,586
==========================================================================
OTHER ASSETS LESS LIABILITIES-(0.58)% (9,099,155)
==========================================================================
NET ASSETS-100.00% $$1,575,875,431
__________________________________________________________________________
==========================================================================
</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 December 31, 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 December 31, 2006 was $141,500,583,
which represented 8.98% 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
December 31, 2006
<Table>
ASSETS:
Investments, at value (cost $1,289,461,438)* $1,540,649,320
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $44,325,266) 44,325,266
=============================================================
Total investments (cost $1,333,786,704) 1,584,974,586
=============================================================
Foreign currencies, at value (cost $464) 477
- -------------------------------------------------------------
Receivables for:
Investments sold 34,308,321
- -------------------------------------------------------------
Fund shares sold 279,599
- -------------------------------------------------------------
Dividends 1,012,520
- -------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 213,339
- -------------------------------------------------------------
Other assets 387
=============================================================
Total assets $1,620,789,229
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 15,110,889
- -------------------------------------------------------------
Fund shares reacquired 3,747,450
- -------------------------------------------------------------
Trustee deferred compensation and
retirement plans 332,863
- -------------------------------------------------------------
Collateral upon return of securities loaned 24,258,490
- -------------------------------------------------------------
Accrued administrative services fees 1,021,815
- -------------------------------------------------------------
Accrued distribution fees-Series II 231,286
- -------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 8,584
- -------------------------------------------------------------
Accrued transfer agent fees 14,612
- -------------------------------------------------------------
Accrued operating expenses 187,809
=============================================================
Total liabilities 44,913,798
=============================================================
Net assets applicable to shares outstanding $1,575,875,431
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $1,640,989,509
- -------------------------------------------------------------
Undistributed net investment income (loss) (321,756)
- -------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign
currencies (315,981,607)
- -------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 251,189,285
=============================================================
$1,575,875,431
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $1,204,559,249
_____________________________________________________________
=============================================================
Series II $ 371,316,182
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Series I $ 45,942,155
_____________________________________________________________
=============================================================
Series II $ 14,332,628
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 26.22
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 25.91
_____________________________________________________________
=============================================================
</Table>
* At December 31, 2006, securities with an aggregate value of $23,197,471 were
on loan to brokers.
STATEMENT OF OPERATIONS
For the year ended December 31, 2006
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of
$270,364) $ 12,550,076
- -------------------------------------------------------------
Dividends from affiliated money market funds
(includes securities lending income of
$164,363) 1,330,444
- -------------------------------------------------------------
Interest 8,561
=============================================================
Total investment income 13,889,081
=============================================================
EXPENSES:
Advisory fees 8,764,720
- -------------------------------------------------------------
Administrative services fees 3,684,721
- -------------------------------------------------------------
Custodian fees 234,767
- -------------------------------------------------------------
Distribution fees-Series II 920,561
- -------------------------------------------------------------
Transfer agent fees 79,777
- -------------------------------------------------------------
Trustees' and officer's fees and benefits 59,015
- -------------------------------------------------------------
Other 227,790
=============================================================
Total expenses 13,971,351
=============================================================
Less: Fees waived and expense offset
arrangements (32,473)
=============================================================
Net expenses 13,938,878
=============================================================
Net investment income (loss) (49,797)
=============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND FOREIGN CURRENCIES:
Net realized gain (loss) from:
Investment securities (includes net gains
from securities sold to affiliates of
$8,312) 156,046,277
- -------------------------------------------------------------
Foreign currencies (83,094)
=============================================================
155,963,183
=============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (94,496,592)
- -------------------------------------------------------------
Foreign currencies (14,081)
=============================================================
(94,510,673)
=============================================================
Net gain from investment securities and foreign
currencies 61,452,510
=============================================================
Net increase in net assets resulting from
operations $ 61,402,713
_____________________________________________________________
=============================================================
</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 years ended December 31, 2006 and 2005
<Table>
<Caption>
2006 2005
- ----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (49,797) $ 607,946
- ----------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 155,963,183 99,452,610
- ----------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and foreign currencies (94,510,673) (5,854,578)
==============================================================================================
Net increase in net assets resulting from operations 61,402,713 94,205,978
==============================================================================================
Distributions to shareholders from net investment
income-Series I (692,340) (505,822)
- ----------------------------------------------------------------------------------------------
Share transactions-net:
Series I 337,314,470 (131,492,019)
- ----------------------------------------------------------------------------------------------
Series II 15,761,962 175,908,989
==============================================================================================
Net increase in net assets resulting from share
transactions 353,076,432 44,416,970
==============================================================================================
Net increase in net assets 413,786,805 138,117,126
==============================================================================================
NET ASSETS:
Beginning of year 1,162,088,626 1,023,971,500
==============================================================================================
End of year (including undistributed net investment income
(loss) of $(321,756) and $574,433, respectively) $1,575,875,431 $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
December 31, 2006
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-one 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.
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 or official closing price as of the close of
the customary trading session on the exchange where the security is
principally traded, or lacking any sales or official closing price on a
particular day, the security may be valued at the closing bid price on that
day. Securities traded in the over-the-counter market 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. 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 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 open-end and closed-end registered
investment companies that trade on an exchange are valued at the last sales
price or official closing price as of the close of the customary trading
session on the exchange where the security is principally traded.
Debt obligations (including convertible bonds) and unlisted equities 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.
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. If market quotations are available and reliable for
foreign exchange traded equity securities, the securities will be valued at
the market quotations. Because trading hours for certain foreign securities
end before the close of the NYSE, closing market quotations may become
unreliable. If between the time trading ends on a particular security and
the close of the customary trading session on the NYSE, events occur that
are significant and may make the closing price unreliable, the Fund may
fair value the security. 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 prices are not provided by any of the above
methods may be valued based upon quotes furnished by independent sources
and are valued at the last bid price in the case of equity securities and
in the case of debt obligations, the mean between the last bid and asked
prices.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
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
AIM V.I. Capital Appreciation Fund
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 the 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 to distribute substantially all of the
Fund's taxable earnings to shareholders. As such, the Fund will not be
subject to federal income taxes on otherwise taxable income (including net
realized capital gain) that 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. ACCOUNTING ESTIMATES -- 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.
H. INDEMNIFICATIONS -- 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.
I. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in
foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from (i) sales
of foreign currencies, (ii) currency gains or losses realized between the
trade and settlement dates on securities transactions, and (iii) the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
The fund may invest in foreign securities which may be subject to foreign
taxes on income, gains on investments or currency repatriation, a portion
of which may be recoverable. Taxes are accrued based on the Fund's current
interpretation of tax regulations and rates that exist in the foreign
markets in which the Fund invests.
J. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security.
Fluctuations in the value of these contracts are recorded as unrealized
appreciation (depreciation) until the contracts are closed. When these
contracts are closed, realized gains (losses) are recorded. Realized and
unrealized gains and losses on these contracts are included in the
Statement of Operations. The Fund could be exposed to risk, which may be in
excess of the amount reflected in the Statement of Assets and Liabilities,
if counterparties to the contracts are unable to meet the terms of their
contracts or if the value of the foreign currency changes unfavorably.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM based on the annual rate of the Fund's
average daily net assets as follows:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- -------------------------------------------------------------------
First $250 million 0.65%
- -------------------------------------------------------------------
Over $250 million 0.60%
__________________________________________________________________
===================================================================
</Table>
AIM V.I. Capital Appreciation Fund
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 at least 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. In addition, the Fund will also benefit from a one time credit to be used
to offset future custodian expenses. These credits are used to pay certain
expenses incurred by the Fund. AIM did not waive fees and/or reimburse expenses
during the period under this expense limitation.
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in
the amount of 25% of the advisory fee AIM receives from the affiliated money
market funds on investments by the Fund in such affiliated money market funds
(excluding investments made in affiliated money market funds with cash
collateral from securities loaned by the fund). Voluntary fee waivers or
reimbursements may be modified or discontinued at any time upon consultation
with the Board of Trustees without further notice to investors.
For the year ended December 31, 2006, AIM waived advisory fees of $6,238.
At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the year ended December 31, 2006, AMVESCAP did not
reimburse any such expenses.
The Trust has entered into a master administrative services agreement with
AIM pursuant to which the Fund 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. The
Fund may reimburse AIM for up to 0.25% of average daily assets invested by each
insurance company providing administrative services to the Fund. Pursuant to
such agreement, for the year ended December 31, 2006, AIM was paid $341,189 for
accounting and fund administrative services and reimbursed $3,343,532 for
services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with AIM
Investment Services, Inc. ("AIS") pursuant to which the Fund has agreed to pay
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 year ended December 31, 2006, expenses incurred under the
agreement are shown in the Statement of Operations as transfer agent fees.
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 Plan payments, 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. For the year ended December 31, 2006, expenses
incurred under the Plan are shown in the Statement of Operations as distribution
fees.
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 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 year ended
December 31, 2006.
AIM V.I. Capital Appreciation Fund
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) 12/31/06 INCOME GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-Institutional
Class $14,102,149 $238,647,945 $(242,716,706) $ -- $10,033,388 $ 574,763 $ --
- -----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-Institutional
Class 14,102,149 107,157,998 (121,260,147) -- -- 266,489 --
- -----------------------------------------------------------------------------------------------------------------------------------
Premier
Portfolio-Institutional
Class -- 139,578,290 (129,544,902) -- 10,033,388 324,829 --
===================================================================================================================================
Subtotal $28,204,298 $485,384,233 $(493,521,755) $ -- $20,066,776 $1,166,081 $ --
===================================================================================================================================
</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) 12/31/06 INCOME* GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-Institutional
Class $66,155,830 $281,614,900 $(323,512,240) $ -- $24,258,490 $ 164,363 $ --
===================================================================================================================================
Total
Investments
in
Affiliates $94,360,128 $766,999,133 $(817,033,995) $ -- $44,325,266 $1,330,444 $ --
___________________________________________________________________________________________________________________________________
===================================================================================================================================
</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 year ended December 31, 2006, the Fund
engaged in securities sales of $7,677,987, which resulted in net realized gains
of $8,312, and securities purchases of $43,868,910.
NOTE 5--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) custodian credits which
result from periodic overnight cash balances at the custodian and (ii) a one
time custodian fee credit to be used to offset future custodian fees. For the
year ended December 31, 2006, the Fund received credits from these arrangements,
which resulted in the reduction of the Fund's total expenses of $26,235.
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 year ended December 31, 2006, the Fund paid legal fees of $8,676
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 Securities and Exchange Commission, the
Fund may participate in an interfund lending facility that AIM has established
for temporary borrowings by the AIM Funds. An interfund loan will be made under
this facility only if the loan rate (an average of the rate available on bank
loans and the rate available on investments in overnight repurchase agreements)
is favorable to both the lending fund and the borrowing fund. A loan will be
secured by collateral if the Fund's aggregate borrowings from all sources
exceeds 10% of the Fund's total assets. To the extent that the loan is required
to be secured by collateral, the collateral is marked to market daily to ensure
that the market value is at least 102% of the outstanding principal value of the
loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended December 31, 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 bank 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 contractually agreed upon rate.
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 December 31, 2006, securities with an aggregate value of $23,197,471 were
on loan to brokers. The loans were secured by cash collateral of $24,258,490
received by the Fund and subsequently invested in affiliated money market funds.
For the year ended December 31, 2006, the Fund received dividends on cash
collateral investments of $164,363 for securities lending transactions, which
are net of compensation to counterparties.
NOTE 9--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended December 31, 2006
and 2005 was as follows:
<Table>
<Caption>
2006 2005
- ----------------------------------------------------------------------------------
Distributions paid from ordinary income $692,340 $505,822
__________________________________________________________________________________
==================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2006, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2006
- ------------------------------------------------------------------------------
Unrealized appreciation-investments $ 243,452,108
- ------------------------------------------------------------------------------
Temporary book/tax differences (288,691)
- ------------------------------------------------------------------------------
Post-October currency loss deferral (33,066)
- ------------------------------------------------------------------------------
Capital loss carryforward (308,244,429)
- ------------------------------------------------------------------------------
Shares of beneficial interest 1,640,989,509
==============================================================================
Total net assets $1,575,875,431
______________________________________________________________________________
==============================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales and certain straddles. The tax-basis unrealized appreciation on
investments amount includes appreciation on foreign currencies of $1,403.
AIM V.I. Capital Appreciation Fund
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan benefits.
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, 2006 to utilizing 214,210,240 of capital loss carryforward in the fiscal
year ended December 31, 2007.
The Fund utilized $155,628,370 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of December 31, 2006 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
December 31, 2009 $ 69,344,321
- -----------------------------------------------------------------------------
December 31, 2010 182,587,156
- -----------------------------------------------------------------------------
December 31, 2011 56,312,952
=============================================================================
Total capital loss carryforward $308,244,429
_____________________________________________________________________________
=============================================================================
</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. To the extent that unrealized gains as of the dates May
1, 2006, the date of the reorganization of AIM V.I. Aggressive Growth Fund and
AIM V.I. Growth Fund into the Fund and November 6, 2006, the date of the
reorganization of AIM V.I. Demographic Trends Fund into the Fund are realized
on securities held in each fund at such dates of the reorganizations, the
capital loss carryforward may be further limited for up to five years from the
dates of the reorganizations.
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities,
U.S. Treasury obligations and money market funds, if any) purchased and sold by
the Fund during the year ended December 31, 2006 was $1,652,875,191 and
$1,501,608,607, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $257,762,958
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (14,312,253)
==============================================================================
Net unrealized appreciation of investment securities $243,450,705
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $1,341,523,881.
</Table>
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions, net operating losses and expenses related to the plans of
reorganization, on December 31, 2006, undistributed net investment income (loss)
was decreased by $13,439, undistributed net realized gain (loss) was increased
by $247,040,560 and shares of beneficial interest decreased by $247,027,121.
Further, as a result of tax deferrals acquired in the reorganizations of AIM
V.I. Aggressive Growth Fund and AIM V.I. Growth Fund into the Fund on May 1,
2006 and the reorganization of AIM V.I. Demographic Trends Fund into the Fund on
November 6, 2006, undistributed net investment income (loss) was decreased by
$140,613, undistributed net realized gain (loss) was decreased by $395,351,656
and shares of beneficial interest increased by $395,492,269. These
reclassifications had no effect on the net assets of the Fund.
AIM V.I. Capital Appreciation Fund
NOTE 12--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- --------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
2006(a) 2005
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- --------------------------------------------------------------------------------------------------------------------------
Sold:
Series I 5,977,566 $ 149,575,490 7,080,254 $ 158,159,074
- --------------------------------------------------------------------------------------------------------------------------
Series II 2,823,485 70,459,146 8,650,154 194,868,060
==========================================================================================================================
Issued as reinvestment of dividends:
Series I 24,351 639,944 17,427 439,171
==========================================================================================================================
Issued in connection with acquisitions:(b)
Series I 18,028,541 472,256,763 -- --
- --------------------------------------------------------------------------------------------------------------------------
Series II 1,104,876 28,680,379 -- --
==========================================================================================================================
Reacquired:
Series I (11,438,432) (285,157,727) (12,847,505) (290,090,264)
- --------------------------------------------------------------------------------------------------------------------------
Series II (3,482,328) (83,377,563) (851,863) (18,959,071)
==========================================================================================================================
13,038,059 $ 353,076,432 2,048,467 $ 44,416,970
__________________________________________________________________________________________________________________________
==========================================================================================================================
</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 52% of
the outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with
these entities whereby these entities sell units of interest in separate
accounts funding variable products that are invested in the Fund. The
Fund, AIM, and/or AIM affiliates may make payments to these entities,
which are considered to be related to the Fund, for providing services
to the Fund, AIM and/or AIM affiliates including but not limited to
services such as, securities brokerage, third party record keeping and
account servicing and administrative services. The trust has no
knowledge as to whether all or any portion of the shares owned of record
by these entities are also owned beneficially.
(b) As of the opening of business on May 1, 2006, the Fund acquired all the
net assets of AIM V.I. Aggressive Growth Fund and AIM V.I. Growth Fund
pursuant to the plans 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, respectively on April 4, 2006. The
acquisitions were 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. Each class of
shares of AIM V.I. Aggressive Growth Fund and AIM V.I. Growth Fund was
exchanged for the like class of shares of the Fund based on the relative
net asset value of AIM V.I. Aggressive Growth Fund and AIM V.I. Growth
Fund to the net asset value of the Fund on the close of business, April
28, 2006. AIM V.I. Aggressive Growth Fund's net assets as of the close
of business on April 28, 2006 of $155,800,373 including $27,776,076 of
unrealized appreciation and AIM V.I. Growth Fund's net assets as of the
close of business on April 28, 2006 of $288,359,981 including
$64,941,780 of unrealized appreciation, were combined with the net
assets of the Fund immediately before the acquisition of $1,269,556,120.
The combined aggregate net assets of the Fund subsequent to the
reorganization were $1,713,716,474.
() In addition, as of the opening of business on November 6, 2006, the
Fund acquired all the net assets of AIM V.I. Demographic Trends Fund
pursuant to a plan of reorganization approved by the Trustees of the
Fund on August 1, 2006 and by the shareholders of AIM V.I. Demographic
Trends Fund on October 31, 2006. The acquisition was accomplished by a
tax free exchange of 2,239,345 shares of the Fund for 10,236,579 shares
of AIM V.I. Demographic Trends Fund shares outstanding as of the close
of business on November 3, 2006. Each class of shares of AIM V.I.
Demographic Trends Fund was exchanged for the like class of shares of
the Fund based on the relative net asset value of AIM V.I. Demographic
Trends Fund to the net asset value of the Fund on the close of business,
November 3, 2006. AIM V.I. Demographic Trends Fund 's net assets as of
the close of business on November 3, 2006 of $56,776,788 including
$4,497,179 of unrealized appreciation, were combined with the net assets
of the Fund immediately before the acquisition of $,1,506,731,773. The
combined aggregate net assets of the Fund subsequent to the
reorganization were $1,563,508,561.
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 for 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 the fiscal year
ending 2007.
AIM V.I. Capital Appreciation Fund
NOTE 14--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
2006 2005 2004 2003 2002
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 24.67 $ 22.69 $ 21.28 $ 16.43 $ 21.72
- --------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.01 0.03 0.02(a) (0.04)(b) (0.05)(b)
- --------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.55 1.97 1.39 4.89 (5.24)
================================================================================================================================
Total from investment operations 1.56 2.00 1.41 4.85 (5.29)
================================================================================================================================
Less dividends from net investment income (0.01) (0.02) -- -- --
================================================================================================================================
Net asset value, end of period $ 26.22 $ 24.67 $ 22.69 $ 21.28 $ 16.43
________________________________________________________________________________________________________________________________
================================================================================================================================
Total return(c) 6.34% 8.79% 6.62% 29.52% (24.35)%
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,204,559 $822,899 $886,990 $938,820 $763,038
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.91%(d) 0.89% 0.91% 0.85% 0.85%
================================================================================================================================
Ratio of net investment income (loss) to average net
assets 0.06%(d) 0.11% 0.09%(a) (0.23)% (0.27)%
________________________________________________________________________________________________________________________________
================================================================================================================================
Portfolio turnover rate 120% 97% 74% 61% 67%
________________________________________________________________________________________________________________________________
================================================================================================================================
</Table>
(a) Net investment income per share and the ratio of net investment income
to average net assets include a special cash dividend received of $3.00
per share owned of Microsoft Corp. on December 2, 2004. Net investment
income (loss) per share and the ratio of net investment income (loss) to
average net assets excluding the special dividend are $(0.04) and
(0.17)%, respectively.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns do not reflect charges assessed
in connection with a variable product, which if included would reduce
total returns.
(d) Ratios based on average daily net assets of $1,071,728,909.
<Table>
<Caption>
SERIES II
----------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
2006 2005 2004 2003 2002
- --------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 24.43 $ 22.50 $ 21.16 $ 16.38 $ 21.70
- --------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.05) (0.03) (0.02)(a) (0.09)(b) (0.09)(b)
- --------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.53 1.96 1.36 4.87 (5.23)
================================================================================================================================
Total from investment operations 1.48 1.93 1.34 4.78 (5.32)
================================================================================================================================
Net asset value, end of period $ 25.91 $ 24.43 $ 22.50 $ 21.16 $ 16.38
________________________________________________________________________________________________________________________________
================================================================================================================================
Total return(c) 6.06% 8.58% 6.33% 29.18% (24.52)%
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $371,316 $339,190 $136,982 $70,466 $23,893
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.16%(d) 1.14% 1.16% 1.10% 1.10%
================================================================================================================================
Ratio of net investment income (loss) to average net
assets (0.19)%(d) (0.14)% (0.16)%(a) (0.48)% (0.52)%
________________________________________________________________________________________________________________________________
================================================================================================================================
Portfolio turnover rate 120% 97% 74% 61% 67%
________________________________________________________________________________________________________________________________
================================================================================================================================
</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.
(b) Calculated using average shares outstanding.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns do not reflect charges assessed
in connection with a variable product, which if included would reduce
total returns.
(d) Ratios are based on average daily net assets of $368,224,387.
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
AIM V.I. Capital Appreciation Fund
NOTE 15--LEGAL PROCEEDINGS--(CONTINUED)
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. 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 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; 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. On September 15, 2006, the
MDL Court granted the AMVESCAP defendants' motion to dismiss the Amended Class
Action Complaint for Violations of ERISA and dismissed such Complaint. The
plaintiff has commenced an appeal from that decision.
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.
AIM V.I. Capital Appreciation Fund
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V.I. Capital Appreciation Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM V.I. Capital Appreciation Fund
(one of the funds constituting AIM Variable Insurance Funds, hereafter referred
to as the "Fund") at December 31, 2006, the results of its operations for the
year then ended and the changes in its net assets and the financial highlights
for each of the two years in the period then ended, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2006 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion. The financial highlights for each of the periods ended on or before
December 31, 2004 were audited by another independent registered public
accounting firm whose report dated February 4, 2005 expressed an unqualified
opinion on those statements.
PRICEWATERHOUSECOOPERS LLP
February 14, 2007
Houston, Texas
AIM V.I. Capital Appreciation Fund
TAX INFORMATION
Form 1099-DIV, Form 1042-S and other year-end tax information provide
shareholders with actual calendar year amounts that should be included in their
tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the
Internal Revenue Code or to meet a specific state's requirement.
The Fund designates the following amounts or, if subsequently determined to
be different, the maximum amount allowable for its fiscal year ended December
31, 2006:
FEDERAL AND STATE INCOME TAX
<Table>
Corporate Dividends Received Deduction* 99.66%
</Table>
* The above percentages are based on ordinary income dividends paid to
shareholders during the fund's fiscal year.
AIM V.I. Capital Appreciation Fund
TRUSTEES AND OFFICERS
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management None
Trustee and Vice Chair Group Inc. (financial services holding
company); Director and Vice Chairman,
AMVESCAP PLC; Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm) and
Trustee and Vice Chair of The AIM Family
of Funds--Registered Trademark--
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer);
Chief Executive Officer, AMVESCAP
PLC -- Managed Products; and President
and Principal Executive Officer of The
AIM Family of Funds--Registered
Trademark--
- -------------------------------------------------------------------------------------------------------------------------------
Philip A. Taylor(2) -- 1954 2006 Director, Chief Executive Officer and None
Trustee, President and President, A I M Management Group Inc.,
Principal AIM Mutual Fund Dealer Inc. (registered
Executive Officer broker dealer), AIM Funds Management
Inc. (registered investment advisor) and
1371 Preferred Inc. (holding company);
Director and President, A I M Advisors,
Inc., INVESCO Funds Group, Inc.
(registered investment advisor and
register transfer agent) and AIM GP
Canada Inc. (general partner for a
limited partnership); Director, A I M
Capital Management, Inc. and A I M
Distributors, Inc.; Director and
Chairman, AIM Investment Services, Inc.,
Fund Management Company and INVESCO
Distributors, Inc. (registered broker
dealer); Director, President and
Chairman, AVZ Callco Inc. (holding
company); AMVESCAP Inc. (holding
company) and AIM Canada Holdings Inc.
(holding company); Director and Chief
Executive Officer, AIM Trimark Corporate
Class Inc. (formerly AIM Trimark Global
Fund Inc.) (corporate mutual fund
company) and AIM Trimark Canada Fund
Inc. (corporate mutual fund company);
Trustee, President and Principal
Executive Officer of The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); Trustee and
Executive Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); and Manager,
Powershares Capital Management LLC
Formerly: President and Principal
Executive Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); Chairman, AIM
Canada Holdings, Inc.; Executive Vice
President and Chief Operations Officer,
AIM Funds Management Inc.; President,
AIM Trimark Global Fund Inc. and AIM
Trimark Canada Fund Inc.; and Director,
Trimark Trust (federally regulated
Canadian Trust Company)
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company
Formerly: Partner, law firm of Baker & (2 portfolios))
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Founder, Green, Manning & Bunch Ltd., None
Trustee (investment banking firm); and Director,
Policy Studies, Inc. and Van Gilder
Insurance Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and None
Trustee private business corporations, including
the Boss Group Ltd. (private investment
and management); Cortland Trust, Inc.
(Chairman) (registered investment
company (3 portfolios)); Annuity and
Life Re (Holdings), Ltd. (insurance
company); CompuDyne Corporation
(provider of products and services to
the public security market); and
Homeowners of America Holding
Corporation (property casualty company)
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and Director of various
affiliated Volvo companies; and
Director, Magellan Insurance Company
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund
company); and Owner, Dos Angelos Ranch, (non-profit)
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- -------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company
(3 portfolios))
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired Director, Mainstay VP Series
Trustee Funds, Inc. (21 portfolios)
Formerly: Partner, Deloitte & Touche
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
(2) Mr. Taylor is considered an interested person of the Trust because he is an
officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
TRUSTEES AND OFFICERS--(CONTINUED)
AIM V.I. Capital Appreciation Fund
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Senior Vice President and Senior Officer N/A
Senior Vice President and of The AIM Family of Funds--Registered
Senior Officer Trademark--
Formerly: Director of Compliance and
Assistant General Counsel, ICON
Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
John M. Zerr -- 1962 2006 Director, Senior Vice President, N/A
Senior Vice President, Chief Secretary and General Counsel, A I M
Legal Officer and Secretary Management Group Inc. and A I M
Advisors, Inc.; Director, Vice President
and Secretary, INVESCO Distributors,
Inc.; Vice President and Secretary,
A I M Capital Management, Inc., AIM
Investment Services, Inc., and Fund
Management Company; Senior Vice
President and Secretary, A I M
Distributors, Inc.; Director and Vice
President, INVESCO Funds Group Inc.;
Senior Vice President, Chief Legal
Officer and Secretary of The AIM Family
of Funds--Registered Trademark--; and
Manager, Powershares Capital Management
LLC
Formerly: Chief Operating Officer,
Senior Vice President, General Counsel,
and Secretary, Liberty Ridge Capital,
Inc. (an investment adviser); Vice
President and Secretary, PBHG Funds (an
investment company); Vice President and
Secretary, PBHG Insurance Series Fund
(an investment company); General Counsel
and Secretary, Pilgrim Baxter Value
Investors (an investment adviser); Chief
Operating Officer, General Counsel and
Secretary, Old Mutual Investment
Partners (a broker-dealer); General
Counsel and Secretary, Old Mutual Fund
Services (an administrator); General
Counsel and Secretary, Old Mutual
Shareholder Services (a shareholder
servicing center); Executive Vice
President, General Counsel and
Secretary, Old Mutual Capital, Inc. (an
investment adviser); and Vice President
and Secretary, Old Mutual Advisors Funds
(an investment company)
- ------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Global Compliance Director, AMVESCAP N/A
Vice President PLC; and Vice President of The AIM
Family of Funds--Registered Trademark--
Formerly: Senior Vice President, A I M
Management Group Inc.; Senior Vice
President and Chief Compliance Officer,
A I M Advisors, Inc.; Vice President and
Chief Compliance Officer, A I M Capital
Management, Inc. and A I M Distributors,
Inc.; Vice President, AIM Investment
Services, Inc. and Fund Management
Company; Senior Vice President and Chief
Compliance Officer of The AIM Family of
Funds--Registered Trademark--; and
Senior Vice President and Compliance
Director, Delaware Investments Family of
Funds
- ------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Senior Vice President and General N/A
Vice President Counsel, AMVESCAP PLC; Director, INVESCO
Funds Group, Inc.; and Vice President of
The AIM Family of Funds--Registered
Trademark--
Formerly: Director, Vice President and
General Counsel, Fund Management
Company; Director, Senior Vice
President, Secretary and General
Counsel, A I M Management Group Inc. and
A I M Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Senior Vice President, A I M
Distributors, Inc.; Vice President,
A I M Capital Management, Inc. and AIM
Investment Services, Inc.; Senior Vice
President, Chief Legal Officer and
Secretary of The AIM Family of
Funds--Registered Trademark--; Chief
Executive Officer and President, INVESCO
Funds Group, Inc.; and Senior Vice
President, and General Counsel, Liberty
Financial Companies, Inc. and Senior
Vice President and General Counsel
Liberty Funds Group, LLC
- ------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President, Principal Advisors, Inc.; and Vice President,
Financial Officer and Treasurer and Principal Officer of The
Treasurer AIM Family of Funds--Registered
Trademark--
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
J. Philip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment Officer, A I M Advisors Inc.;
Director, Chairman, Chief Executive
Officer, President and Chief Investment
Officer, A I M Capital Management, Inc.;
Executive Vice President, A I M
Management Group Inc. and Vice President
of The AIM Family of Funds--Registered
Trademark--
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; and
Chief Equity Officer, Senior Vice
President and Senior Investment Officer,
A I M Capital Management, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc. and The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); and
President and Principal Executive
Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust Only)
Formerly: Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only)
- ------------------------------------------------------------------------------------------------------------------------------
Lance A. Rejsek -- 1967 2005 Anti-Money Laundering Compliance N/A
Anti-Money Laundering Officer, A I M Advisors, Inc., A I M
Compliance Officer Capital Management, Inc., A I M
Distributors, Inc., AIM Investment
Services, Inc., AIM Private Asset
Management, Inc., Fund Management
Company and The AIM Family of
Funds--Registered Trademark--
Formerly: Manager of the Fraud
Prevention Department, AIM Investment
Services, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
Todd L. Spillane -- 1958 2006 Senior Vice President, A I M Management N/A
Chief Compliance Officer Group Inc.; Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc.; and Vice President,
A I M Distributors, Inc., AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Global Head of Product
Development, AIG-Global Investment
Group, Inc.; Chief Compliance Officer
and Deputy General Counsel,
AIG-SunAmerica Asset Management; and
Chief Compliance Officer, Chief
Operating Officer and Deputy General
Counsel, American General Investment
Management
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers
Suite 100 11 Greenway Plaza Inc. LLP
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Ballard Spahr INDEPENDENT TRUSTEES AIM Investment State Street Bank and
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis Services, Inc. Trust Company
1735 Market Street, 51st & Frankel LLP P.O. Box 4739 225 Franklin Street
Floor 1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Philadelphia, PA 19103-7599 Americas
New York, NY 10036-2714
</Table>
DOMESTIC EQUITY AIM V.I. CAPITAL DEVELOPMENT FUND
Mid-Cap Growth
ANNUAL REPORT TO SHAREHOLDERS - DECEMBER 31, 2006
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 [COVER GLOBE IMAGE]
Forms N-Q may be reviewed and copied at the SEC
Public Reference Room in Washington, D.C. 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, AIM V.I. CAPITAL DEVELOPMENT FUND
scroll down and click on AIM Funds Proxy Policy. seeks to provide long-term growth of capital.
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 UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT
Fund from the drop-down menu. The information is IS AS OF DECEMBER 31, 2006, AND IS BASED ON TOTAL NET ASSETS.
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
[AIM INVESTMENTS LOGO] INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ
= Registered Trademark = EACH CAREFULLY BEFORE INVESTING.
=========================================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
Management's discussion of Fund performance AIM V.I. CAPITAL DEVELOPMENT FUND
==========================================================================================
Risk management plays an important
PERFORMANCE SUMMARY role in portfolio construction, as our
target portfolio attempts to limit
For the year ended December 31, 2006, AIM V.I. Capital Development Fund, excluding volatility and downside risk. We seek to
variable product issuer charges, produced double-digit returns and outperformed the broad accomplish this goal by investing in
market, as measured by the S&P 500 --Registered Trademark-- Index, and the Fund's sectors, industries and companies with
style-specific index, the Russell Midcap --Registered Trademark-- Growth Index. attractive fundamental prospects. We
limit the Fund's sector exposure and
Solid stock selection and strong performance by mid-cap stocks enabled the Fund to also seek to minimize stock-specific
outperform the large-cap oriented S&P 500 Index. Stock selection across sectors also risk by building a diversified portfolio
enabled the Fund to outperform the Russell Midcap Growth Index. of 100 to 120 holdings with an
approximate weight of 1% at the time of
Your Fund's long-term performance appears on pages 4 - 5. purchase.
FUND VS. INDEXES We consider selling a stock for
any of the following reasons:
Total returns, 12/31/05 - 12/31/06,
excluding variable product issuer charges. - The stock is overvalued based on our
If variable product issuer charges were analysis.
included, returns would be lower.
- A change in fundamental metrics
Series I Shares 16.52% indicates potential problems.
Series II Shares 16.26
S&P 500 Index (Broad Market Index) 15.78 - A change in market capitalization --
Russell Midcap Growth Index (Style-Specific Index) 10.66 if a stock grows and moves into the
Lipper Mid-Cap Growth Funds Index (Peer Group Index) 11.02 large-cap range.
SOURCE: LIPPER INC.
========================================================================================== - A better stock candidate with higher
potential return is found.
How we invest - Earnings - focus on companies exhibiting
strong growth in earnings, revenue and cash Market conditions and your Fund
We believe a growth investment strategy is flows
an essential component of a diversified Domestic equities posted solid returns
portfolio. - Quality - focus on companies with during the year, leaving several major
sustainable earnings growth and management market indexes near multi-year highs.
Our investment process combines teams that profitably reinvest shareholder Strong economic growth, favorable
quantitative and fundamental analysis to cash flow corporate earnings and continued benign
uncover companies exhibiting long-term, inflation benefited equities, offsetting
sustainable earnings and cash flow growth - Valuation - focus on companies that are high energy prices, a slowing housing
that is not yet reflected by the stock's attractively valued given their growth market and the U.S. Federal Reserve
market price. potential Board's (the Fed) tightening campaign.
Our quantitative model ranks companies Stocks that are ranked highest by our While small cap stocks continued
based on factors we have found to be highly quantitative model are the focus of our to lead the market higher, large- and
correlated with outperformance in the fundamental research efforts. Our mid-cap stocks also had double-digit
mid-cap growth universe, including: fundamental analysis focuses on identifying returns. Value stocks outperformed
both industries and companies with strong growth stocks. Positive performance was
drivers of growth. broad among Russell Midcap Growth Index
sectors, with the best returns found in
telecommunication services, materials
and utilities.
====================================================================================================================================
PORTFOLIO COMPOSITION TOP FIVE INDUSTRIES* TOP 10 EQUITY HOLDINGS*
====================================================================================================================================
By sector 1. Aerospace & Defense 6.2% 1. Precision Castparts Corp. 1.6%
Information Technology 18.3% 2. Application Software 5.1 2. CB Richard Ellis Group,
Health Care 17.6 3. Wireless Telecommunication Services 4.5 Inc.-Class A 1.5
Industrials 16.9 4. Managed Health Care 3.6 3. Corrections Corp. of America 1.4
Consumer Discretionary 16.4 5. Pharmaceuticals 3.3 4. NII Holdings Inc. 1.3
Financials 10.5 Total Net Assets $277.66 million 5. Polo Ralph Lauren Corp. 1.3
Energy 7.2 Total Number of Holdings* 112 6. Foster Wheeler Ltd. 1.3
Telecommunication Services 5.5 7. Scientific Games Corp.-Class A 1.2
Consumer Staples 1.8 8. Security Capital Assurance Ltd. 1.2
Materials 1.5 9. Burger King Holdings Inc. 1.2
Money Market Funds 10. Spirit Aerosystems
Plus Other Assets Less Liabilities 4.3 Holdings Inc.-Class A 1.2
The Fund's holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
====================================================================================================================================
2
The Fund benefited from positive Our investment process led us to AIM V.I. CAPITAL DEVELOPMENT FUND
absolute performance in nine out of 10 increase the Fund's exposure in the In closing
economic sectors, with the highest positive telecommunication services sector, as we Although we are pleased to have provided
impact on performance coming from holdings identified a number of attractive investment positive returns for our investors for
in the industrials, consumer discretionary opportunities. Within this sector, the the reporting period, we are always
and information technology sectors. On a Fund's overweight position and stock striving to improve performance and help
relative basis, the Fund outperformed the selection drove outperformance versus the you meet your financial goals. We thank
Russell Midcap Growth Index in seven out of Russell Midcap Growth Index as the you for your commitment to AIM V.I.
10 sectors, with the widest margin of telecommunication services sector was the Capital Development Fund.
outperformance in the industrials, consumer top-performing sector in the Russell Midcap
discretionary, energy and telecommunication Growth Index during the year. THE VIEWS AND OPINIONS EXPRESSED IN
SERVICES SECTORS. MANAGEMENT'S DISCUSSION OF FUND
One other specific area of strength PERFORMANCE ARE THOSE OF A I M Advisors,
The industrials sector rallied during for the Fund was the information technology INC. THESE VIEWS AND OPINIONS ARE
the period, and the Fund benefited from (IT) sector, where our investment process SUBJECT TO CHANGE AT ANY TIME BASED ON
solid performance from holdings in a number led us to invest in a number of stocks in FACTORS SUCH AS MARKET AND ECONOMIC
of different industries. Two of the Fund's the IT services, semiconductors and CONDITIONS. THESE VIEWS AND OPINIONS MAY
holdings that made significant contributions semiconductor equipment and electronic NOT BE RELIED UPON AS INVESTMENT ADVICE
to performance were IHS and MANITOWOC. IHS, equipment and instruments industries that OR RECOMMENDATIONS, OR AS AN OFFER FOR A
a publisher of technical documents focusing performed well in 2006. One example is MEMC PARTICULAR SECURITY. THE INFORMATION IS
on engineering, energy and regulatory ELECTRONIC MATERIALS, a leading supplier of NOT A COMPLETE ANALYSIS OF EVERY ASPECT
issues, was the leading contributor to Fund silicon wafers to manufacturers of solar OF ANY MARKET, COUNTRY, INDUSTRY,
performance for the year. Manitowoc, a energy equipment and semiconductors. Other SECURITY OR THE FUND. STATEMENTS OF FACT
company that makes cranes and other IT holdings that drove Fund performance ARE FROM SOURCES CONSIDERED RELIABLE,
material-handling equipment, was also a top included private-label credit card services BUT A I M ADVISORS, INC. MAKES NO
contributor to Fund performance for the holding ALLIANCE DATA SYSTEMS and electronic REPRESENTATION OR WARRANTY AS TO THEIR
year. We subsequently sold the stock. equipment maker AMPHENOL. COMPLETENESS OR ACCURACY. ALTHOUGH
HISTORICAL PERFORMANCE IS NO GUARANTEE
Despite facing a number of different The Fund underperformed relative to OF FUTURE RESULTS, THESE INSIGHTS MAY
head-winds, consumer spending was resilient the Russell Midcap Growth Index in three HELP YOU UNDERSTAND OUR INVESTMENT
throughout much of the year, and the Fund sectors -- financials, utilities and MANAGEMENT PHILOSOPHY.
BENEFITED from solid stock selection in a materials. The widest margin of
variety of different areas, including the underperformance was in the financials Paul J. Rasplicka
textiles, apparel, and luxury goods sector, where stock selection and an Chartered Financial
industry. Holdings that made key underweight position in real estate [RASPLICKA Analyst and senior
contributions included POLO RALPH Lauren and investment trust (REIT) holdings were the PHOTO] portfolio manager,
COACH. The Fund also benefited by not owning key detractors from performance. However, is lead manager of
many of the home builder stocks that one holding that offset some of this AIM V.I. Capital
performed poorly during the year. underperformance in the financials sector Development Fund. Mr. Rasplicka began
was commercial real estate services holding his investment career in 1982. A native
The energy sector experienced wide CB RICHARD ELLIS, which was up over 60% for of Denver, Mr. Rasplicka is a magna cum
swings but finished positive for 2006. In the year. laude graduate of the University of
this volatile environment, the Fund Colorado at Boulder with a B.S. in
benefited from strong stock selection and an Underperformance in the utilities business administration. He received
overweight position relative to the sector was largely due to the Fund's an M.B.A. from the University of
style-specific index. Within this sector, underweight position, as many utilities Chicago. He is also a Chartered
the top contributor to Fund performance was stocks performed well during the reporting Investment Counselor.
AVENTINE RENEWABLE ENERGY HOLDINGS, one of period.
the leading producers and marketers of
ethanol, a grain alcohol mainly used as a An underweight position and stock Assisted by the Mid Cap Growth/GARP
fuel additive in gasoline to reduce vehicle selection in the materials sector also (Growth at a Reasonable Price) Team
emissions and enhance engine performance. contributed to underperformance. In this
Aventine's stock price was up close to 75% sector, SMURFIT STONE CONTAINER detracted
during the year due to strong demand and from Fund returns. We subsequently sold this
rising prices for ethanol. Ethanol was in holding due to deteriorating fundamentals.
strong demand after many refiners phased out
the use of MTBE, a fuel additive, due to During the reporting period, the most
legal concerns. However, we sold the Fund's significant changes to portfolio positioning
position in the stock before the end of the included additions to the industrials and
year. financials sectors, and a reduction in the
IT and energy sector. All changes to the
Fund were based on our bottom-up stock FOR A DISCUSSION OF THE RISKS OF
selection process of identifying high INVESTING IN YOUR FUND, INDEXES USED IN
quality growth companies trading at what we THIS REPORT AND YOUR FUND'S LONG-TERM
believe are attractive valuations. PERFORMANCE, PLEASE SEE PAGES 4-5.
3
YOUR FUND'S LONG-TERM PERFORMANCE
============================================
AIM V.I. CAPITAL DEVELOPMENT FUND
AVERAGE ANNUAL TOTAL RETURNS RESTATED HISTORICAL PERFORMANCE OF SERIES I A SERIES PORTFOLIO OF AIM VARIABLE
SHARES (FOR PERIODS PRIOR TO INCEPTION OF INSURANCE FUNDS, IS CURRENTLY OFFERED
As of 12/31/06 SERIES II SHARES) ADJUSTED TO REFLECT THE THROUGH INSURANCE COMPANIES ISSUING
SERIES I SHARES RULE 12b-1 FEES APPLICABLE TO SERIES II VARIABLE PRODUCTS. YOU CANNOT PURCHASE
Inception (5/1/98) 7.57% SHARES. THE INCEPTION DATE OF SERIES I SHARES OF THE FUND DIRECTLY. PERFORMANCE
5 Years 9.44 SHARES IS MAY 1, 1998. THE PERFORMANCE OF FIGURES GIVEN REPRESENT THE FUND AND ARE
1 Year 16.52 THE FUND'S SERIES I AND SERIES II SHARE NOT INTENDED TO REFLECT ACTUAL VARIABLE
CLASSES WILL DIFFER PRIMARILY DUE TO PRODUCT VALUES. THEY DO NOT REFLECT
SERIES II SHARES DIFFERENT CLASS EXPENSES. SALES CHARGES, EXPENSES AND FEES
Inception 7.31% ASSESSED IN CONNECTION WITH A VARIABLE
5 Years 9.16 THE PERFORMANCE DATA QUOTED REPRESENT PRODUCT. SALES CHARGES, EXPENSES AND
1 Year 16.26 PAST PERFORMANCE AND CANNOT GUARANTEE FEES, WHICH ARE DETERMINED BY THE
============================================ COMPARABLE FUTURE RESULTS; CURRENT VARIABLE PRODUCT ISSUERS, WILL VARY AND
PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE WILL LOWER THE TOTAL RETURN.
============================================ CONTACT YOUR VARIABLE PRODUCT ISSUER OR
CUMULATIVE TOTAL RETURNS FINANCIAL ADVISOR FOR THE MOST RECENT PER NASD REQUIREMENTS, THE MOST
MONTH-END VARIABLE PRODUCT PERFORMANCE. RECENT MONTH-END PERFORMANCE DATA AT THE
6 months ended 12/31/06 PERFORMANCE FIGURES REFLECT FUND EXPENSES, FUND LEVEL, EXCLUDING VARIABLE PRODUCT
Series I Shares 7.32% REINVESTED DISTRIBUTIONS AND CHANGES IN NET CHARGES, IS AVAILABLE ON THIS AIM
Series II Shares 7.17 ASSET VALUE. INVESTMENT RETURN AND PRINCIPAL AUTOMATED INFORMATION LINE,
============================================ VALUE WILL FLUCTUATE SO THAT YOU MAY HAVE A 866-702-4402. AS MENTIONED ABOVE, FOR
SERIES II SHARES' INCEPTION DATE IS AUGUST GAIN OR LOSS WHEN YOU SELL SHARES. THE MOST RECENT MONTH-END PERFORMANCE
21, 2001. RETURNS SINCE THAT DATE ARE INCLUDING VARIABLE PRODUCT CHARGES,
HISTORICAL. ALL OTHER RETURNS ARE THE AIM V.I. CAPITAL DEVELOPMENT FUND, PLEASE CONTACT YOUR VARIABLE PRODUCT
BLENDED RETURNS OF THE HISTORICAL ISSUER OR FINANCIAL ADVISOR.
PERFORMANCE OF SERIES II SHARES SINCE THEIR
INCEPTION AND THE
====================================================================================================================================
Principal risks of investing in the Fund To the extent the Fund holds cash or Russell Midcap companies with higher
cash equivalents rather than equity price/book ratios and higher forecasted
Prices of equity securities change in securities for risk management purposes, the growth values.
response to many factors including the Fund may not achieve its investment
historical and prospective earnings of the objective. The Russell Midcap Growth Index is
issuer, the value of its assets, general a trademark/service mark of the Frank
economic conditions, interest rates, If the seller of a repurchase Russell Company. Russell--Registered
investor perceptions and market liquidity. agreement in which the Fund invests defaults Trademark--is a trademark of the Frank
on its obligation or declares bankruptcy, Russell Company.
Investing in a fund that invests in the Fund may experience delays in selling
smaller companies involves risks not the securities underlying the repurchase The unmanaged LIPPER MID-CAP
associated with investing in more agreement. GROWTH FUNDS INDEX represents an average
established companies, such as business of the performance of the 30 largest
risk, stock price fluctuations and There is no guarantee that the mid-capitalization growth funds tracked
illiquidity. investment techniques and risk analyses used by Lipper Inc., an independent mutual
by the Fund's portfolio managers will fund performance monitor.
Foreign securities have additional produce the desired results.
risks, including exchange rate changes, In conjunction with the annual
political and economic upheaval, the About indexes used in this report prospectus update on or about May 1,
relative lack of information about these 2007, the AIM V.I Capital Development
companies, relatively low market liquidity The unmanaged STANDARD & POOR'S COMPOSITE Fund prospectus will be amended to
and the potential lack of strict financial INDEX OF 500 STOCKS (the S&P 500 Index) is reflect that the Fund has elected to use
and accounting controls and standards. an index of common stocks frequently used as the Lipper Variable Underlying Funds
a general measure of U.S. stock market (VUF) Mid-Cap Growth Funds Index as its
Investing in emerging markets involves performance. peer group rather than the Lipper
greater risk than investing in more Mid-Cap Growth Funds Index. The Lipper
established markets. The risks include the The unmanaged RUSSELL MIDCAP GROWTH VUF Mid-Cap Growth Funds Index, recently
relatively smaller size and lesser liquidity INDEX is a subset of the Russell Midcap published by Lipper Inc., comprises the
of these markets, high inflation rates, Index, which represents the performance of largest underlying funds in each
adverse political developments and lack of the stocks of domestic mid-capitalization variable insurance category and does not
timely information. companies; the Growth subset measures the include mortality and expense fees.
performance of
The Fund is not managed to track
the performance of any particular index,
including
Continued on page 5
4
Past performance cannot guarantee comparable value of an investment, is constructed with AIM V.I. Capital Development Fund
future results. each segment representing a percent change
in the value of the investment. In this
This chart, which is a logarithmic chart, each segment represents a doubling,
chart, presents the fluctuations in the or 100% change, in the value of the
value of the Fund and its indexes. We investment. In other words, the space
believe that a logarithmic chart is more between $5,000 and $10,000 is the same size
effective than other types of charts in as the space between $10,000 and $20,000.
illustrating changes in value during the
early years shown in the chart. The vertical
axis, the one that indicates the dollar
====================================================================================================================================
Continued from page 4
the indexes defined here, and consequently, Industry classifications used in this
the performance of the Fund may deviate report are generally according to the Global
significantly from the performance of the Industry Classification Standard, which was
index. developed by and is the exclusive property
and a service mark of Morgan Stanley Capital
A direct investment cannot be made in International Inc. and Standard & Poor's.
an index. Unless otherwise indicated, index
results include reinvested dividends, and The Chartered Financial Analyst -
they do not reflect sales charges. Registered Trademark-- (CFA --Registered
Performance of an index of funds reflects Trademark--) designation is a globally
fund expenses; performance of a market index recognized standard for measuring the
does not. competence and integrity of investment
professionals.
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 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.
5
================================================================================
[MOUNTAIN CHART]
RESULTS OF A $10,000 INVESTMENT
Index data from 4/30/98, Fund data from 05/01/98
AIM V.I. CAPITAL DEVELOPMENT FUND S&P 500 RUSSELL MIDCAP GROWTH LIPPER MID-CAP GROWTH FUNDS
DATE -SERIES I SHARES INDEX INDEX INDEX
4/30/98 $ 10000 $ 10000 $ 10000
5/98 $ 9430 9828 9589 9417
6/98 9530 10227 9860 9850
7/98 8840 10119 9438 9195
8/98 7120 8657 7636 7212
9/98 7760 9212 8214 7964
10/98 7970 9960 8819 8257
11/98 8480 10564 9414 8885
12/98 9249 11172 10389 10031
1/99 9139 11639 10700 10529
2/99 8346 11278 10177 9711
3/99 8547 11729 10744 10403
4/99 8788 12183 11233 10830
5/99 8888 11895 11089 10785
6/99 9431 12554 11863 11654
7/99 9360 12164 11485 11495
8/99 8958 12103 11366 11437
9/99 9209 11772 11269 11770
10/99 9580 12517 12140 12811
11/99 10534 12771 13397 14418
12/99 11941 13522 15717 17426
1/00 11740 12843 15714 17126
2/00 14432 12600 19018 21419
3/00 14402 13832 19037 19911
4/00 13317 13416 17189 17284
5/00 12544 13141 15936 15731
6/00 13336 13464 17627 18175
7/00 12955 13254 16511 17421
8/00 14371 14077 19001 19699
9/00 13799 13334 18072 18753
10/00 13487 13277 16835 17236
11/00 11981 12231 13177 13632
12/00 13044 12291 13871 14615
1/01 13356 12727 14663 14813
2/01 12363 11567 12127 12591
3/01 11398 10835 10391 11255
4/01 12473 11676 12123 12739
5/01 12764 11755 12066 12844
6/01 12894 11469 12073 12794
7/01 12552 11356 11258 12121
8/01 11990 10646 10442 11309
9/01 10393 9786 8717 9678
10/01 10614 9973 9633 10217
11/01 11418 10738 10670 11056
12/01 11990 10832 11075 11535
1/02 11728 10674 10716 11094
2/02 11688 10468 10108 10543
3/02 12622 10861 10880 11207
4/02 12521 10203 10304 10835
5/02 12280 10128 9996 10473
6/02 11407 9407 8893 9532
7/02 10052 8674 8029 8504
8/02 9941 8731 8001 8403
9/02 8987 7783 7366 7881
10/02 9298 8467 7936 8278
11/02 9840 8965 8557 8770
12/02 9428 8439 8040 8251
1/03 9258 8218 7961 8129
2/03 9167 8095 7892 8003
3/03 9227 8173 8039 8118
4/03 9830 8846 8586 8687
5/03 10533 9311 9413 9406
6/03 10804 9430 9547 9553
7/03 11075 9597 9888 9930
8/03 11527 9784 10432 10418
9/03 11266 9680 10230 10068
10/03 12130 10227 11055 10858
11/03 12452 10317 11350 11116
12/03 12763 10858 11474 11173
1/04 13124 11057 11853 11456
2/04 13465 11211 12052 11614
3/04 13475 11042 12029 11611
4/04 13093 10868 11689 11243
5/04 13164 11017 11965 11487
================================================================================
SOURCE: LIPPER INC.
[MOUNTAIN CHART]
========================================================================================
6/04 13455 11231 12156 11764
7/04 12661 10860 11351 10928
8/04 12490 10903 11211 10739
9/04 13002 11021 11629 11198
10/04 13313 11190 12024 11529
11/04 14136 11642 12645 12170
12/04 14738 12038 13250 12741
1/05 14467 11745 12896 12330
2/05 14648 11992 13222 12489
3/05 14387 11780 13029 12240
4/05 13685 11557 12514 11650
5/05 14468 11924 13230 12341
6/05 14850 11941 13476 12624
7/05 15663 12385 14263 13351
8/05 15673 12272 14176 13309
9/05 15764 12371 14359 13541
10/05 15162 12165 13936 13165
11/05 15945 12625 14693 13877
12/05 16156 12629 14854 13962
1/06 17401 12964 15743 14920
2/06 17401 12999 15549 14792
3/06 18014 13160 15984 15285
4/06 18475 13337 16052 15428
5/06 17581 12954 15296 14569
6/06 17541 12971 15234 14576
7/06 16939 13051 14688 13959
8/06 17290 13361 15026 14188
9/06 17590 13705 15369 14391
10/06 18203 14151 15959 14895
11/06 18916 14420 16585 15514
12/06 18828 14622 16437 15501
========================================================================================
CALCULATING YOUR ONGOING FUND EXPENSES
Example You may use the information in this table, AIM V.I. CAPITAL DEVELOPMENT FUND
together with the amount you invested, to The hypothetical account values
As a shareholder of the Fund, you incur estimate the expenses that you paid over the and expenses may not be used to estimate
ongoing costs, including management fees; period. Simply divide your account value by the actual ending account balance or
distribution and/or service (12b-1) fees; $1,000 (for example, an $8,600 account value expenses you paid for the period. You
and other Fund expenses. This example is divided by $1,000 = 8.6), then multiply the may use this information to compare the
intended to help you understand your ongoing result by the number in the table under the ongoing costs of investing in the Fund
costs (in dollars) of investing in the Fund heading entitled "Actual Expenses Paid and other funds. To do so, compare this
and to compare these costs with ongoing During Period" to estimate the expenses you 5% hypothetical example with the 5%
costs of investing in other mutual funds. paid on your account during this period. hypothetical examples that appear in the
The example is based on an investment of shareholder reports of the other funds.
$1,000 invested at the beginning of the Hypothetical example for comparison purposes
period and held for the entire period July Please note that the expenses
1, 2006, through December 31, 2006. The table below also provides information shown in the table are meant to
about hypothetical account values and highlight your ongoing costs. Therefore,
The actual and hypothetical expenses hypothetical expenses based on the Fund's the hypothetical information is useful
in the examples below do not represent the actual expense ratio and an assumed rate of in comparing ongoing costs only, and
effect of any fees or other expenses return of 5% per year before expenses, which will not help you determine the relative
assessed in connection with a variable is not the Fund's actual return. The Fund's total costs of owning different funds.
product; if they did, the expenses shown actual cumulative total returns at net asset
would be higher while the ending account value after expenses for the six months
values shown would be lower. ended December 31, 2006, appear in the table
"Cumulative Total Returns" on page 4.
Actual expenses
The table below provides information 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 (7/1/06) (12/31/06)(1) PERIOD(2) (12/31/06) PERIOD(2) RATIO
Series I $ 1,000.00 $ 1,073.20 $ 5.64 $1,019.76 $ 5.50 1.08%
Series II 1,000.00 1,071.70 6.95 1,018.50 6.77 1.33
(1) The actual ending account value is based on the actual total return of the
Fund for the period July 1, 2006, through December 31, 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 December 31, 2006,
appear in the table "Cumulative Total Returns" on page 4.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated
above multiplied by the average account value over the period, multiplied
by 184/365 to reflect the most recent fiscal half year.
================================================================================
6
APPROVAL OF INVESTMENT ADVISORY AGREEMENT AIM V.I. CAPITAL DEVELOPMENT FUND
The Board of Trustees of AIM Variable - The nature and extent of the advisory for the Fund, the Board concluded that
Insurance Funds (the "Board") oversees the services to be provided by AIM. The Board no changes should be made to the Fund
management of AIM V.I. Capital Development reviewed the services to be provided by AIM and that it was not necessary to change
Fund (the "Fund") and, as required by law, under the Advisory Agreement. Based on such the Fund's portfolio management team at
determines annually whether to approve the review, the Board concluded that the range this time. Although the independent
continuance of the Fund's advisory agreement of services to be provided by AIM under the written evaluation of the Fund's Senior
with A I M Advisors, Inc. ("AIM"). Based Advisory Agreement was appropriate and that Officer (discussed below) only
upon the recommendation of the Investments AIM currently is providing services in considered Fund performance through the
Committee of the Board, at a meeting held on accordance with the terms of the Advisory most recent calendar year, the Board
June 27, 2006, the Board, including all of Agreement. also reviewed more recent Fund
the independent trustees, approved the performance, which did not change their
continuance of the advisory agreement (the - The quality of services to be provided by conclusions.
"Advisory Agreement") between the Fund and AIM. The Board reviewed the credentials and
AIM for another year, effective July 1, experience of the officers and employees of - Meetings with the Fund's portfolio
2006. AIM who will provide investment advisory managers and investment personnel. With
services to the Fund. In reviewing the respect to the Fund, the Board is
The Board considered the factors qualifications of AIM to provide investment meeting periodically with such Fund's
discussed below in evaluating the fairness advisory services, the Board considered such portfolio managers and/or other
and reasonableness of the Advisory Agreement issues as AIM's portfolio and product review investment personnel and believes that
at the meeting on June 27, 2006 and as part process, various back office support such individuals are competent and able
of the Board's ongoing oversight of the functions provided by AIM and AIM's equity to continue to carry out their
Fund. In their deliberations, the Board and and fixed income trading operations. Based responsibilities under the Advisory
the independent trustees did not identify on the review of these and other factors, Agreement.
any particular factor that was controlling, the Board concluded that the quality of
and each trustee attributed different services to be provided by AIM was - Overall performance of AIM. The Board
weights to the various factors. appropriate and that AIM currently is considered the overall performance of
providing satisfactory services in AIM in providing investment advisory and
One responsibility of the independent accordance with the terms of the Advisory portfolio administrative services to the
Senior Officer of the Fund is to manage the Agreement. Fund and concluded that such performance
process by which the Fund's proposed was satisfactory.
management fees are negotiated to ensure - The performance of the Fund relative to
that they are negotiated in a manner which comparable funds. The Board reviewed the - Fees relative to those of clients of
is at arms' length and reasonable. To that performance of the Fund during the past one, AIM with comparable investment
end, the Senior Officer must either three and five calendar years against the strategies. The Board reviewed the
supervise a competitive bidding process or performance of funds advised by other effective advisory fee rate (before
prepare an independent written evaluation. advisors with investment strategies waivers) for the Fund under the Advisory
The Senior Officer has recommended an comparable to those of the Fund. The Board Agreement. The Board noted that this
independent written evaluation in lieu of a noted that the Fund's performance was below rate was (i) above the effective
competitive bidding process and, upon the the median performance of such comparable advisory fee rates (before waivers) for
direction of the Board, has prepared such an funds for the one year period and above such two mutual funds advised by AIM with
independent written evaluation. Such written median performance for the three and five investment strategies comparable to
evaluation also considered certain of the year periods. Based on this review and after those of the Fund; (ii) the same as the
factors discussed below. In addition, as taking account of all of the other factors effective advisory fee rate (before
discussed below, the Senior Officer made a that the Board considered in determining waivers) for a variable insurance fund
recommendation to the Board in connection whether to continue the Advisory Agreement advised by AIM and offered to insurance
with such written evaluation. for the Fund, the Board concluded that no company separate accounts with
changes should be made to the Fund and that investment strategies comparable to
The discussion below serves as a it was not necessary to change the Fund's those of the Fund; (iii) above the
summary of the Senior Officer's independent portfolio management team at this time. effective sub-advisory fee rate for one
written evaluation and recommendation to the Although the independent written evaluation offshore fund advised and sub-advised by
Board in connection therewith, as well as a of the Fund's Senior Officer (discussed AIM affiliates with investment
discussion of the material factors and the below) only considered Fund performance strategies comparable to those of the
conclusions with respect thereto that formed through the most recent calendar year, the Fund, although the total advisory fees
the basis for the Board's approval of the Board also reviewed more recent Fund for such offshore fund were above those
Advisory Agreement. After consideration of performance, which did not change their for the Fund; and (iv) above the
all of the factors below and based on its conclusions. effective sub-advisory fee rates for two
informed business judgment, the Board variable insurance funds sub-advised by
determined that the Advisory Agreement is in - The performance of the Fund relative to an AIM affiliate and offered to
the best interests of the Fund and its indices. The Board reviewed the performance insurance company separate accounts with
shareholders and that the compensation to of the Fund during the past one, three and investment strategies comparable to
AIM under the Advisory Agreement is fair and five calendar years against the performance those of the Fund, although the total
reasonable and would have been obtained of the Lipper Variable Underlying Fund advisory fees for such variable
through arm's length negotiations. Mid-Cap Growth Index. The Board noted that insurance funds were the same as or
the Fund's performance was comparable to the above those for the Fund. The Board
Unless otherwise stated, information performance of such Index for the one and noted that AIM has agreed to waive
presented below is as of June 27, 2006 and three year periods and above such Index for advisory fees of the Fund and to limit
does not reflect any changes that may have the five year period. Based on this review the Fund's total operating expenses, as
occurred since June 27, 2006, including but and after taking account of all of the other discussed below. Based on this review,
not limited to changes to the Fund's factors that the Board considered in the Board concluded that the advisory
performance, advisory fees, expense determining whether to continue the Advisory fee rate for the Fund under the Advisory
limitations and/or fee waivers. Agreement Agreement was fair and reasonable.
- Fees relative to those of comparable
funds with other advisors. The Board
reviewed the advisory fee rate for the
Fund under the Advisory Agreement. The
Board compared effective contractual
advisory fee rates at a common asset
level at the end of the past calendar
(continued)
7
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 funds advised by AIM pursuant to the terms
advised by other advisors with investment of an SEC exemptive order. The Board found - Benefits of soft dollars to AIM. The
strategies comparable to those of the Fund that the Fund may realize certain benefits Board considered the benefits realized
that the Board reviewed. The Board noted upon investing cash balances in AIM advised by AIM as a result of brokerage
that AIM has agreed to waive advisory fees money market funds, including a higher net transactions executed through "soft
of the Fund and to limit the Fund's total return, increased liquidity, increased dollar" arrangements. Under these
operating expenses, as discussed below. diversification or decreased transaction arrangements, brokerage commissions paid
Based on this review, the Board concluded costs. The Board also found that the Fund by the Fund and/or other funds advised
that the advisory fee rate for the Fund will not receive reduced services if it by AIM are used to pay for research and
under the Advisory Agreement was fair and invests its cash balances in such money execution services. This research may be
reasonable. market funds. The Board noted that, to the used by AIM in making investment
extent the Fund invests uninvested cash in decisions for the Fund. The Board
- - Expense limitations and fee waivers. The affiliated money market funds, AIM has concluded that such arrangements were
Board noted that AIM has contractually voluntarily agreed to waive a portion of the appropriate.
agreed to waive advisory fees of the Fund advisory fees it receives from the Fund
through April 30, 2008 to the extent attributable to such investment. The Board - AIM's financial soundness in light of
necessary so that the advisory fees payable further determined that the proposed the Fund's needs. The Board considered
by the Fund do not exceed a specified securities lending program and related whether AIM is financially sound and has
maximum advisory fee rate, which maximum procedures with respect to the lending Fund the resources necessary to perform its
rate includes breakpoints and is based on is in the best interests of the lending Fund obligations under the Advisory
net asset levels. The Board considered the and its respective shareholders. The Board Agreement, and concluded that AIM has
contractual nature of this fee waiver and therefore concluded that the investment of the financial resources necessary to
noted that it remains in effect until April cash collateral received in connection with fulfill its obligations under the
30, 2008. The Board noted that AIM has the securities lending program in the money Advisory Agreement.
contractually agreed to waive fees and/or market funds according to the procedures is
limit expenses of the Fund through April 30, in the best interests of the lending Fund - Historical relationship between the
2008 in an amount necessary to limit total and its respective shareholders. Fund and AIM. In determining whether to
annual operating expenses to a specified continue the Advisory Agreement for the
percentage of average daily net assets for - Independent written evaluation and Fund, the Board also considered the
each class of the Fund. The Board considered recommendations of the Fund's Senior prior relationship between AIM and the
the contractual nature of this fee Officer. The Board noted that, upon their Fund, as well as the Board's knowledge
waiver/expense limitation and noted that it direction, the Senior Officer of the Fund, of AIM's operations, and concluded that
remains in effect through April 30, 2008. who is independent of AIM and AIM's it was beneficial to maintain the
The Board considered the effect these fee affiliates, had prepared an independent current relationship, in part, because
waivers/expense limitations would have on written evaluation in order to assist the of such knowledge. The Board also
the Fund's estimated expenses and concluded Board in determining the reasonableness of reviewed the general nature of the
that the levels of fee waivers/expense the proposed management fees of the AIM non-investment advisory services
limitations for the Fund were fair and Funds, including the Fund. The Board noted currently performed by AIM and its
reasonable. that the Senior Officer's written evaluation affiliates, such as administrative,
had been relied upon by the Board in this transfer agency and distribution
- - Breakpoints and economies of scale. The regard in lieu of a competitive bidding services, and the fees received by AIM
Board reviewed the structure of the Fund's process. In determining whether to continue and its affiliates for performing such
advisory fee under the Advisory Agreement, the Advisory Agreement for the Fund, the services. In addition to reviewing such
noting that it includes one breakpoint. The Board considered the Senior Officer's services, the trustees also considered
Board reviewed the level of the Fund's written evaluation and the recommendation the organizational structure employed by
advisory fees, and noted that such fees, as made by the Senior Officer to the Board that AIM and its affiliates to provide those
a percentage of the Fund's net assets, would the Board consider whether the advisory fee services. Based on the review of these
decrease as net assets increase because the waivers for certain equity AIM Funds, and other factors, the Board concluded
Advisory Agreement includes a breakpoint. including the Fund, should be simplified. that AIM and its affiliates were
The Board noted that, due to the Fund's The Board concluded that it would be qualified to continue to provide
asset levels at the end of the past calendar advisable to consider this issue and reach a non-investment advisory services to the
year and the way in which the advisory fee decision prior to the expiration date of Fund, including administrative, transfer
breakpoint has been structured, the Fund has such advisory fee waivers. agency and distribution services, and
yet to benefit from the breakpoint. The that AIM and its affiliates currently
Board noted that AIM has contractually - Profitability of AIM and its affiliates. are providing satisfactory
agreed to waive advisory fees of the Fund The Board reviewed information concerning non-investment advisory services.
through April 30, 2008 to the extent the profitability of AIM's (and its
necessary so that the advisory fees payable affiliates') investment advisory and other - Other factors and current trends. The
by the Fund do not exceed a specified activities and its financial condition. The Board considered the steps that AIM and
maximum advisory fee rate, which maximum Board considered the overall profitability its affiliates have taken over the last
rate includes breakpoints and is based on of AIM, as well as the profitability of AIM several years, and continue to take, in
net asset levels. The Board concluded that in connection with managing the Fund. The order to improve the quality and
the Fund's fee levels under the Advisory Board noted that AIM's operations remain efficiency of the services they provide
Agreement therefore would reflect economies profitable, although increased expenses in to the Funds in the areas of investment
of scale at higher asset levels and that it recent years have reduced AIM's performance, product line
was not necessary to change the advisory fee profitability. Based on the review of the diversification, distribution, fund
breakpoints in the Fund's advisory fee profitability of AIM's and its affiliates' operations, shareholder services and
schedule. investment advisory and other activities and compliance. The Board concluded that
its financial condition, the Board concluded these steps taken by AIM have improved,
- - Investments in affiliated money market that the compensation to be paid by the Fund and are likely to continue to improve,
funds. The Board also took into account the to AIM under its the quality and efficiency of the
fact that uninvested cash and cash services AIM and its affiliates provide
collateral from securities lending to the Fund in each of these areas, and
arrangements, if any (collectively, "cash support the Board's approval of the
balances") of continuance of the Advisory Agreement
for the Fund.
8
AIM V.I. Capital Development Fund
SCHEDULE OF INVESTMENTS
December 31, 2006
<Table>
<Caption>
SHARES VALUE
- ---------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-95.67%
ADVERTISING-1.29%
Clear Channel Outdoor Holdings, Inc.-Class
A(a) 86,112 $ 2,403,386
- ---------------------------------------------------------------------
Lamar Advertising Co.-Class A(a) 18,194 1,189,706
=====================================================================
3,593,092
=====================================================================
AEROSPACE & DEFENSE-6.18%
AerCap Holdings N.V. (Netherlands)(a) 119,300 2,765,374
- ---------------------------------------------------------------------
Armor Holdings, Inc.(a) 50,815 2,787,203
- ---------------------------------------------------------------------
KBR, Inc.(a)(b) 51,787 1,354,748
- ---------------------------------------------------------------------
L-3 Communications Holdings, Inc. 31,714 2,593,571
- ---------------------------------------------------------------------
Precision Castparts Corp. 55,290 4,328,101
- ---------------------------------------------------------------------
Spirit Aerosystems Holdings Inc.-Class A(a) 99,760 3,338,967
=====================================================================
17,167,964
=====================================================================
AGRICULTURAL PRODUCTS-0.87%
Bunge Ltd. 33,433 2,424,227
=====================================================================
AIR FREIGHT & LOGISTICS-0.94%
Robinson (C.H.) Worldwide, Inc. 63,824 2,609,763
=====================================================================
ALTERNATIVE CARRIERS-0.98%
Level 3 Communications, Inc.(a) 484,353 2,712,377
=====================================================================
APPAREL RETAIL-1.77%
Abercrombie & Fitch Co.-Class A 37,676 2,623,380
- ---------------------------------------------------------------------
DSW Inc.-Class A(a)(b) 30,739 1,185,603
- ---------------------------------------------------------------------
Talbots, Inc. (The) 45,556 1,097,900
=====================================================================
4,906,883
=====================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-3.30%
Carter's, Inc.(a) 105,391 2,687,471
- ---------------------------------------------------------------------
Coach, Inc.(a) 64,598 2,775,130
- ---------------------------------------------------------------------
Polo Ralph Lauren Corp. 47,458 3,685,588
=====================================================================
9,148,189
=====================================================================
APPLICATION SOFTWARE-5.14%
Amdocs Ltd.(a) 76,003 2,945,116
- ---------------------------------------------------------------------
BEA Systems, Inc.(a) 106,965 1,345,620
- ---------------------------------------------------------------------
Cadence Design Systems, Inc.(a) 140,510 2,516,534
- ---------------------------------------------------------------------
Citrix Systems, Inc.(a) 88,457 2,392,762
- ---------------------------------------------------------------------
</Table>
<Table>
SHARES VALUE
- ---------------------------------------------------------------------
<Caption>
APPLICATION SOFTWARE-(CONTINUED)
Informatica Corp.(a) 216,236 $ 2,640,242
- ---------------------------------------------------------------------
TIBCO Software Inc.(a) 257,707 2,432,754
=====================================================================
14,273,028
=====================================================================
ASSET MANAGEMENT & CUSTODY BANKS-0.77%
Ameriprise Financial, Inc. 39,211 2,137,000
=====================================================================
BIOTECHNOLOGY-2.32%
Celgene Corp.(a)(c) 39,400 2,266,682
- ---------------------------------------------------------------------
Genzyme Corp.(a) 45,400 2,795,732
- ---------------------------------------------------------------------
MedImmune, Inc.(a) 42,200 1,366,014
=====================================================================
6,428,428
=====================================================================
CASINOS & GAMING-1.23%
Scientific Games Corp.-Class A(a) 113,096 3,418,892
=====================================================================
COMMUNICATIONS EQUIPMENT-0.49%
Comverse Technology, Inc.(a) 63,851 1,347,895
=====================================================================
COMPUTER STORAGE & PERIPHERALS-3.20%
Emulex Corp.(a) 141,840 2,767,298
- ---------------------------------------------------------------------
Logitech International S.A. (Switzerland)(a) 90,317 2,582,163
- ---------------------------------------------------------------------
Network Appliance, Inc.(a) 40,114 1,575,678
- ---------------------------------------------------------------------
Seagate Technology 73,477 1,947,141
=====================================================================
8,872,280
=====================================================================
CONSTRUCTION & ENGINEERING-2.34%
Foster Wheeler Ltd.(a) 66,550 3,669,567
- ---------------------------------------------------------------------
Washington Group International, Inc.(a) 47,474 2,838,470
=====================================================================
6,508,037
=====================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-0.72%
Joy Global Inc. 41,178 1,990,545
=====================================================================
CONSUMER ELECTRONICS-0.95%
Harman International Industries, Inc. 26,365 2,634,127
=====================================================================
DATA PROCESSING & OUTSOURCED SERVICES-2.96%
Alliance Data Systems Corp.(a) 43,671 2,728,127
- ---------------------------------------------------------------------
CheckFree Corp.(a) 68,941 2,768,671
- ---------------------------------------------------------------------
Fidelity National Information Services, Inc. 67,900 2,722,111
=====================================================================
8,218,909
=====================================================================
</Table>
AIM V.I. Capital Development Fund
<Table>
<Caption>
SHARES VALUE
- ---------------------------------------------------------------------
DEPARTMENT STORES-0.95%
Nordstrom, Inc. 53,680 $ 2,648,571
=====================================================================
DIVERSIFIED COMMERCIAL & PROFESSIONAL
SERVICES-2.54%
Corrections Corp. of America(a) 84,728 3,832,248
- ---------------------------------------------------------------------
IHS Inc.-Class A(a) 81,807 3,229,740
=====================================================================
7,061,988
=====================================================================
DRUG RETAIL-0.95%
Shoppers Drug Mart Corp. (Canada) 61,600 2,645,473
=====================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-1.04%
Cooper Industries, Ltd.-Class A 31,848 2,880,015
=====================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-1.32%
Agilent Technologies, Inc.(a) 29,581 1,030,898
- ---------------------------------------------------------------------
Amphenol Corp.-Class A 42,308 2,626,481
=====================================================================
3,657,379
=====================================================================
ELECTRONIC MANUFACTURING SERVICES-0.91%
Molex Inc. 79,479 2,513,921
=====================================================================
FERTILIZERS & AGRICULTURAL CHEMICALS-0.55%
Potash Corp. of Saskatchewan Inc. (Canada) 10,634 1,525,766
=====================================================================
HEALTH CARE DISTRIBUTORS-1.02%
Schein (Henry), Inc.(a) 57,735 2,827,860
=====================================================================
HEALTH CARE EQUIPMENT-0.51%
ResMed Inc.(a) 29,000 1,427,380
=====================================================================
HEALTH CARE FACILITIES-1.62%
Psychiatric Solutions, Inc.(a) 80,500 3,020,360
- ---------------------------------------------------------------------
United Surgical Partners International,
Inc.(a) 51,957 1,472,981
=====================================================================
4,493,341
=====================================================================
HEALTH CARE SERVICES-1.93%
DaVita, Inc.(a) 44,700 2,542,536
- ---------------------------------------------------------------------
Pediatrix Medical Group, Inc.(a) 57,552 2,814,293
=====================================================================
5,356,829
=====================================================================
HEALTH CARE SUPPLIES-0.51%
PolyMedica Corp.(b) 35,100 1,418,391
=====================================================================
HEALTH CARE TECHNOLOGY-0.89%
Cerner Corp.(a) 54,305 2,470,878
=====================================================================
</Table>
<Table>
SHARES VALUE
- ---------------------------------------------------------------------
<Caption>
HOTELS, RESORTS & CRUISE LINES-2.13%
Hilton Hotels Corp. 84,033 $ 2,932,752
- ---------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc. 47,801 2,987,562
=====================================================================
5,920,314
=====================================================================
HOUSEWARES & SPECIALTIES-1.16%
Jarden Corp.(a) 92,441 3,216,022
=====================================================================
INSURANCE BROKERS-0.80%
National Financial Partners Corp. 50,391 2,215,692
=====================================================================
INTERNET SOFTWARE & SERVICES-0.48%
WebEx Communications, Inc.(a) 38,526 1,344,172
=====================================================================
INVESTMENT BANKING & BROKERAGE-2.65%
E*TRADE Financial Corp.(a) 57,675 1,293,073
- ---------------------------------------------------------------------
FBR Capital Markets Corp. (Acquired 07/14/06;
Cost $1,110,000)(a)(d)(e) 74,000 1,110,000
- ---------------------------------------------------------------------
Lazard Ltd.-Class A (Bermuda) 41,852 1,981,274
- ---------------------------------------------------------------------
Schwab (Charles) Corp. (The) 153,471 2,968,129
=====================================================================
7,352,476
=====================================================================
INVESTMENT COMPANIES-EXCHANGE TRADED
FUNDS-0.74%
iShares Nasdaq Biotechnology Index Fund(b) 26,300 2,045,088
=====================================================================
IT CONSULTING & OTHER SERVICES-0.90%
Cognizant Technology Solutions Corp.-Class
A(a) 32,490 2,506,928
=====================================================================
LIFE SCIENCES TOOLS & SERVICES-1.11%
Invitrogen Corp.(a) 24,600 1,392,114
- ---------------------------------------------------------------------
Pharmaceutical Product Development, Inc. 52,600 1,694,772
=====================================================================
3,086,886
=====================================================================
MANAGED HEALTH CARE-3.63%
Aveta, Inc. (Acquired 12/21/05-02/21/06; Cost
$2,162,718)(a)(d)(e) 157,251 2,673,267
- ---------------------------------------------------------------------
Coventry Health Care, Inc.(a) 55,160 2,760,758
- ---------------------------------------------------------------------
Health Net Inc.(a) 59,300 2,885,538
- ---------------------------------------------------------------------
Humana Inc.(a) 31,600 1,747,796
=====================================================================
10,067,359
=====================================================================
MARINE-0.94%
American Commercial Lines Inc.(a) 40,008 2,620,924
=====================================================================
OFFICE SERVICES & SUPPLIES-1.12%
Knoll, Inc. 140,893 3,099,646
=====================================================================
</Table>
AIM V.I. Capital Development Fund
<Table>
<Caption>
SHARES VALUE
- ---------------------------------------------------------------------
OIL & GAS DRILLING-1.88%
ENSCO International Inc. 51,400 $ 2,573,084
- ---------------------------------------------------------------------
Noble Corp. 34,700 2,642,405
=====================================================================
5,215,489
=====================================================================
OIL & GAS EQUIPMENT & SERVICES-2.62%
FMC Technologies, Inc.(a) 43,900 2,705,557
- ---------------------------------------------------------------------
Grant Prideco, Inc.(a) 61,294 2,437,662
- ---------------------------------------------------------------------
Weatherford International Ltd.(a) 51,000 2,131,290
=====================================================================
7,274,509
=====================================================================
OIL & GAS EXPLORATION & PRODUCTION-1.72%
Rosetta Resources, Inc.(a)(f) 116,100 2,167,587
- ---------------------------------------------------------------------
Southwestern Energy Co.(a) 74,500 2,611,225
=====================================================================
4,778,812
=====================================================================
OIL & GAS STORAGE & TRANSPORTATION-0.97%
Williams Cos., Inc. (The) 103,400 2,700,808
=====================================================================
PHARMACEUTICALS-3.34%
Allergan, Inc. 23,000 2,754,020
- ---------------------------------------------------------------------
Barr Pharmaceuticals Inc.(a) 54,900 2,751,588
- ---------------------------------------------------------------------
Medicis Pharmaceutical Corp.-Class A 43,900 1,542,207
- ---------------------------------------------------------------------
Shire PLC-ADR (United Kingdom) 36,200 2,235,712
=====================================================================
9,283,527
=====================================================================
PROPERTY & CASUALTY INSURANCE-2.25%
LandAmerica Financial Group, Inc. 45,519 2,872,704
- ---------------------------------------------------------------------
Security Capital Assurance Ltd. 121,417 3,379,035
=====================================================================
6,251,739
=====================================================================
PUBLISHING-0.96%
R.H. Donnelley Corp.(a) 42,654 2,675,685
=====================================================================
REAL ESTATE MANAGEMENT & DEVELOPMENT-1.53%
CB Richard Ellis Group, Inc.-Class A(a) 127,876 4,245,483
=====================================================================
REGIONAL BANKS-1.17%
Centennial Bank Holdings Inc.(a)(f) 121,445 1,148,870
- ---------------------------------------------------------------------
Signature Bank(a) 67,877 2,102,829
=====================================================================
3,251,699
=====================================================================
RESTAURANTS-1.21%
Burger King Holdings Inc.(a) 159,756 3,370,852
=====================================================================
</Table>
<Table>
SHARES VALUE
- ---------------------------------------------------------------------
<Caption>
SEMICONDUCTOR EQUIPMENT-1.22%
Lam Research Corp.(a) 20,282 $ 1,026,675
- ---------------------------------------------------------------------
MEMC Electronic Materials, Inc.(a) 60,216 2,356,854
=====================================================================
3,383,529
=====================================================================
SEMICONDUCTORS-1.14%
Advanced Micro Devices, Inc.(a) 63,156 1,285,224
- ---------------------------------------------------------------------
Microsemi Corp.(a) 95,949 1,885,398
=====================================================================
3,170,622
=====================================================================
SPECIALIZED FINANCE-1.20%
Chicago Mercantile Exchange Holdings
Inc.-Class A 6,524 3,325,609
=====================================================================
SPECIALTY STORES-1.44%
Office Depot, Inc.(a) 68,991 2,633,387
- ---------------------------------------------------------------------
PetSmart, Inc. 47,741 1,377,805
=====================================================================
4,011,192
=====================================================================
STEEL-0.98%
Allegheny Technologies, Inc. 29,945 2,715,413
=====================================================================
TECHNOLOGY DISTRIBUTORS-0.49%
Arrow Electronics, Inc.(a) 43,368 1,368,260
=====================================================================
THRIFTS & MORTGAGE FINANCE-0.16%
People's Choice Financial Corp. (Acquired
12/21/04-06/09/06; Cost $1,869,515)(d)(e) 220,654 441,308
=====================================================================
TRADING COMPANIES & DISTRIBUTORS-1.04%
WESCO International, Inc.(a) 49,275 2,897,863
=====================================================================
WIRELESS TELECOMMUNICATION SERVICES-4.50%
American Tower Corp.-Class A(a) 71,482 2,664,849
- ---------------------------------------------------------------------
Crown Castle International Corp.(a) 38,454 1,242,064
- ---------------------------------------------------------------------
Leap Wireless International, Inc.(a) 35,876 2,133,546
- ---------------------------------------------------------------------
NII Holdings Inc.(a) 57,207 3,686,419
- ---------------------------------------------------------------------
SBA Communications Corp.-Class A(a) 100,485 2,763,337
=====================================================================
12,490,215
=====================================================================
Total Common Stocks & Other Equity
Interests (Cost $219,603,883) 265,647,549
=====================================================================
</Table>
<Table>
<Caption>
NUMBER
OF EXERCISE EXPIRATION
CONTRACTS PRICE DATE
- ----------------------------------------------------------------------------------------------
CALL OPTIONS PURCHASED-0.03%
CASINOS & GAMING-0.03%
Harrah's Entertainment, Inc. (Cost
$64,521)(d) 321 $80 Jan-07 96,477
==============================================================================================
</Table>
AIM V.I. Capital Development Fund
<Table>
<Caption>
SHARES VALUE
- ---------------------------------------------------------------------
MONEY MARKET FUNDS-12.36%
Liquid Assets Portfolio-Institutional
Class(g) 17,152,937 $ 17,152,937
- ---------------------------------------------------------------------
Premier Portfolio-Institutional Class(g) 17,152,937 17,152,937
=====================================================================
Total Money Market Funds
(Cost $34,305,874) 34,305,874
=====================================================================
TOTAL INVESTMENTS (excluding investments
purchased with cash collateral from
securities loaned)-108.06%
(Cost $253,974,278) 300,049,900
=====================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-1.52%
Liquid Assets Portfolio(g)(h) 2,108,462 2,108,462
- ---------------------------------------------------------------------
STIC Prime Portfolio-Institutional
Class(g)(h) 2,108,462 2,108,462
=====================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $4,216,924) 4,216,924
=====================================================================
TOTAL INVESTMENTS-109.58%
(Cost $258,191,202) 304,266,824
=====================================================================
OTHER ASSETS LESS LIABILITIES-(9.58)% (26,608,910)
=====================================================================
NET ASSETS-100.00% $277,657,914
_____________________________________________________________________
=====================================================================
</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 December 31, 2006.
(c) A portion of this security is subject to call options written. See Note 1K
and Note 9.
(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 aggregate
value of these securities considered illiquid at December 31, 2006 was
$4,321,052, which represented 1.56% of the Fund's Net Assets.
(e) 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 December 31, 2006 was $4,224,575,
which represented 1.52% of the Fund's Net Assets. Unless otherwise
indicated, these securities are not considered to be illiquid.
(f) Security fair valued in good faith in accordance with the procedures
established by the Board of Trustees. The aggregate value of these
securities at December 31, 2006 was $3,316,457, which represented 1.19% 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. Capital Development Fund
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2006
<Table>
ASSETS:
Investments, at value (cost $219,668,404)* $265,744,026
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $38,522,798) 38,522,798
=============================================================
Total investments (cost $258,191,202) 304,266,824
=============================================================
Receivables for:
Investments sold 39,693
- -------------------------------------------------------------
Fund shares sold 134,122
- -------------------------------------------------------------
Dividends 105,126
- -------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 38,098
=============================================================
Total assets 304,583,863
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 22,076,527
- -------------------------------------------------------------
Fund shares reacquired 249,866
- -------------------------------------------------------------
Options written, at value (premiums received
$60,617) 63,981
- -------------------------------------------------------------
Trustee deferred compensation and retirement
plans 47,805
- -------------------------------------------------------------
Collateral upon return of securities loaned 4,216,924
- -------------------------------------------------------------
Accrued administrative services fees 151,060
- -------------------------------------------------------------
Accrued distribution fees-Series II 75,753
- -------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 3,942
- -------------------------------------------------------------
Accrued transfer agent fees 2,995
- -------------------------------------------------------------
Accrued operating expenses 37,096
=============================================================
Total liabilities 26,925,949
=============================================================
Net assets applicable to shares outstanding $277,657,914
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $204,571,039
- -------------------------------------------------------------
Undistributed net investment income (loss) (42,127)
- -------------------------------------------------------------
Undistributed net realized gain from investment
securities, foreign currencies and option
contracts 27,056,645
- -------------------------------------------------------------
Unrealized appreciation of investment
securities, foreign currencies and option
contracts 46,072,357
=============================================================
$277,657,914
=============================================================
NET ASSETS:
Series I $148,667,546
_____________________________________________________________
=============================================================
Series II $128,990,368
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 8,067,394
_____________________________________________________________
=============================================================
Series II 7,093,007
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 18.43
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 18.19
_____________________________________________________________
=============================================================
</Table>
* At December 31, 2006, securities with an aggregate value of $4,078,421 were on
loan to brokers.
STATEMENT OF OPERATIONS
For the year ended December 31, 2006
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of
$6,390) $ 868,779
- ------------------------------------------------------------
Dividends from affiliated money market funds
(includes securities lending income of
$48,197) 501,584
============================================================
Total investment income 1,370,363
============================================================
EXPENSES:
Advisory fees 1,709,822
- ------------------------------------------------------------
Administrative services fees 613,485
- ------------------------------------------------------------
Custodian fees 33,495
- ------------------------------------------------------------
Distribution fees-Series II 256,263
- ------------------------------------------------------------
Transfer agent fees 25,802
- ------------------------------------------------------------
Trustees' and officer's fees and benefits 21,140
- ------------------------------------------------------------
Other 76,078
============================================================
Total expenses 2,736,085
============================================================
Less: Fees waived and expense offset
arrangements (17,485)
============================================================
Net expenses 2,718,600
============================================================
Net investment income (loss) (1,348,237)
============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES AND
OPTION CONTRACTS:
Net realized gain from:
Investment securities (includes net gains
(losses) from securities sold to affiliates
of $(62,732)) 28,699,124
- ------------------------------------------------------------
Foreign currencies 16,243
- ------------------------------------------------------------
Option contracts written 31,810
============================================================
28,747,177
============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities 6,375,399
- ------------------------------------------------------------
Foreign currencies 56
- ------------------------------------------------------------
Option contracts written (3,364)
============================================================
6,372,091
============================================================
Net gain from investment securities, foreign
currencies and option contracts 35,119,268
============================================================
Net increase in net assets resulting from
operations $33,771,031
____________________________________________________________
============================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. Capital Development Fund
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2006 and 2005
<Table>
<Caption>
2006 2005
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (1,348,237) $ (615,055)
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies and option contracts 28,747,177 15,864,577
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities, foreign currencies and option contracts 6,372,091 2,049,753
==========================================================================================
Net increase in net assets resulting from operations 33,771,031 17,299,275
==========================================================================================
Distributions to shareholders from net realized gains:
Series I (2,202,279) --
- ------------------------------------------------------------------------------------------
Series II (2,172,661) --
==========================================================================================
Decrease in net assets resulting from distributions (4,374,940) --
==========================================================================================
Share transactions-net:
Series I 14,360,380 (5,082,619)
- ------------------------------------------------------------------------------------------
Series II 32,838,781 5,478,755
==========================================================================================
Net increase in net assets resulting from share
transactions 47,199,161 396,136
==========================================================================================
Net increase in net assets 76,595,252 17,695,411
==========================================================================================
NET ASSETS:
Beginning of year 201,062,662 183,367,251
==========================================================================================
End of year (including undistributed net investment income
(loss) of $(42,127) and $(35,292), respectively) $277,657,914 $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
December 31, 2006
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-one 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.
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 or official closing price as of the close of
the customary trading session on the exchange where the security is
principally traded, or lacking any sales or official closing price on a
particular day, the security may be valued at the closing bid price on that
day. Securities traded in the over-the-counter market 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. 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 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 open-end and closed-end registered
investment companies that trade on an exchange are valued at the last sales
price or official closing price as of the close of the customary trading
session on the exchange where the security is principally traded.
Debt obligations (including convertible bonds) and unlisted equities 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.
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. If market quotations are available and reliable for
foreign exchange traded equity securities, the securities will be valued at
the market quotations. Because trading hours for certain foreign securities
end before the close of the NYSE, closing market quotations may become
unreliable. If between the time trading ends on a particular security and
the close of the customary trading session on the NYSE, events occur that
are significant and may make the closing price unreliable, the Fund may
fair value the security. 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 prices are not provided by any of the above
methods may be valued based upon quotes furnished by independent sources
and are valued at the last bid price in the case of equity securities and
in the case of debt obligations, the mean between the last bid and asked
prices.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
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
AIM V.I. Capital Development Fund
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 the 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 to distribute substantially all of the
Fund's taxable earnings to shareholders. As such, the Fund will not be
subject to federal income taxes on otherwise taxable income (including net
realized capital gain) that 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. ACCOUNTING ESTIMATES -- 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.
H. INDEMNIFICATIONS -- 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.
I. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in
foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from (i) sales
of foreign currencies, (ii) currency gains or losses realized between the
trade and settlement dates on securities transactions, and (iii) the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
The Fund may invest in foreign securities which may be subject to foreign
taxes on income, gains or investments or currency repatriation, a portion
of which may be recoverable. Taxes are accrued based on the Fund's current
interpretation of tax regulations and rates that exist in the foreign
markets in which the Fund invests.
J. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security.
Fluctuations in the value of these contracts are recorded as unrealized
appreciation (depreciation) until the contracts are closed. When these
contracts are closed, realized gains (losses) are recorded. Realized and
unrealized gains and losses on these contracts are included in the
Statement of Operations. The Fund could be exposed to risk, which may be in
excess of the amount reflected in the Statement of Assets and Liabilities,
if counterparties to the contracts are unable to meet the terms of their
contracts or if the value of the foreign currency changes unfavorably.
K. COVERED CALL OPTIONS -- The Fund may write call options. A call option
gives the purchaser of such option the right to buy, and the writer (the
Fund) the obligation to sell, the underlying security at the stated
exercise price during the option period. Written call options are recorded
as a liability in the Statement of Assets and Liabilities. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. 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. Realized gains and losses on these contracts
are included in the Statement of Operations. 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
L. PUT OPTIONS PURCHASED -- The Fund may purchase put options including
options on securities indexes and/or futures contracts. By purchasing a put
option, the Fund obtains the right (but not the obligation) to sell the
option's underlying instrument at a fixed strike price. In return for this
right, the Fund pays an option premium. The option's underlying instrument
may be a security, securities index, or a futures contract. Put options may
be used by the Fund to hedge securities it owns by locking in a minimum
price at which the Fund can sell. If security prices fall, the put option
could be exercised to offset all or a portion of the Fund's resulting
losses. At the same time, because the maximum the Fund has at risk is the
cost of the option, purchasing put options does not eliminate the potential
for the Fund to profit from an increase in the value of the securities
hedged. 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.
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.
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 has contractually agreed to waive advisory fees
to the extent necessary so that the advisory fees payable by the Fund (based on
the Fund's average daily net assets) do not exceed the annual rate of:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- --------------------------------------------------------------------
First $250 million 0.745%
- --------------------------------------------------------------------
Next $250 million 0.73%
- --------------------------------------------------------------------
Next $500 million 0.715%
- --------------------------------------------------------------------
Next $1.5 billion 0.70%
- --------------------------------------------------------------------
Next $2.5 billion 0.685%
- --------------------------------------------------------------------
Next $2.5 billion 0.67%
- --------------------------------------------------------------------
Next $2.5 billion 0.655%
- --------------------------------------------------------------------
Over $10 billion 0.64%
___________________________________________________________________
====================================================================
</Table>
AIM has contractually agreed to waive advisory fees and/or reimburse
expenses to the extent necessary to limit total annual operating expenses
(excluding certain items discussed below) of Series I shares to 1.30% and Series
II shares to 1.45% of average daily net assets, through at least 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. In addition, the Fund may also benefit from a one time credit to be used
to offset future custodian expenses. These credits are used to pay certain
expenses incurred by the Fund. AIM did not waive fees and/or reimburse expenses
during the period under this expense limitation.
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in
the amount of 25% of the advisory fee AIM receives from the affiliated money
market funds on investments by the Fund in such affiliated money market funds
(excluding investments made in affiliated money market funds with cash
collateral from securities loaned by the fund). Voluntary fee waivers or
reimbursements may be modified or discontinued at any time upon consultation
with the Board of Trustees without further notice to investors.
For the year ended December 31, 2006, AIM waived advisory fees of $13,606.
At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the year ended December 31, 2006, AMVESCAP did not
reimburse any such expenses.
The Trust has entered into a master administrative services agreement with
AIM pursuant to which the Fund 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
AIM V.I. Capital Development Fund
maintenance of master accounts; the facilitation of purchases and redemptions
requested by the participants; and the servicing of participants' accounts. The
Fund may reimburse AIM for up to 0.25% of average daily assets invested by each
insurance company providing administrative services to the Fund. Pursuant to
such agreement, for the year ended December 31, 2006, AIM was paid $62,435 for
accounting and fund administrative services and reimbursed $551,050 for services
provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with AIM
Investment Services, Inc. ("AIS") pursuant to which the Fund has agreed to pay
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 year ended December 31, 2006, expenses incurred under the
agreement are shown in the Statement of Operations as transfer agent fees.
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 Plan payments, 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. For the year ended December 31, 2006, expenses
incurred under the Plan are shown in the Statement of Operations as distribution
fees.
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 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 year ended
December 31, 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) 12/31/06 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $2,131,393 $ 69,793,956 $ (54,772,412) $ -- $17,152,937 $226,490 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
Premier
Portfolio-Institutional
Class -- 46,833,721 (29,680,784) -- 17,152,937 110,035 --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-Institutional
Class 2,131,393 27,613,809 (29,745,202) -- -- 116,862 --
==================================================================================================================================
Subtotal $4,262,786 $144,241,486 $(114,198,398) $ -- $34,305,874 $453,387 $ --
==================================================================================================================================
</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) 12/31/06 INCOME* GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-Institutional
Class $2,628,362 $ 18,130,936 $ (18,650,836) $ -- $ 2,108,462 $ 24,045 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-Institutional
Class 2,628,362 18,130,936 (18,650,836) -- 2,108,462 24,152 --
==================================================================================================================================
Subtotal $5,256,724 $ 36,261,872 $ (37,301,672) $ -- $ 4,216,924 $ 48,197 $ --
==================================================================================================================================
Total
Investments
in
Affiliates $9,519,510 $180,503,358 $(151,500,070) $ -- $38,522,798 $501,584 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</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 year ended December 31, 2006, the Fund
engaged in securities sales of $14,139,514, which resulted in net realized gains
(losses) of $(62,732), and securities purchases of $10,792,859.
AIM V.I. Capital Development Fund
NOTE 5--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) custodian credits which
result from periodic overnight cash balances at the custodian and (ii) a one
time custodian fee credit to be used to offset future custodian fees. For the
year ended December 31, 2006, the Fund received credits from these arrangements,
which resulted in the reduction of the Fund's total expenses of $3,879.
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 year ended December 31, 2006, the Fund paid legal fees of $4,549
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 Securities and Exchange Commission, the
Fund may participate in an interfund lending facility that AIM has established
for temporary borrowings by the AIM Funds. An interfund loan will be made under
this facility only if the loan rate (an average of the rate available on bank
loans and the rate available on investments in overnight repurchase agreements)
is favorable to both the lending fund and the borrowing fund. A loan will be
secured by collateral if the Fund's aggregate borrowings from all sources
exceeds 10% of the Fund's total assets. To the extent that the loan is required
to be secured by collateral, the collateral is marked to market daily to ensure
that the market value is at least 102% of the outstanding principal value of the
loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended December 31, 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 bank 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 contractually agreed upon rate.
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 December 31, 2006, securities with an aggregate value of $4,078,421 were
on loan to brokers. The loans were secured by cash collateral of $4,216,924
received by the Fund and subsequently invested in affiliated money market funds.
For the year ended December 31, 2006, the Fund received dividends on cash
collateral investments of $48,197 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 1,030 136,437
- -----------------------------------------------------------------------------------
Exercised (260) (44,010)
- -----------------------------------------------------------------------------------
Expired (420) (31,810)
===================================================================================
End of period 350 $ 60,617
___________________________________________________________________________________
===================================================================================
</Table>
<Table>
<Caption>
OPEN CALL OPTIONS WRITTEN AT PERIOD END
- ---------------------------------------------------------------------------------------------------------------------------------
UNREALIZED
CONTRACT STRIKE NUMBER OF PREMIUMS VALUE APPRECIATION
MONTH PRICE CONTRACTS RECEIVED 12/31/06 (DEPRECIATION)
- ---------------------------------------------------------------------------------------------------------------------------------
Celgene Corp. Jan-07 $58 350 $60,617 $63,981 $(3,364)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
NOTE 10--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years December 31, 2006 and
2005 was as follows:
<Table>
<Caption>
2006 2005
- ----------------------------------------------------------------------------------
Distributions paid from:
Ordinary income $ 262,849 $ --
- ----------------------------------------------------------------------------------
Long-term capital gain 4,112,091 --
==================================================================================
Total distributions $4,374,940 $ --
__________________________________________________________________________________
==================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2006, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2006
- ----------------------------------------------------------------------------
Undistributed ordinary income $ 10,029,801
- ----------------------------------------------------------------------------
Undistributed long-term gain 17,305,814
- ----------------------------------------------------------------------------
Unrealized appreciation -- investments 45,793,387
- ----------------------------------------------------------------------------
Temporary book/tax differences (42,127)
- ----------------------------------------------------------------------------
Shares of beneficial interest 204,571,039
============================================================================
Total net assets $277,657,914
____________________________________________________________________________
============================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales the deferral of losses on certain straddles. The tax-basis net
unrealized appreciation on investments amount includes appreciation
(depreciation) on foreign currencies of $98 and option contracts written of
$(3,364).
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan benefits.
The Fund does not have a capital loss carryforward as of December 31, 2006.
AIM V.I. Capital Development Fund
NOTE 11--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities,
U.S. Treasury obligations and money market funds, if any) purchased and sold by
the Fund during the year ended December 31, 2006 was $297,251,035 and
$263,359,586, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $49,119,644
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (3,322,991)
===============================================================================
Net unrealized appreciation of investment securities $45,796,653
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $258,470,171.
</Table>
NOTE 12--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions, partnership investments and net operating losses, on December 31,
2006, undistributed net investment income (loss) was increased by $1,341,402,
undistributed net realized gain was decreased by $1,336,390 and shares of
beneficial interest decreased by $5,012. This reclassification had no effect on
the net assets of the Fund.
NOTE 13--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- -----------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
2006(A) 2005
-------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------------------
Sold:
Series I 2,145,804 $38,715,460 2,974,458 $ 42,960,820
- -----------------------------------------------------------------------------------------------------------------------
Series II 2,681,069 46,879,330 1,426,079 20,815,915
=======================================================================================================================
Issued as reinvestment of dividends:
Series I 117,706 2,202,279 -- --
- -----------------------------------------------------------------------------------------------------------------------
Series II 117,632 2,172,661 -- --
=======================================================================================================================
Reacquired:
Series I (1,511,376) (26,557,359) (3,289,224) (48,043,439)
- -----------------------------------------------------------------------------------------------------------------------
Series II (944,292) (16,213,210) (1,085,094) (15,337,160)
=======================================================================================================================
2,606,543 $47,199,161 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 76% of
the outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with
these entities whereby these entities sell units of interest in separate
accounts funding variable products that are invested in the Fund. The
Fund, AIM and/or AIM affiliates may make payments to these entities,
which are considered to be related to the Fund, for providing services
to the Fund, AIM and or AIM affiliates including but not limited to
services such as, securities brokerage, third party record keeping and
account servicing and administrative services. The Trust has no
knowledge as to whether all or any portion of the shares owned of record
by these entities are also owned beneficially.
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 for 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
currently intends for the Fund to adopt FIN 48 provisions during the fiscal year
ending December 31, 2007.
AIM V.I. Capital Development Fund
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
---------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
2006 2005 2004 2003 2002
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 16.09 $ 14.68 $ 12.71 $ 9.39 $ 11.94
- -----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.07) (0.04) (0.03)(a) (0.01) (0.01)(a)
- -----------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.73 1.45 2.00 3.33 (2.54)
=======================================================================================================================
Total from investment operations 2.66 1.41 1.97 3.32 (2.55)
=======================================================================================================================
Less distributions from net realized gains (0.32) -- -- -- --
=======================================================================================================================
Net asset value, end of period $ 18.43 $ 16.09 $ 14.68 $ 12.71 $ 9.39
_______________________________________________________________________________________________________________________
=======================================================================================================================
Total return(b) 16.52% 9.61% 15.50% 35.36% (21.36)%
_______________________________________________________________________________________________________________________
=======================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $148,668 $117,674 $112,028 $93,813 $70,018
_______________________________________________________________________________________________________________________
=======================================================================================================================
Ratio of expenses to average net assets 1.08%(c)(d) 1.09% 1.10% 1.13% 1.14%
=======================================================================================================================
Ratio of net investment income (loss) to average net assets (0.48)%(c) (0.22)% (0.21)% (0.13)% (0.08)%
_______________________________________________________________________________________________________________________
=======================================================================================================================
Portfolio turnover rate 119% 125% 93% 95% 121%
_______________________________________________________________________________________________________________________
=======================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns do not reflect charges assessed
in connection with a variable product, which if included would reduce
total returns.
(c) Ratios are based on average daily net assets of $125,471,170.
(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, 2006.
<Table>
<Caption>
SERIES II
-------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
2006 2005 2004 2003 2002
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 15.92 $ 14.57 $ 12.64 $ 9.36 $ 11.94
- ---------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.10) (0.07) (0.06)(a) (0.03) (0.03)(a)
- ---------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.69 1.42 1.99 3.31 (2.55)
=====================================================================================================================
Total from investment operations 2.59 1.35 1.93 3.28 (2.58)
=====================================================================================================================
Less distributions from net realized gains (0.32) -- -- -- --
=====================================================================================================================
Net asset value, end of period $ 18.19 $ 15.92 $ 14.57 $ 12.64 $ 9.36
_____________________________________________________________________________________________________________________
=====================================================================================================================
Total return(b) 16.26% 9.27% 15.27% 35.04% (21.61)%
_____________________________________________________________________________________________________________________
=====================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $128,990 $83,388 $71,339 $33,550 $14,969
_____________________________________________________________________________________________________________________
=====================================================================================================================
Ratio of expenses to average net assets 1.33%(c)(d) 1.34% 1.35% 1.38% 1.39%
=====================================================================================================================
Ratio of net investment income (loss) to average net assets (0.73)%(c) (0.47)% (0.46)% (0.38)% (0.33)%
_____________________________________________________________________________________________________________________
=====================================================================================================================
Portfolio turnover rate 119% 125% 93% 95% 121%
_____________________________________________________________________________________________________________________
=====================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns do not reflect charges assessed
in connection with a variable product, which if included would reduce
total returns.
(c) Ratios are based on average daily net assets of $102,505,185.
(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% for the year ended December 31, 2006.
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
AIM V.I. Capital Development Fund
NOTE 16--LEGAL PROCEEDINGS--(CONTINUED)
penalties) has been created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. Additionally, AIM and ADI
created a $50 million fair fund ($30 million of which is civil penalties) to
compensate shareholders harmed by market timing and related activity in funds
advised by AIM, which was done pursuant to the terms of the settlement. These
two fair funds may increase as a result of contributions from third parties who
reach final settlements with the SEC or other regulators to resolve allegations
of market timing and/or late trading that also may have harmed applicable AIM
Funds. These two fair funds will be distributed in accordance with a methodology
to be determined by AIM's independent distribution consultant, in consultation
with AIM and the independent trustees of the AIM Funds and acceptable to the
staff of the SEC. 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 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; 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. On September 15, 2006, the
MDL Court granted the AMVESCAP defendants' motion to dismiss the Amended Class
Action Complaint for Violations of ERISA and dismissed such Complaint. The
plaintiff has commenced an appeal from that decision.
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.
AIM V.I. Capital Development Fund
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V.I. Capital Development Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM V.I. Capital Development Fund,
(one of the funds constituting AIM Variable Insurance Funds, hereafter referred
to as the "Fund") at December 31, 2006, and the results of its operations for
the year then ended, the changes in its net assets and the financial highlights
for each of the two years in the period then ended, in conformity with
accounting principles generally accepted in the United States of America. These
financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2006 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion. The financial highlights for each of the periods ended on or before
December 31, 2004 were audited by another independent registered public
accounting firm whose report dated February 4, 2005 expressed an unqualified
opinion on those statements.
PRICEWATERHOUSECOOPERS LLP
February 14, 2007
Houston, Texas
AIM V.I. Capital Development Fund
TAX INFORMATION
Form 1099-DIV, Form 1042-S and other year-end tax information provide
shareholders with actual calendar year amounts that should be included in their
tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the
Internal Revenue Code or to meet a specific state's requirement.
The Fund designates the following amounts or, if subsequently determined to be
different, the maximum amount allowable for its fiscal year ended December 31,
2006:
<Table>
<Caption>
FEDERAL AND STATE INCOME TAX
Long-Term Capital Gain
Dividends $4,112,091
Corporate Dividends Received
Deduction* 99.43%
</Table>
* The above percentages are based on ordinary income dividends paid to
shareholders during the Fund's fiscal year.
AIM V.I. Capital Development Fund
TRUSTEES AND OFFICERS
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management None
Trustee and Vice Chair Group Inc. (financial services holding
company); Director and Vice Chairman,
AMVESCAP PLC; Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm) and
Trustee and Vice Chair of The AIM Family
of Funds--Registered Trademark--
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer);
Chief Executive Officer, AMVESCAP
PLC -- Managed Products; and President
and Principal Executive Officer of The
AIM Family of Funds--Registered
Trademark--
- -------------------------------------------------------------------------------------------------------------------------------
Philip A. Taylor(2) -- 1954 2006 Director, Chief Executive Officer and None
Trustee, President and President, A I M Management Group Inc.,
Principal AIM Mutual Fund Dealer Inc. (registered
Executive Officer broker dealer), AIM Funds Management
Inc. (registered investment advisor) and
1371 Preferred Inc. (holding company);
Director and President, A I M Advisors,
Inc., INVESCO Funds Group, Inc.
(registered investment advisor and
register transfer agent) and AIM GP
Canada Inc. (general partner for a
limited partnership); Director, A I M
Capital Management, Inc. and A I M
Distributors, Inc.; Director and
Chairman, AIM Investment Services, Inc.,
Fund Management Company and INVESCO
Distributors, Inc. (registered broker
dealer); Director, President and
Chairman, AVZ Callco Inc. (holding
company); AMVESCAP Inc. (holding
company) and AIM Canada Holdings Inc.
(holding company); Director and Chief
Executive Officer, AIM Trimark Corporate
Class Inc. (formerly AIM Trimark Global
Fund Inc.) (corporate mutual fund
company) and AIM Trimark Canada Fund
Inc. (corporate mutual fund company);
Trustee, President and Principal
Executive Officer of The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); Trustee and
Executive Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); and Manager,
Powershares Capital Management LLC
Formerly: President and Principal
Executive Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); Chairman, AIM
Canada Holdings, Inc.; Executive Vice
President and Chief Operations Officer,
AIM Funds Management Inc.; President,
AIM Trimark Global Fund Inc. and AIM
Trimark Canada Fund Inc.; and Director,
Trimark Trust (federally regulated
Canadian Trust Company)
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company
Formerly: Partner, law firm of Baker & (2 portfolios))
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Founder, Green, Manning & Bunch Ltd., None
Trustee (investment banking firm); and Director,
Policy Studies, Inc. and Van Gilder
Insurance Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and None
Trustee private business corporations, including
the Boss Group Ltd. (private investment
and management); Cortland Trust, Inc.
(Chairman) (registered investment
company (3 portfolios)); Annuity and
Life Re (Holdings), Ltd. (insurance
company); CompuDyne Corporation
(provider of products and services to
the public security market); and
Homeowners of America Holding
Corporation (property casualty company)
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and Director of various
affiliated Volvo companies; and
Director, Magellan Insurance Company
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund
company); and Owner, Dos Angelos Ranch, (non-profit)
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- -------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company
(3 portfolios))
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired Director, Mainstay VP Series
Trustee Formerly: Partner, Deloitte & Touche Funds, Inc. (21 portfolios)
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
(2) Mr. Taylor is considered an interested person of the Trust because he is an
officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
TRUSTEES AND OFFICERS--(CONTINUED)
AIM V.I. Capital Development Fund
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Senior Vice President and Senior Officer N/A
Senior Vice President and of The AIM Family of Funds--Registered
Senior Officer Trademark--
Formerly: Director of Compliance and
Assistant General Counsel, ICON
Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
John M. Zerr -- 1962 2006 Director, Senior Vice President, N/A
Senior Vice President, Chief Secretary and General Counsel, A I M
Legal Officer and Secretary Management Group Inc. and A I M
Advisors, Inc.; Director, Vice President
and Secretary, INVESCO Distributors,
Inc.; Vice President and Secretary,
A I M Capital Management, Inc., AIM
Investment Services, Inc., and Fund
Management Company; Senior Vice
President and Secretary, A I M
Distributors, Inc.; Director and Vice
President, INVESCO Funds Group Inc.;
Senior Vice President, Chief Legal
Officer and Secretary of The AIM Family
of Funds--Registered Trademark--; and
Manager, Powershares Capital Management
LLC
Formerly: Chief Operating Officer,
Senior Vice President, General Counsel,
and Secretary, Liberty Ridge Capital,
Inc. (an investment adviser); Vice
President and Secretary, PBHG Funds (an
investment company); Vice President and
Secretary, PBHG Insurance Series Fund
(an investment company); General Counsel
and Secretary, Pilgrim Baxter Value
Investors (an investment adviser); Chief
Operating Officer, General Counsel and
Secretary, Old Mutual Investment
Partners (a broker-dealer); General
Counsel and Secretary, Old Mutual Fund
Services (an administrator); General
Counsel and Secretary, Old Mutual
Shareholder Services (a shareholder
servicing center); Executive Vice
President, General Counsel and
Secretary, Old Mutual Capital, Inc. (an
investment adviser); and Vice President
and Secretary, Old Mutual Advisors Funds
(an investment company)
- ------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Global Compliance Director, AMVESCAP N/A
Vice President PLC; and Vice President of The AIM
Family of Funds--Registered Trademark--
Formerly: Senior Vice President, A I M
Management Group Inc. (financial
services holding company); Senior Vice
President and Chief Compliance Officer,
A I M Advisors, Inc. and The AIM Family
of Funds--Registered Trademark--; Vice
President and Chief Compliance Officer,
A I M Capital Management, Inc. and A I M
Distributors, Inc.; Vice President, AIM
Investment Services, Inc. and Fund
Management Company; Senior Vice
President and Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; and Senior Vice President
and Compliance Director, Delaware
Investments Family of Funds
- ------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Senior Vice President and General
Vice President Counsel, AMVESCAP PLC; Director, INVESCO
Funds Group, Inc.; and Vice President of
The AIM Family of Funds--Registered
Trademark--
Formerly: Director, Vice President and N/A
General Counsel, Fund Management
Company; Director, Senior Vice
President, Secretary and General
Counsel, A I M Management Group Inc. and
A I M Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Senior Vice President, A I M
Distributors, Inc.; Vice President,
A I M Capital Management, Inc. and AIM
Investment Services, Inc.; Senior Vice
President, Chief Legal Officer and
Secretary of The AIM Family of
Funds--Registered Trademark--; Chief
Executive Officer and President, INVESCO
Funds Group, Inc.; and Senior Vice
President, and General Counsel, Liberty
Financial Companies, Inc. and Senior
Vice President and General Counsel
Liberty Funds Group, LLC
- ------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President, Principal Advisors, Inc.; and Vice President,
Financial Officer and Treasurer and Principal Officer of The
Treasurer AIM Family of Funds--Registered
Trademark--
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
J. Philip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment Officer, A I M Advisors Inc.;
Director, Chairman, Chief Executive
Officer, President and Chief Investment
Officer, A I M Capital Management, Inc.;
Executive Vice President, A I M
Management Group Inc. and Vice President
of The AIM Family of Funds--Registered
Trademark--
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; and
Chief Equity Officer, Senior Vice
President and Senior Investment Officer,
A I M Capital Management, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc. and The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); and
President and Principal Executive
Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust Only)
Formerly: Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only)
- ------------------------------------------------------------------------------------------------------------------------------
Lance A. Rejsek -- 1967 2005 Anti-Money Laundering Compliance N/A
Anti-Money Laundering Officer, A I M Advisors, Inc., A I M
Compliance Officer Capital Management, Inc., A I M
Distributors, Inc., AIM Investment
Services, Inc., AIM Private Asset
Management, Inc., Fund Management
Company and The AIM Family of
Funds--Registered Trademark--
Formerly: Manager of the Fraud
Prevention Department, AIM Investment
Services, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
Todd L. Spillane -- 1958 2006 Senior Vice President, A I M Management N/A
Chief Compliance Officer Group Inc.; Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc.; and Vice President,
A I M Distributors, Inc., AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Global Head of Product
Development, AIG-Global Investment
Group, Inc.; Chief Compliance Officer
and Deputy General Counsel,
AIG-SunAmerica Asset Management; and
Chief Compliance Officer, Chief
Operating Officer and Deputy General
Counsel, American General Investment
Management
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers
Suite 100 11 Greenway Plaza Inc. LLP
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Ballard Spahr INDEPENDENT TRUSTEES AIM Investment State Street Bank and
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis Services, Inc. Trust Company
1735 Market Street, 51st & Frankel LLP P.O. Box 4739 225 Franklin Street
Floor 1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Philadelphia, PA 19103-7599 Americas
New York, NY 10036-2714
</Table>
Domestic Equity AIM V.I. CORE
EQUITY FUND
Large-Cap Blend
Annual Report to Shareholders - December 31, 2006
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 in Washington, D.C.You can
obtain information on the operation of the Public
Reference Room, including information about
duplicating fee charges, by calling 202-942-8090 [COVER GLOBE IMAGE]
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 AIM V.I. CORE EQUITY FUND seeks to
our Client Services department at 800-410-4246 provide growth of capital.
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 Unless otherwise stated, information presented
Web site. Go to AIMinvestments.com, access the About in this report is as of December 31, 2006,
Us tab, click on Required Notices and then click on and is based on total net assets.
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
[AIM INVESTMENTS LOGO] CHARGES AND EXPENSES. INVESTORS SHOULD READ EACH CAREFULLY
-- Registered Trademark -- BEFORE INVESTING.
==============================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
AIM V.I. CORE EQUITY FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE Business analysis allows us to identify
key drivers of the company, understand
===================================================================================== industry challenges and evaluate the
sustainability of competitive
PERFORMANCE SUMMARY advantages. Financial analysis provides
vital insights into historical and
For the year ended December 31, 2006, AIM V. I. Core Equity potential ROIC, a key indicator of
Fund posted positive returns, outperforming the Fund's business quality and the caliber of
style-specific and the broad market benchmarks. The Fund management. Both the business and
delivered positive results in all major sectors, and financial analyses serve as a basis to
holdings in consumer staples and information technology (IT) construct valuation models that help us
delivered returns significantly in excess of the estimate a company's value. We use three
style-specific index. The Fund's cash weighting and an primary valuation techniques --
underweight position in financials relative to the discounted cash flow, traditional
style-specific index detracted from returns. absolute and industry-relative valuation
multiples and net asset value.
Your Fund's long-term performance appears on pages 4 - 5.
Our risk management strategy includes
FUND VS. INDEXES in-depth fundamental research, as well
as diversifying Fund holdings across
Total returns, 12/31/05 - 12/31/06, excluding variable product issuer charges. industries and sectors and generally
If variable product issuer charges were included, returns would be lower. limiting the size of individual holdings
to less than 25% of the portfolio.
Series I Shares 16.70%
Series II Shares 16.42 We consider selling a stock when:
S&P 500 --REGISTERED TRADEMARK-- Index (Broad Market Index) 15.78
Russell 1000 --REGISTERED TRADEMARK-- Index (Style-Specific Index) 15.46 - The value of the stock exceeds our
Lipper Large-Cap Core Funds Index (Peer Group Index) 13.39 best-case appraisal of its worth.
SOURCE: LIPPER INC. - We haven't seen, nor do we envision,
a demonstrable improvement in
===================================================================================== fundamentals.
HOW WE INVEST capital (ROIC) and appreciation - More compelling investment
potential. The process we use to opportunities exist.
We manage your Fund as a large-cap identify potential investments includes
core fund, seeking to deliver solid three phases: MARKET CONDITIONS AND YOUR FUND
absolute investment results as well
as downside protection in difficult - Business analysis to determine both Fiscal year 2006 proved to be a better
markets. We believe the Fund can the attractiveness of an industry and year for investors than most
serve as cornerstone of, or ballast the company's competitive position prognosticators had expected. The
within, a well-diversified market's version of the Goldilocks fable
portfolio by complementing more - Financial analysis to determine ROIC played out as Wall Street eventually
style-specific value and growth levels and trends and to understand came to the conclusion that the economy
investments. capital allocation decisions is "just right." However, investors
should remember that in this
We conduct intensive - Valuation analysis to identify
fundamental research to gain a attractively valued companies
thorough understanding of a
company's business prospects,
return on invested
====================================================================================================================================
PORTFOLIO COMPOSITION TOP FIVE INDUSTRIES* TOP 10 EQUITY HOLDINGS*
- ------------------------------------------------------------------------------------------------------------------------------------
By sector 1. Pharmaceuticals 7.7% 1. Tyco International Ltd. 2.9%
Information Technology 16.9% 2. Industrial Conglomerates 5.8 2. Exxon Mobil Corp. 2.9
Consumer Staples 15.8 3. Packaged Foods & Meats 5.2 3. Berkshire Hathaway Inc.-Class A 2.7
Industrials 12.7 4. Property & Casualty Insurance 5.1 4. AT&T Inc. 2.5
Financials 12.6 5. Communications Equipment 4.4 5. Cadbury Schweppes PLC
Health Care 9.6 (United Kingdom) 2.5
Energy 9.5 6. Microsoft Corp. 2.5
Consumer Discretionary 7.0 Total Net Assets $2.74 billion
Telecommunication Services 3.7 7. Cisco Systems, Inc. 2.3
Utilities 1.8 Total Number of Holdings* 65 8. Estee Lauder Cos. Inc. (The)
MONEY MARKET FUNDS PLUS -Class A 2.1
OTHER ASSETS LESS LIABILITIES 10.4 9. Waste Management, Inc. 2.1
10. Amgen Inc. 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
classic children's tale, the bears tics" -- sustainable growth prospects, The defensive positioning of the Fund
eventually do come home. high ROIC, productive capital led to an overweight position in
allocation practices and opportunistic consumer staples versus the
Strong economic data propelled the valuations -- that in our view are style-specific index, while
markets early in the year, with necessary to deliver competitive significant underweight positions
small-cap stocks leading the way. long-term returns and mitigate remained in the financials and
However, several uncertainties downside risk. consumer discretionary sectors.
persisted throughout the year. Ben Additionally, the Fund has acquired
Bernanke was appointed the new Attractive valuation, paired with more both foreign common shares and
chairman of the U.S. Federal Reserve stable cash-flow generating business American Depository Receipts to take
Board (the Fed); Middle East tensions models, led to the Fund's overweight advantage of compelling risk/reward
escalated; U.S. residential housing position in consumer staples relative opportunities in high-quality foreign
markets showed signs of cooling; and to the style-specific benchmark and companies. Total exposure to foreign
rising energy prices heightened resulted in higher sector returns. Our stocks remained below the 25%
inflation concerns. As a result, the analysis suggests that consumer limitation mandated by the Fund's
markets contracted midway through the staples companies tend to be more prospectus.
year as investors anticipated a profitable in a slower growth economic
potential economic downturn. This environment. A top performer in 2006 IN CLOSING
downturn in stock prices affected the was HEINEKEN N.V. We originally
more economically sensitive small-cap invested in 2004 based on what we As a core manager, we are committed to
stocks more than large caps. believed to be a unique valuation adding value with superior
opportunity created by widespread risk-adjusted returns and lower
However, small companies led the rally investor skepticism about the firm's overall volatility versus more
that ensued during the second half of ability to increase revenues and aggressive equity investments. As
2006 and trended positively until profits. Management gradually gained always, we thank you for your
year-end. the respect of investors after several continued investment in the AIM V.I.
beneficial acquisitions drove market Core Equity Fund.
With continued strong broad market share expansion in high-growth markets
returns, 2006 caps several years of worldwide. These successful capital The views and opinions expressed in
strong market performance without a allocation decisions have proved management's discussion of Fund
significant market correction. In four profitable for shareholders such as performance are those of A I M
out of the last five years, small caps us, who invested amid controversy and Advisors, Inc. These views and
(as represented by the Russell 2000 with a long-term perspective. opinions are subject to change at any
- --Registered Trademark-- Index) have time based on factors such as market
out- performed large caps (as CISCO SYSTEMS INC. was also a top and economic conditions. These views
represented by the Russell 1000 performer in 2006. We first invested and opinions may not be relied upon as
Index). Telecommunications, REITs and in 2005, when slow business growth investment advice or recommendations,
energy issues were the best markets, reduced valuations to what we believed or as an offer for a particular
while IT and health care lagged the were unjustifiably low levels for an security. The information is not a
broader index. industry-leading franchise. Cisco complete analysis of every aspect of
management has since focused on any market, country, industry,
Your Fund's returns were fairly strong reigniting growth with new products, security or the Fund. Statements of
across most sectors, with notable acquisitions and heavy investment in fact are from sources considered
strength within consumer staples and their sales and distribution reliable, but A I M Advisors, Inc.
IT, thanks largely to strong stock capabilities. As a result, revenues makes no representation or warranty as
selection. We positioned the Fund have increased and management is to their completeness or accuracy.
slightly more defensively than the optimistic. Although historical performance is no
style-specific index because our guarantee of future results, these
fundamental research indicated that The financials sector detracted from insights may help you understand our
valuations were extended in the more the Fund's relative returns in 2006. investment management philosophy.
speculative and economically sensitive We believed that regional banks in
parts of the market. These extended particular exhibited a higher risk Ronald S. Sloan
valuations reflected an elevated profile and less upside potential than [SLOAN Chartered Financial Analyst,
appetite for risk among investors who we require because of increased PHOTO] senior portfolio manager, is lead
believe that a Goldilocks scenario of potential for consumer loan defaults manager of AIM V.I. Core Equity
slower, but stable, growth and stable resulting from recent lenient lending Fund. Mr. Sloan has been in the investment
inflation expectations sets the stage restrictions. In addition, some industry since 1971. He joined AIM in 1998.
for further stock market appreciation. financial firms' valuations are Mr. Sloan attended the University of
trading well above their historical Missouri, where he earned both a B.S. in
Our emphasis on capital preservation averages. business administration and an M.B.A.
- -- which has been and continues to be
one of our consistent objectives as The Fund's cash position also Assisted by the Mid/Large Cap Core Team
managers of your Fund -- requires us detracted from overall returns. While
to gain an understanding of downside we regret this detraction, our long-term For a discussion of the risks of investing
risk. Irrespective of broad market investment perspective and commitment to in your Fund, indexes used in this report
trends, we consistently seek companies investing prudently discourages spending and your Fund's long-term performance,
that display what we refer to as "core cash solely to "chase" market performance, please see pages 4-5.
characteris- which could create unnecessary risk.
3
AIM V.I. CORE EQUITY FUND
YOUR FUND'S LONG-TERM PERFORMANCE
======================================
AVERAGE ANNUAL TOTAL RETURNS AND THE RESTATED HISTORICAL PERFORMANCE INSURANCE COMPANIES ISSUING VARIABLE
OF SERIES I SHARES (FOR PERIODS PRIOR TO PRODUCTS. YOU CANNOT PURCHASE SHARES OF
As of 12/31/06 INCEPTION OF THE SERIES II SHARES) THE FUND DIRECTLY. PERFORMANCE FIGURES
SERIES I SHARES ADJUSTED TO REFLECT THE RULE 12B-1 FEES GIVEN REPRESENT THE FUND AND ARE NOT
Inception (5/2/94) 9.64% APPLICABLE TO THE SERIES II SHARES. THE INTENDED TO REFLECT ACTUAL VARIABLE
10 Years 7.17 PERFORMANCE OF THE FUND'S SERIES I AND PRODUCT VALUES. THEY DO NOT REFLECT
5 Years 7.06 SERIES II SHARE CLASSES WILL DIFFER SALES CHARGES, EXPENSES AND FEES
1 Year 16.70 PRIMARILY DUE TO DIFFERENT CLASS ASSESSED IN CONNECTION WITH A VARIABLE
EXPENSES. PRODUCT. SALES CHARGES, EXPENSES AND
SERIES II SHARES FEES, WHICH ARE DETERMINED BY THE
10 Years 6.91% THE PERFORMANCE DATA QUOTED REPRESENT VARIABLE PRODUCT ISSUERS, WILL VARY AND
5 Years 6.80 PAST PERFORMANCE AND CANNOT GUARANTEE WILL LOWER THE TOTAL RETURN.
1 Year 16.42 COMPARABLE FUTURE RESULTS; CURRENT
PERFORMANCE MAY BE LOWER OR HIGHER. PER NASD REQUIREMENTS, THE MOST RECENT
======================================= PLEASE CONTACT YOUR VARIABLE PRODUCT MONTH-END PERFORMANCE DATA AT THE FUND
======================================= ISSUER OR FINANCIAL ADVISOR FOR THE MOST LEVEL, EXCLUDING VARIABLE PRODUCT
RECENT MONTH-END VARIABLE PRODUCT CHARGES, IS AVAILABLE ON THIS AIM
CUMULATIVE TOTAL RETURNS PERFORMANCE. PERFORMANCE FIGURES REFLECT AUTOMATED INFORMATION LINE,
FUND EXPENSES, REINVESTED DISTRIBUTIONS 866-702-4402. AS MENTIONED ABOVE, FOR
6 months ended 12/31/06 AND CHANGES IN NET ASSET VALUE. THE MOST RECENT MONTH-END PERFORMANCE
Series I Shares 12.16% INCLUDING VARIABLE PRODUCT CHARGES,
Series II Shares 12.00 INVESTMENT RETURN AND PRINCIPAL VALUE PLEASE CONTACT YOUR VARIABLE PRODUCT
WILL FLUCTUATE SO THAT YOU MAY HAVE A ISSUER OR FINANCIAL ADVISOR.
======================================= GAIN OR LOSS WHEN YOU SELL SHARES.
SERIES II SHARES' INCEPTION DATE IS AIM V.I. CORE EQUITY FUND, A SERIES
OCTOBER 24, 2001. RETURNS SINCE THAT PORTFOLIO OF AIM VARIABLE INSURANCE
DATE ARE HISTORICAL. ALL OTHER RETURNS FUNDS, IS CURRENTLY OFFERED THROUGH
ARE THE BLENDED RETURNS OF THE
HISTORICAL PERFORMANCE OF THE FUND'S
SERIES II SHARES SINCE THEIR INCEPTION
=================================================================================================================================
Principal risks of investing in the Fund smaller size and lesser liquidity of The unmanaged Russell 1000 Index
these markets, high inflation rates, represents the performance of the stocks
Prices of equity securities change in adverse political developments and lack of large-capitalization companies.
response to many factors including the of timely information.
historical and prospective earnings of The unmanaged Lipper Large-Cap Core
the issuer, the value of its assets, To the extent the Fund holds cash or Funds Index represents an average of the
general economic conditions, interest cash equivalents rather than equity performance of the 30 largest
rates, investor perceptions and market securities for risk management purposes, large-capitalization core equity funds
liquidity. the Fund may not achieve its investment tracked by Lipper Inc., an independent
objective. mutual fund performance monitor.
The value of convertible securities in
which the Fund invests may be affected If the seller of a repurchase agreement The unmanaged Russell 2000 Index
by market interest rates, the risk that in which the Fund invests defaults on represents the performance of the stocks
the issuer may default on interest or its obligation or declares bankruptcy, of small-capitalization companies.
principal payments and the value of the the Fund may experience delays in
underlying common stock into which these selling the securities underlying the The Russell 1000 Index and the Russell
securities may be converted. repurchase agreement. 2000 Index are trademarks/service marks
of the Frank Russell Company. Russell
Foreign securities have additional There is no guarantee that the --REGISTERED TRADEMARK-- is a trademark
risks, including exchange rate changes, investment techniques and risk analyses of the Frank Russell Company.
political and economic upheaval, the used by the Fund's portfolio managers
relative lack of information about these will produce the desired results. In conjunction with the annual
companies, relatively low market prospectus update on or about May 1,
liquidity and the potential lack of About indexes used in this report 2007, the AIM V.I. Core Equity Fund
strict financial and accounting controls prospectus will be amended to reflect
and standards. The unmanaged Standard & Poor's that the Fund has elected to use the
Composite Index of 500 Stocks (the S&P Lipper Variable Underlying Funds (VUF)
Investing in emerging markets involves 500 Index) is an index of common stocks Large-Cap Core Funds Index as its peer
greater risk than investing in more frequently used as a general measure of group rather than the Lipper Large-Cap
established markets. The risks include U.S. stock market performance. Core Funds Index. The Lipper VUF
the relatively Large-Cap Core Funds Index, recently
published by Lipper Inc.
Continued on page 5
4
AIM V.I. CORE EQUITY FUND
Past performance cannot guarantee value of an investment, is constructed
comparable future results. with each segment representing a percent
change in the value of the investment.
This chart, which is a logarithmic In this chart, each segment represents a
chart, presents the fluctuations in the doubling, or 100% change, in the value
value of the Fund and its indexes. We of the investment. In other words, the
believe that a logarithmic chart is more space between $5,000 and $10,000 is the
effective than other types of charts in same size as the space between $10,000
illustrating changes in value during the and $20,000, and so on.
early years shown in the chart. The
vertical axis, the one that indicates
the dollar
================================================================================================================================
Continued from page 4
comprises the largest underlying funds Other information level only and do not include variable
in each variable insurance category and product issuer charges. If such charges
does not include mortality and expense The returns shown in management's were included, the total returns would
fees. discussion of Fund performance are based be lower.
on net asset values calculated for
The Fund is not managed to track the shareholder transactions. Generally Industry classifications used in this
performance of any particular index, accepted accounting principles require report are generally according to the
including the indexes defined here, and adjustments to be made to the net assets Global Industry Classification Standard,
consequently, the performance of the of the Fund at period end for financial which was developed by and is the
Fund may deviate significantly from the reporting purposes, and as such, the net exclusive property and a service mark of
performance of the index. asset values for shareholder Morgan Stanley Capital International
transactions and the returns based on Inc. and Standard & Poor's.
A direct investment cannot be made in those net asset values may differ from
an index. Unless otherwise indicated, the net asset values and returns The Chartered Financial Analyst --Regis-
index results include reinvested reported in the Financial Highlights. Tered Trademark-- (CFA --Registered
dividends, and they do not reflect sales Additionally, the returns and net asset Trademark--) designation is a globally
charges. Performance of an index of values shown throughout this report are recognized standard for measuring the
funds reflects fund expenses; performance at the Fund competence and integrity of investment
of a market index does not. professionals.
5
===========================================================================================================================
[MOUNTAIN CHART]
RESULTS OF A $10,000 INVESTMENT
Index data from 4/30/94, Fund data from 5/2/94
AIM V.I. CORE EQUITY FUND
DATE -SERIES I SHARES S&P 500 INDEX RUSSELL 1000 INDEX LIPPER LARGE-CAP CORE FUNDS INDEX
4/30/94 $ 10000 $ 10000 $ 10000
5/94 $ 9820 10163 10133 10079
6/94 9770 9915 9862 9813
7/94 10030 10240 10183 10107
8/94 10450 10659 10613 10468
9/94 10194 10399 10366 10249
10/94 10345 10632 10562 10414
11/94 9903 10245 10182 10047
12/94 9999 10397 10327 10140
1/95 10090 10666 10594 10319
2/95 10454 11081 11025 10674
3/95 10867 11408 11309 10939
4/95 11202 11744 11609 11180
5/95 11577 12212 12055 11541
6/95 12014 12495 12374 11844
7/95 12562 12910 12847 12248
8/95 12724 12942 12944 12267
9/95 13301 13488 13476 12726
10/95 13058 13440 13415 12667
11/95 13454 14029 14013 13162
12/95 13388 14299 14227 13361
1/96 13684 14785 14687 13754
2/96 13968 14923 14878 13921
3/96 14052 15066 15011 14048
4/96 14401 15288 15240 14252
5/96 14707 15682 15606 14537
6/96 14644 15742 15623 14558
7/96 13884 15047 14870 13963
8/96 14327 15364 15274 14280
9/96 15161 16228 16133 15020
10/96 15277 16676 16490 15319
11/96 16228 17935 17707 16312
12/96 16057 17580 17421 16012
1/97 16998 18678 18454 16887
2/97 16934 18824 18524 16867
3/97 15930 18052 17690 16144
4/97 16720 19129 18647 17039
5/97 17990 20299 19841 18073
6/97 18739 21201 20664 18857
7/97 20427 22887 22355 20346
8/97 19455 21606 21300 19311
9/97 20641 22789 22468 20305
10/97 19744 22029 21740 19679
11/97 20097 23048 22683 20322
12/97 20187 23443 23144 20691
1/98 20337 23702 23316 20895
2/98 21610 25411 24978 22376
3/98 22615 26711 26238 23482
4/98 22583 26984 26508 23720
5/98 21985 26521 25934 23315
6/98 23097 27598 26894 24423
7/98 23118 27306 26571 24226
8/98 19384 23361 22599 20600
9/98 20379 24859 24121 21624
10/98 22154 26878 26026 23246
11/98 23609 28506 27637 24628
12/98 25774 30148 29398 26264
1/99 27174 31408 30447 27182
2/99 26133 30432 29480 26342
3/99 27902 31649 30610 27402
4/99 28293 32875 31890 28136
5/99 27532 32099 31201 27390
6/99 29528 33876 32791 28918
7/99 28441 32823 31789 28070
8/99 28418 32660 31492 27784
9/99 28060 31766 30626 27031
10/99 29741 33775 32684 28687
11/99 30978 34462 33525 29390
12/99 34597 36489 35545 31345
1/00 33317 34656 34090 30078
2/00 34456 34000 33999 30068
3/00 37467 37324 37097 32683
4/00 34991 36202 35860 31615
5/00 33031 35460 34933 30810
===========================================================================================================================
SOURCE: LIPPER INC.
===================================================================================================================
[MOUNTAIN CHART]
6/00 34980 36333 35823 31938
7/00 35057 35765 35228 31440
8/00 37851 37986 37836 33609
9/00 35330 35981 36079 31819
10/00 33875 35828 35645 31451
11/00 29044 33006 32385 28685
12/00 29561 33167 32777 29036
1/01 30826 34343 33855 29858
2/01 26357 31214 30697 27079
3/01 23523 29238 28658 25417
4/01 26221 31508 30961 27349
5/01 26266 31719 31170 27503
6/01 25420 30948 30466 26772
7/01 24505 30643 30050 26384
8/01 22552 28726 28219 24830
9/01 19945 26407 25826 22946
10/01 20825 26911 26363 23487
11/01 22745 28974 28393 25025
12/01 22813 29228 28696 25309
1/02 22395 28802 28332 24910
2/02 22158 28247 27767 24492
3/02 23073 29309 28908 25326
4/02 22316 27533 27252 24002
5/02 22305 27331 27011 23827
6/02 21130 25385 25018 22181
7/02 19458 23406 23167 20533
8/02 19661 23560 23288 20702
9/02 18159 21002 20787 18692
10/02 19175 22848 22514 20144
11/02 20102 24192 23831 21043
12/02 19257 22771 22483 19935
1/03 18622 22176 21938 19412
2/03 18225 21843 21598 19154
3/03 18316 22054 21822 19315
4/03 19620 23870 23584 20739
5/03 20935 25126 24928 21744
6/03 21117 25447 25256 21959
7/03 21413 25896 25759 22305
8/03 21980 26400 26282 22736
9/03 21640 26121 26013 22442
10/03 22364 27598 27538 23540
11/03 22830 27840 27868 23738
12/03 23960 29299 29203 24880
1/04 24224 29837 29758 25231
2/04 24660 30251 30170 25529
3/04 24075 29795 29758 25129
4/04 24304 29328 29221 24739
5/04 24476 29730 29642 24990
6/04 24934 30307 30176 25437
7/04 24156 29305 29117 24537
8/04 24089 29422 29260 24552
9/04 24296 29741 29630 24834
10/04 24570 30195 30108 25170
11/04 25268 31416 31397 26125
12/04 26112 32485 32533 26942
1/05 25545 31693 31714 26333
2/05 26388 32360 32427 26824
3/05 25950 31787 31913 26333
4/05 25418 31185 31325 25746
5/05 25731 32176 32435 26580
6/05 25857 32222 32568 26671
7/05 26770 33420 33834 27619
8/05 26676 33115 33542 27366
9/05 26884 33383 33853 27683
10/05 26260 32827 33260 27351
11/05 27324 34067 34526 28399
12/05 27499 34079 34572 28482
1/06 28508 34981 35541 29280
2/06 28602 35076 35621 29149
3/06 29083 35512 36125 29675
4/06 29400 35989 36558 29984
5/06 28697 34954 35479 29075
6/06 28614 35001 35525 29100
7/06 28814 35217 35603 29000
8/06 29494 36053 36457 29720
9/06 30279 36982 37322 30347
10/06 31005 38186 38589 31358
11/06 31722 38911 39412 31971
12/06 32088 39457 39917 32295
===================================================================================================================
AIM V.I. CORE EQUITY 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 expenses. You may use the information in months ended December 31, 2006, appear
(12b-1) fees; and other Fund expenses. this table, together with the amount you in the table "Cumulative Total Returns"
This example is intended to help you invested, to estimate the expenses that on page 4.
understand your ongoing costs (in you paid over the period. Simply divide
dollars) of investing in the Fund and to your account value by $1,000 (for The hypothetical account values and
compare these costs with ongoing costs example, an $8,600 account value divided expenses may not be used to estimate the
of investing in other mutual funds. The by $1,000 = 8.6), then multiply the actual ending account balance or
example is based on an investment of result by the number in the table under expenses you paid for the period. You
$1,000 invested at the beginning of the the heading entitled "Actual Expenses may use this information to compare the
period and held for the entire period Paid During Period" to estimate the ongoing costs of investing in the Fund
July 1, 2006, through December 31, 2006. expenses you paid on your account during and other funds. To do so, compare this
this period. 5% hypothetical example with the 5%
The actual and hypothetical expenses hypothetical examples that appear in the
in the examples below do not represent HYPOTHETICAL EXAMPLE FOR COMPARISON shareholder reports of the other funds.
the effect of any fees or other expenses PURPOSES
assessed in connection with a variable Please note that the expenses shown in
product; if they did, the expenses shown The table below also provides the table are meant to highlight your
would be higher while the ending account information about hypothetical account ongoing costs. Therefore, the
values shown would be lower. values and hypothetical expenses based hypothetical information is useful in
on the Fund's actual expense ratio and comparing ongoing costs, and will not
an assumed rate of return of help you determine the relative total
costs of owning different funds.
===================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (7/1/06) (12/31/06)(1) PERIOD(2) (12/31/06) PERIOD(2) RATIO
- ------------------------------------------------------------------------------------------------------------------------------------
Series I $ 1,000.00 $ 1,121.60 $ 4.76 $ 1,020.72 $ 4.53 0.89%
Series II 1,000.00 1,120.00 6.09 1,019.46 5.80 1.14
====================================================================================================================================
(1) The actual ending account value is based on the actual total return of the Fund for the period July 1, 2006, through December
31, 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 December 31, 2006, appear in the table "Cumulative Total Returns" on page 4.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 184/365 to reflect the most recent fiscal half year.
6
APPROVAL OF INVESTMENT ADVISORY AGREEMENT AIM V.I. CORE EQUITY FUND
The Board of Trustees of AIM Variable - The nature and extent of the advisory performance through the most recent
Insurance Funds (the "Board") oversees services to be provided by AIM. The calendar year, the Board also reviewed
the management of AIM V.I. Core Equity Board reviewed the services to be more recent Fund performance, which did
Fund (the "Fund") and, as required by provided by AIM under the Advisory not change their conclusions.
law, determines annually whether to Agreement. Based on such review, the
approve the continuance of the Fund's Board concluded that the range of services - Meetings with the Fund's portfolio
advisory agreement with A I M Advisors, to be provided by AIM under the Advisory managers and investment personnel. With
Inc. ("AIM"). Based upon the Agreement was appropriate and that AIM respect to the Fund, the Board is
recommendation of the Investments currently is providing services in meeting periodically with such Fund's
Committee of the Board, at a meeting accordance with the terms of the portfolio managers and/or other
held on June 27, 2006, the Board, Advisory Agreement. investment personnel and believes that
including all of the independent such individuals are competent and able
trustees, approved the continuance of - The quality of services to be provided to continue to carry out their
the advisory agreement (the "Advisory by AIM. The Board reviewed the responsibilities under the Advisory
Agreement") between the Fund and AIM for credentials and experience of the Agreement.
another year, effective July 1, 2006. officers and employees of AIM who will
provide investment advisory services to - Overall performance of AIM. The Board
The Board considered the factors the Fund. In reviewing the considered the overall performance of
discussed below in evaluating the qualifications of AIM to provide AIM in providing investment advisory and
fairness and reasonableness of the investment advisory services, the Board portfolio administrative services to the
Advisory Agreement at the meeting on considered such issues as AIM's Fund and concluded that such performance
June 27, 2006 and as part of the Board's portfolio and product review process, was satisfactory.
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 - Fees relative to those of clients of
independent trustees did not identify fixed income trading operations. Based AIM with comparable investment
any particular factor that was on the review of these and other strategies. The Board reviewed the
controlling, and each trustee attributed factors, the Board concluded that the effective advisory fee rate (before
different weights to the various quality of services to be provided by waivers) for the Fund under the Advisory
factors. AIM was appropriate and that AIM Agreement. The Board noted that this
currently is providing satisfactory rate was (i) above the effective
One responsibility of the independent services in accordance with the terms of advisory fee rate (before waivers) for a
Senior Officer of the Fund is to manage the Advisory Agreement. mutual fund advised by AIM with
the process by which the Fund's proposed investment strategies comparable to
management fees are negotiated to ensure - The performance of the Fund relative those of the Fund, below the effective
that they are negotiated in a manner to comparable funds. The Board reviewed advisory fee rate (before waivers) for a
which is at arms' length and reasonable. the performance of the Fund during the second mutual fund advised by AIM with
To that end, the Senior Officer must past one, three and five calendar years investment strategies comparable to
either supervise a competitive bidding against the performance of funds advised those of the Fund, and comparable to the
process or prepare an independent by other advisors with investment effective advisory fee rates (before
written evaluation. The Senior Officer strategies comparable to those of the waivers) for two other mutual funds
has recommended an independent written Fund. The Board noted that the Fund's advised by AIM with investment
evaluation in lieu of a competitive performance in such periods was below strategies comparable to those of the
bidding process and, upon the direction the median performance of such Fund; (ii) 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 (iii) above the total advisory
The discussion below serves as a summary the independent written evaluation of fee rates for 78 separately managed
of the Senior Officer's independent the Fund's Senior Officer (discussed accounts/wrap accounts managed by an AIM
written evaluation and recommendation to below) only considered Fund performance affiliate with investment strategies
the Board in connection therewith, as through the most recent calendar year, comparable to those of the Fund and
well as a discussion of the material the Board also reviewed more recent Fund comparable to or below the total
factors and the conclusions with respect performance, which did not change their advisory fee rates for 10 separately
thereto that formed the basis for the conclusions. managed accounts/wrap accounts managed
Board's approval of the Advisory by an AIM affiliate with investment
Agreement. After consideration of all of - The performance of the Fund relative strategies comparable to those of the
the factors below and based on its to indices. The Board reviewed the Fund. The Board noted that AIM has
informed business judgment, the Board performance of the Fund during the past agreed to waive advisory fees of the
determined that the Advisory Agreement one, three and five calendar years Fund and to limit the Fund's total
is in the best interests of the Fund and against the performance of the Lipper operating expenses, as discussed below.
its shareholders and that the Variable Underlying Fund Large-Cap Core Based on this review, the Board
compensation to AIM under the Advisory Index. The Board noted that the Fund's concluded that the advisory fee rate for
Agreement is fair and reasonable and performance in such periods was below the Fund under the Advisory Agreement
would have been obtained through arm's the performance of such Index. Based on was fair and reasonable.
length negotiations. this review and after taking account of
all of the other factors that the Board - Fees relative to those of comparable
Unless otherwise stated, information considered in determining whether to funds with other advisors. The Board
presented below is as of June 27, 2006 continue the Advisory Agreement for the reviewed the advisory fee rate for the
and does not reflect any changes that Fund, the Board concluded that no Fund under the Advisory Agreement. The
may have occurred since June 27, 2006, changes should be made to the Fund and Board compared effective contractual
including but not limited to changes to that it was not necessary to change the advisory fee rates at a common asset
the Fund's performance, advisory fees, Fund's portfolio management team at this level at the end of the past calendar
expense limitations and/or fee waivers. time. Although the independent written year and noted that the Fund's rate was
evaluation of the Fund's Senior Officer comparable to the median rate of the
(discussed below) only considered Fund funds advised by other advisors with
investment strategies comparable to
those of the
(continued)
7
AIM V.I. CORE EQUITY FUND
Fund that the Board reviewed. The Board higher net return, increased liquidity, - Benefits of soft dollars to AIM. The
noted that AIM has agreed to waive increased diversification or decreased Board considered the benefits realized
advisory fees of the Fund and to limit transaction costs. The Board also found by AIM as a result of brokerage
the Fund's total operating expenses, as that the Fund will not receive reduced transactions executed through "soft
discussed below. Based on this review, services if it invests its cash balances dollar" arrangements. Under these
the Board concluded that the advisory in such money market funds. The Board arrangements, brokerage commissions paid
fee rate for the Fund under the Advisory noted that, to the extent the Fund by the Fund and/or other funds advised
Agreement was fair and reasonable. invests uninvested cash in affiliated by AIM are used to pay for research and
money market funds, AIM has voluntarily execution services. This research may be
- - Expense limitations and fee waives. agreed to waive a portion of the used by AIM in making investment
The Board noted that AIM has advisory fees it receives from the Fund decisions for the Fund. The Board
contractually agreed to waive advisory attributable to such investment. The concluded that such arrangements were
fees of the Fund through December 31, Board further determined that the appropriate.
2009 to the extent necessary so that the proposed securities lending program and
advisory fees payable by the Fund do not related procedures with respect to the - AIM's financial soundness in light of
exceed a specified maximum advisory fee lending Fund is in the best interests of the Fund's needs. The Board considered
rate, which maximum rate includes the lending Fund and its respective whether AIM is financially sound and has
breakpoints and is based on net asset shareholders. The Board therefore the resources necessary to perform its
levels. The Board considered the concluded that the investment of cash obligations under the Advisory
contractual nature of this fee waiver collateral received in connection with Agreement, and concluded that AIM has
and noted that it remains in effect the securities lending program in the the financial resources necessary to
until December 31, 2009. The Board noted money market funds according to the fulfill its obligations under the
that AIM has contractually agreed to procedures is in the best interests of Advisory Agreement.
waive fees and/or limit expenses of the the lending Fund and its respective
Fund through April 30, 2008 in an amount shareholders. - Historical relationship between the
necessary to limit total annual Fund and AIM. In determining whether to
operating expenses to a specified - Independent written evaluation and continue the Advisory Agreement for the
percentage of average daily net assets recommendations of the Fund's Senior Fund, the Board also considered the
for each class of the Fund. The Board Officer. The Board noted that, upon prior relationship between AIM and the
considered the contractual nature of their direction, the Senior Officer of Fund, as well as the Board's knowledge
this fee waiver/expense limitation and the Fund, who is independent of AIM and of AIM's operations, and concluded that
noted that it remains in effect through AIM's affiliates, had prepared an it was beneficial to maintain the
April 30, 2008. The Board considered the independent written evaluation in order current relationship, in part, because
effect these fee waivers/expense to assist the Board in determining the of such knowledge. The Board also
limitations would have on the Fund's reasonableness of the proposed reviewed the general nature of the
estimated expenses and concluded that management fees of the AIM Funds, non-investment advisory services
the levels of fee waivers/expense including the Fund. The Board noted that currently performed by AIM and its
limitations for the Fund were fair and the Senior Officer's written evaluation affiliates, such as administrative,
reasonable. had been relied upon by the Board in transfer agency and distribution
this regard in lieu of a competitive services, and the fees received by AIM
- - Breakpoints and economies of scale. bidding process. In determining whether and its affiliates for performing such
The Board reviewed the structure of the to continue the Advisory Agreement for services. In addition to reviewing such
Fund's advisory fee under the Advisory the Fund, the Board considered the services, the trustees also considered
Agreement, noting that it includes one Senior Officer's written evaluation and the organizational structure employed by
breakpoint. The Board reviewed the level the recommendation made by the Senior AIM and its affiliates to provide those
of the Fund's advisory fees, and noted Officer to the Board that the Board services. Based on the review of these
that such fees, as a percentage of the consider whether the advisory fee and other factors, the Board concluded
Fund's net assets, have decreased as net waivers for certain equity AIM Funds, that AIM and its affiliates were
assets increased because the Advisory including the Fund, should be qualified to continue to provide
Agreement includes a breakpoint. The simplified. The Board concluded that it non-investment advisory services to the
Board noted that AIM has contractually would be advisable to consider this Fund, including administrative, transfer
agreed to waive advisory fees of the issue and reach a decision prior to the agency and distribution services, and
Fund through December 31, 2009 to the expiration date of such advisory fee that AIM and its affiliates currently
extent necessary so that the advisory waivers. are providing satisfactory
fees payable by the Fund do not exceed a non-investment advisory services.
specified maximum advisory fee rate, - Profitability of AIM and its
which maximum rate includes breakpoints affiliates. The Board reviewed - Other factors and current trends. The
and is based on net asset levels. The information concerning the profitability Board considered the steps that AIM and
Board concluded that the Fund's fee of AIM's (and its affiliates') its affiliates have taken over the last
levels under the Advisory Agreement investment advisory and other activities several years, and continue to take, in
therefore reflect economies of scale and and its financial condition. The Board order to improve the quality and
that it was not necessary to change the considered the overall profitability of efficiency of the services they provide
advisory fee breakpoints in the Fund's AIM, as well as the profitability of AIM to the Funds in the areas of investment
advisory fee schedule. in connection with managing the Fund. performance, product line
The Board noted that AIM's operations diversification, distribution, fund
- - Investments in affiliated money market remain profitable, although increased operations, shareholder services and
funds. The Board also took into account expenses in recent years have reduced compliance. The Board concluded that
the fact that uninvested cash and cash AIM's profitability. Based on the review these steps taken by AIM have improved,
collateral from securities lending of the profitability of AIM's and its and are likely to continue to improve,
arrangements, if any (collectively, affiliates' investment advisory and the quality and efficiency of the
"cash balances") of the Fund may be other activities and its financial services AIM and its affiliates provide
invested in money market funds advised condition, the Board concluded that the to the Fund in each of these areas, and
by AIM pursuant to the terms of an SEC compensation to be paid by the Fund to support the Board's approval of the
exemptive order. The Board found that AIM under its Advisory Agreement was not continuance of the Advisory Agreement
the Fund may realize certain benefits excessive. for the Fund.
upon investing cash balances in AIM
advised money market funds, including a
8
AIM V.I. Core Equity Fund
SCHEDULE OF INVESTMENTS
December 31, 2006
<Table>
<Caption>
SHARES VALUE
- ---------------------------------------------------------------------------
DOMESTIC COMMON STOCKS AND OTHER EQUITY
INTERESTS-70.07%
AEROSPACE & DEFENSE-2.12%
Northrop Grumman Corp. 440,732 $ 29,837,556
- ---------------------------------------------------------------------------
United Technologies Corp. 450,000 28,134,000
===========================================================================
57,971,556
===========================================================================
AIR FREIGHT & LOGISTICS-0.45%
United Parcel Service, Inc.-Class B 165,650 12,420,437
===========================================================================
APPAREL RETAIL-1.02%
Gap, Inc. (The) 1,439,177 28,063,951
===========================================================================
BIOTECHNOLOGY-1.89%
Amgen Inc.(a) 757,322 51,732,666
===========================================================================
BROADCASTING & CABLE TV-0.59%
Clear Channel Communications, Inc. 458,229 16,285,459
===========================================================================
COMMUNICATIONS EQUIPMENT-3.05%
Cisco Systems, Inc.(a) 2,264,331 61,884,166
- ---------------------------------------------------------------------------
Corning Inc.(a) 1,164,363 21,785,232
===========================================================================
83,669,398
===========================================================================
COMPUTER HARDWARE-1.50%
International Business Machines Corp. 421,808 40,978,647
===========================================================================
COMPUTER STORAGE & PERIPHERALS-2.15%
EMC Corp.(a) 2,516,796 33,221,707
- ---------------------------------------------------------------------------
Seagate Technology 967,025 25,626,163
===========================================================================
58,847,870
===========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-1.03%
Automatic Data Processing, Inc. 574,700 28,303,975
===========================================================================
ELECTRIC UTILITIES-1.82%
FPL Group, Inc. 915,170 49,803,551
===========================================================================
ENVIRONMENTAL & FACILITIES SERVICES-2.11%
Waste Management, Inc. 1,575,218 57,920,766
===========================================================================
FOOD DISTRIBUTORS-1.25%
Sysco Corp. 931,630 34,246,719
===========================================================================
FOOD RETAIL-1.04%
Kroger Co. (The) 1,232,847 28,441,780
===========================================================================
HYPERMARKETS & SUPER CENTERS-1.56%
Wal-Mart Stores, Inc. 926,264 42,774,872
===========================================================================
</Table>
<Table>
SHARES VALUE
- ---------------------------------------------------------------------------
<Caption>
INDUSTRIAL CONGLOMERATES-5.75%
3M Co. 369,201 $ 28,771,834
- ---------------------------------------------------------------------------
General Electric Co. 1,299,094 48,339,287
- ---------------------------------------------------------------------------
Tyco International Ltd. 2,641,762 80,309,565
===========================================================================
157,420,686
===========================================================================
INDUSTRIAL MACHINERY-1.01%
Dover Corp. 561,733 27,536,152
===========================================================================
INSURANCE BROKERS-0.94%
Marsh & McLennan Cos., Inc. 838,646 25,712,886
===========================================================================
INTEGRATED OIL & GAS-2.91%
Exxon Mobil Corp. 1,039,869 79,685,161
===========================================================================
INTEGRATED TELECOMMUNICATION SERVICES-2.53%
AT&T Inc. 1,941,329 69,402,512
===========================================================================
INVESTMENT BANKING & BROKERAGE-1.17%
Morgan Stanley 392,167 31,934,159
===========================================================================
MOVIES & ENTERTAINMENT-1.61%
News Corp.-Class A 2,050,160 44,037,437
===========================================================================
MULTI-LINE INSURANCE-1.10%
Genworth Financial Inc.-Class A 878,338 30,047,943
===========================================================================
OFFICE ELECTRONICS-1.58%
Xerox Corp. 2,552,318 43,261,790
===========================================================================
OIL & GAS EQUIPMENT & SERVICES-2.80%
Schlumberger Ltd. 424,454 26,808,515
- ---------------------------------------------------------------------------
Smith International, Inc. 532,024 21,850,226
- ---------------------------------------------------------------------------
Weatherford International Ltd.(a) 669,193 27,965,575
===========================================================================
76,624,316
===========================================================================
OIL & GAS EXPLORATION & PRODUCTION-1.11%
XTO Energy, Inc. 648,928 30,532,062
===========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-1.41%
Citigroup Inc. 694,401 38,678,136
===========================================================================
PACKAGED FOODS & MEATS-0.91%
General Mills, Inc. 431,197 24,836,947
===========================================================================
</Table>
AIM V.I. Core Equity Fund
<Table>
<Caption>
SHARES VALUE
- ---------------------------------------------------------------------------
PERSONAL PRODUCTS-3.71%
Avon Products, Inc. 1,301,335 $ 42,996,108
- ---------------------------------------------------------------------------
Estee Lauder Cos. Inc. (The)-Class A 1,434,114 58,540,534
===========================================================================
101,536,642
===========================================================================
PHARMACEUTICALS-4.56%
Bristol-Myers Squibb Co. 1,476,697 38,866,665
- ---------------------------------------------------------------------------
Forest Laboratories, Inc.(a) 531,935 26,915,911
- ---------------------------------------------------------------------------
Merck & Co. Inc. 659,589 28,758,081
- ---------------------------------------------------------------------------
Pfizer Inc. 1,169,437 30,288,418
===========================================================================
124,829,075
===========================================================================
PROPERTY & CASUALTY INSURANCE-5.07%
Berkshire Hathaway Inc.-Class A(a) 681 74,903,190
- ---------------------------------------------------------------------------
Chubb Corp. (The) 474,478 25,104,631
- ---------------------------------------------------------------------------
XL Capital Ltd.-Class A 538,500 38,782,770
===========================================================================
138,790,591
===========================================================================
PUBLISHING-1.65%
Gannett Co., Inc. 343,862 20,789,897
- ---------------------------------------------------------------------------
McGraw-Hill Cos., Inc. (The) 360,651 24,531,481
===========================================================================
45,321,378
===========================================================================
RAILROADS-1.22%
Union Pacific Corp. 362,840 33,388,537
===========================================================================
SEMICONDUCTORS-0.98%
Analog Devices, Inc. 820,305 26,963,425
===========================================================================
SOFT DRINKS-1.72%
Coca-Cola Co. (The) 978,724 47,223,433
===========================================================================
SPECIALIZED FINANCE-0.43%
Moody's Corp. 168,568 11,641,306
===========================================================================
SYSTEMS SOFTWARE-4.32%
Microsoft Corp. 2,241,616 66,934,654
- ---------------------------------------------------------------------------
Symantec Corp.(a) 2,467,798 51,453,588
===========================================================================
118,388,242
===========================================================================
Total Domestic Common Stocks and Other
Equity Interests
(Cost $1,542,274,149) 1,919,254,463
===========================================================================
FOREIGN COMMON STOCKS & OTHER EQUITY
INTERESTS-19.52%
ARGENTINA-1.31%
Tenaris S.A.-ADR (Oil & Gas
Equipment & Services) 719,280 35,884,879
===========================================================================
FINLAND-1.36%
Nokia Oyj-ADR (Communications Equipment) 1,831,976 37,225,752
===========================================================================
</Table>
<Table>
SHARES VALUE
- ---------------------------------------------------------------------------
<Caption>
FRANCE-2.39%
Lucent Technologies Inc.-Wts., expiring
12/10/07 (Communications Equipment)(a) 2 $ 0
- ---------------------------------------------------------------------------
Renault S.A. (Automobile Manufacturers) 243,920 29,305,220
===========================================================================
Total S.A. (Integrated Oil & Gas) 500,460 36,109,022
===========================================================================
65,414,242
===========================================================================
ISRAEL-1.27%
Teva Pharmaceutical Industries Ltd.-ADR
(Pharmaceuticals) 1,117,025 34,717,137
===========================================================================
JAPAN-0.90%
Nintendo Co., Ltd. (Home Entertainment
Software)(b) 95,000 24,629,069
===========================================================================
NETHERLANDS-4.28%
Heineken N.V. (Brewers)(b) 771,656 36,671,216
- ---------------------------------------------------------------------------
Koninklijke (Royal) Phillips Electronics N.V.
(Consumer Electronics)(b) 785,567 29,618,338
- ---------------------------------------------------------------------------
Unilever N.V. (Packaged Foods & Meats)(b) 1,860,576 50,824,872
===========================================================================
117,114,426
===========================================================================
SOUTH KOREA-1.21%
SK Telecom Co., Ltd.-ADR (Wireless
Telecommunication Services)(c) 1,250,631 33,116,709
===========================================================================
SWITZERLAND-1.16%
UBS A.G. (Diversified Capital Markets)(b) 526,068 31,850,822
===========================================================================
UNITED KINGDOM-5.64%
Barclays PLC (Diversified Banks)(b) 2,538,870 36,161,414
- ---------------------------------------------------------------------------
Cadbury Schweppes PLC (Packaged
Foods & Meats) 6,265,464 67,062,242
- ---------------------------------------------------------------------------
GlaxoSmithKline PLC-ADR (Pharmaceuticals) 973,453 51,359,380
===========================================================================
154,583,036
===========================================================================
Total Foreign Common Stocks & Other
Equity Interests
(Cost $417,790,376) 534,536,072
===========================================================================
MONEY MARKET FUNDS-10.22%
Liquid Assets Portfolio-Institutional
Class(d) 140,001,437 140,001,437
- ---------------------------------------------------------------------------
Premier Portfolio-Institutional Class(d) 140,001,437 140,001,437
===========================================================================
Total Money Market Funds (Cost
$280,002,874) 280,002,874
===========================================================================
TOTAL INVESTMENTS (excluding investments
purchased with cash collateral from
securities loaned)-99.81%
(Cost $2,240,067,399) 2,733,793,409
===========================================================================
</Table>
AIM V.I. Core Equity Fund
<Table>
<Caption>
SHARES VALUE
- ---------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED-0.69%
MONEY MARKET FUNDS-0.69%
Liquid Assets Portfolio-Institutional
Class(d)(e) 18,777,590 $ 18,777,590
===========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $18,777,590) 18,777,590
===========================================================================
TOTAL INVESTMENTS-100.50% (Cost
$2,258,844,989) 2,752,570,999
===========================================================================
OTHER ASSETS LESS LIABILITIES-(0.50)% (13,589,884)
===========================================================================
NET ASSETS-100.00% $2,738,981,115
___________________________________________________________________________
===========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
Wts. - Warrants
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) In accordance with the procedures established by the Board of Trustees, the
foreign security is fair valued using adjusted closing market prices. The
aggregate value of these securities at December 31, 2006 was $209,755,731,
which represented 7.66% of the Fund's Net Assets. See Note 1A.
(c) All or a portion of this security was out on loan at December 31, 2006.
(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
December 31, 2006
<Table>
ASSETS:
Investments, at value (cost $1,960,064,525)* $2,453,790,535
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $298,780,464) 298,780,464
=============================================================
Total investments (cost $2,258,844,989) 2,752,570,999
=============================================================
Foreign currencies, at value (cost $104,732) 105,368
- -------------------------------------------------------------
Cash 664,437
- -------------------------------------------------------------
Receivables for:
Fund shares sold 5,375,173
- -------------------------------------------------------------
Dividends 4,051,762
- -------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 195,884
- -------------------------------------------------------------
Other assets 99,298
=============================================================
Total assets 2,763,062,921
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Fund shares reacquired 2,980,245
- -------------------------------------------------------------
Trustee deferred compensation and
retirement plans 421,768
- -------------------------------------------------------------
Collateral upon return of securities loaned 18,777,590
- -------------------------------------------------------------
Accrued administrative services fees 1,729,500
- -------------------------------------------------------------
Accrued distribution fees -- Series II 24,480
- -------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 11,024
- -------------------------------------------------------------
Accrued transfer agent fees 12,606
- -------------------------------------------------------------
Accrued operating expenses 124,593
=============================================================
Total liabilities 24,081,806
=============================================================
Net assets applicable to shares outstanding $2,738,981,115
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $2,876,266,621
- -------------------------------------------------------------
Undistributed net investment income 26,018,906
- -------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign
currencies (657,143,896)
- -------------------------------------------------------------
Unrealized appreciation (depreciation) of
investment securities and foreign
currencies 493,839,484
=============================================================
$2,738,981,115
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $2,699,252,340
_____________________________________________________________
=============================================================
Series II $ 39,728,775
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Series I 99,181,155
_____________________________________________________________
=============================================================
Series II 1,470,378
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 27.22
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 27.02
_____________________________________________________________
=============================================================
</Table>
* At December 31, 2006, securities with an aggregate value of $18,742,945 were
on loan to brokers.
STATEMENT OF OPERATIONS
For the year ended December 31, 2006
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of
$967,849) $ 35,794,801
- -------------------------------------------------------------
Dividends from affiliated money market funds
(includes securities lending income of
$253,791) 14,114,716
- -------------------------------------------------------------
Interest 10,538
=============================================================
Total investment income 49,920,055
=============================================================
EXPENSES:
Advisory fees 13,537,705
- -------------------------------------------------------------
Administrative services fees 5,785,524
- -------------------------------------------------------------
Custodian fees 262,422
- -------------------------------------------------------------
Distribution fees -- Series II 62,257
- -------------------------------------------------------------
Transfer agent fees 57,996
- -------------------------------------------------------------
Trustees' and officer's fees and benefits 89,354
- -------------------------------------------------------------
Other 212,544
=============================================================
Total expenses 20,007,802
=============================================================
Less: Fees waived and expense offset
arrangements (112,236)
=============================================================
Net expenses 19,895,566
=============================================================
Net investment income 30,024,489
=============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES AND
OPTION CONTRACTS:
Net realized gain from:
Investment securities (includes net gains
(losses) from securities sold to affiliates
of $(30,817)) 133,329,157
- -------------------------------------------------------------
Foreign currencies 55,004
=============================================================
133,384,161
=============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities 152,060,978
- -------------------------------------------------------------
Foreign currencies (10,014)
- -------------------------------------------------------------
Option contracts written 1,241,093
=============================================================
153,292,057
=============================================================
Net gain from investment securities, foreign
currencies and option contracts 286,676,218
=============================================================
Net increase in net assets resulting from
operations $316,700,707
_____________________________________________________________
=============================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. Core Equity Fund
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2006 and 2005
<Table>
<Caption>
2006 2005
- ----------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 30,024,489 $ 14,628,715
- ----------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 133,384,161 109,888,305
- ----------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities and foreign currencies 153,292,057 (58,233,272)
==============================================================================================
Net increase in net assets resulting from operations 316,700,707 66,283,748
==============================================================================================
Distributions to shareholders from net investment income:
Series I (14,522,140) (18,751,304)
- ----------------------------------------------------------------------------------------------
Series II (203,586) (48,282)
- ----------------------------------------------------------------------------------------------
Decrease in net assets resulting from distributions (14,725,726) (18,799,586)
==============================================================================================
Share transactions-net:
Series I 1,153,932,649 (288,279,283)
- ----------------------------------------------------------------------------------------------
Series II 32,686,606 (453,871)
==============================================================================================
Net increase (decrease) in net assets resulting from
share transactions 1,186,619,255 (288,733,154)
==============================================================================================
Net increase (decrease) in net assets 1,488,594,236 (241,248,992)
==============================================================================================
NET ASSETS:
Beginning of year 1,250,386,879 1,491,635,871
==============================================================================================
End of year (including undistributed net investment income
of $26,018,906 and $7,410,542, respectively) $2,738,981,115 $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
December 31, 2006
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-one 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.
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 or official closing price as of the close of
the customary trading session on the exchange where the security is
principally traded, or lacking any sales or official closing price on a
particular day, the security may be valued at the closing bid price on that
day. Securities traded in the over-the-counter market 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. 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 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 open-end and closed-end registered
investment companies that trade on an exchange are valued at the last sales
price or official closing price as of the close of the customary trading
session on the exchange where the security is principally traded.
Debt obligations (including convertible bonds) and unlisted equities 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.
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. If market quotations are available and reliable for
foreign exchange traded equity securities, the securities will be valued at
the market quotations. Because trading hours for certain foreign securities
end before the close of the NYSE, closing market quotations may become
unreliable. If between the time trading ends on a particular security and
the close of the customary trading session on the NYSE, events occur that
are significant and may make the closing price unreliable, the Fund may
fair value the security. 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 prices are not provided by any of the above
methods may be valued based upon quotes furnished by independent sources
and are valued at the last bid price in the case of equity securities and
in the case of debt obligations, the mean between the last bid and asked
prices.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
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
AIM V.I. Core Equity Fund
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 the 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 to distribute substantially all of the
Fund's taxable earnings to shareholders. As such, the Fund will not be
subject to federal income taxes on otherwise taxable income (including net
realized capital gain) that 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. ACCOUNTING ESTIMATES -- 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.
H. INDEMNIFICATIONS -- 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.
I. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in
foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from (i) sales
of foreign currencies, (ii) currency gains or losses realized between the
trade and settlement dates on securities transactions, and (iii) the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
The Fund may invest in foreign securities which may be subject to foreign
taxes on income, gains on investments or currency repatriation, a portion
of which may be recoverable. Taxes are accrued based on the Fund's current
interpretation of tax regulations and rates that exist in the foreign
markets in which the Fund invests.
J. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security.
Fluctuations in the value of these contracts are recorded as unrealized
appreciation (depreciation) until the contracts are closed. When these
contracts are closed, realized gains (losses) are recorded. Realized and
unrealized gains and losses on these contracts are included in the
Statement of Operations. The Fund could be exposed to risk, which may be in
excess of the amount reflected in the Statement of Assets and Liabilities,
if counterparties to the contracts are unable to meet the terms of their
contracts or if the value of the foreign currency changes unfavorably.
K. COVERED CALL OPTIONS -- The Fund may write call options. A call option
gives the purchaser of such option the right to buy, and the writer (the
Fund) the obligation to sell, the underlying security at the stated
exercise price during the option period. Written call options are recorded
as a liability in the Statement of Assets and Liabilities. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. 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. Realized gains and losses on these contracts
are included in the Statement of Operations. 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
L. PUT OPTIONS PURCHASED -- The Fund may purchase put options including
options on securities indexes and/or futures contracts. By purchasing a put
option, the Fund obtains the right (but not the obligation) to sell the
option's underlying instrument at a fixed strike price. In return for this
right, the Fund pays an option premium. The option's underlying instrument
may be a security, securities index, or a futures contract. Put options may
be used by the Fund to hedge securities it owns by locking in a minimum
price at which the Fund can sell. If security prices fall, the put option
could be exercised to offset all or a portion of the Fund's resulting
losses. At the same time, because the maximum the Fund has at risk is the
cost of the option, purchasing put options does not eliminate the potential
for the Fund to profit from an increase in the value of the securities
hedged. 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.
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.
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 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. In
addition, the Fund will also benefit from a one time credit to be used to offset
future custodian expenses. These credits are used to pay certain expenses
incurred by the Fund. AIM did not waive fees and/or reimburse expenses during
the period under this expense limitation.
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in
the amount of 25% of the advisory fee AIM receives from the affiliated money
market funds on investments by the Fund in such affiliated money market funds
(excluding investments made in affiliated money market funds with cash
collateral from securities loaned by the fund). Voluntary fee waivers or
reimbursements may be modified or discontinued at any time upon consultation
with the Board of Trustees without further notice to investors.
For the year ended December 31, 2006, AIM waived advisory fees of $73,332.
At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the year ended December 31, 2006, AMVESCAP did not
reimburse any such expenses.
The Trust has entered into a master administrative services agreement with
AIM pursuant to which the Fund 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. The
Fund may reimburse AIM up to 0.25% of average daily assets invested by each
insurance company providing administrative services to the Fund. Pursuant to
such agreement, for the year ended December 31, 2006, AIM was paid $450,609 for
accounting and fund administrative services and reimbursed $5,334,915 for
services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with AIM
Investment Services, Inc. ("AIS") pursuant to which the Fund has agreed to pay
AIS a fee for providing transfer agency and shareholder services to the Fund and
to reimburse AIS for certain expenses incurred by AIS in the course of providing
such services. For the year ended December 31, 2006, expenses incurred under the
agreement are shown in the Statement of Operations as transfer agent fees.
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 Plan payments, 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. For the year ended December 31, 2006, expenses
incurred under the Plan are shown in the Statement of Operations as distribution
fees.
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 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 year ended
December 31, 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) 12/31/06 INCOME GAIN (LOSS)
- ------------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-Institutional
Class $10,200,588 $ 432,534,254 $(302,733,405) $ -- $140,001,437 $ 6,928,319 $ --
- ------------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-Institutional
Class 10,200,588 331,417,294 (341,617,882) -- -- 1,838,198 --
- ------------------------------------------------------------------------------------------------------------------------------------
Premier
Portfolio-Institutional
Class -- 315,403,186 (175,401,749) -- 140,001,437 5,094,408 --
====================================================================================================================================
Subtotal $20,401,176 $1,079,354,734 $(819,753,036) $ -- $280,002,874 $13,860,925 $ --
____________________________________________________________________________________________________________________________________
====================================================================================================================================
</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) 12/31/06 INCOME* GAIN (LOSS)
- ------------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-Institutional
Class $ -- $ 225,843,235 $ (207,065,645) $ -- $ 18,777,590 $ 253,791 $ --
====================================================================================================================================
Total
Investments
in
Affiliates $20,401,176 $1,305,197,969 $(1,026,818,681) $ -- $298,780,464 $14,114,716 $ --
____________________________________________________________________________________________________________________________________
====================================================================================================================================
</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 year ended December 31, 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 $12,464,247.
NOTE 5--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) transfer agency credits
which result from balances in Demand Deposit Accounts (DDA) used by the transfer
agent for clearing shareholder transactions, (ii) custodian credits which result
from periodic overnight cash balances at the custodian and (iii) a one time
custodian fee credit to be used to offset future custodian fees. For the year
ended December 31, 2006, the Fund received credits from these arrangements,
which resulted in the reduction of the Fund's total expenses of $38,904.
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 year ended December 31, 2006, the Fund paid legal fees of $10,911
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 Securities and Exchange Commission, 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
AIM V.I. Core Equity Fund
available on bank loans and the rate available on investments in overnight
repurchase agreements) is favorable to both the lending fund and the borrowing
fund. A loan will be secured by collateral if the Fund's aggregate borrowings
from all sources exceeds 10% of the Fund's total assets. To the extent that the
loan is required to be secured by collateral, the collateral is marked to market
daily to ensure that the market value is at least 102% of the outstanding
principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended December 31, 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 bank 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 contractually agreed upon rate.
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 December 31, 2006, securities with an aggregate value of $18,742,945 were
on loan to brokers. The loans were secured by cash collateral of $18,777,590
received by the Fund and subsequently invested in affiliated money market funds.
For the year ended December 31, 2006, the Fund received dividends on cash
collateral investments of $253,791 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--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended December 31, 2006
and 2005 was as follows:
<Table>
<Caption>
2006 2005
- ----------------------------------------------------------------------------------------
Distributions paid from ordinary income $14,725,726 $18,799,586
________________________________________________________________________________________
========================================================================================
</Table>
AIM V.I. Core Equity Fund
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2006, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2006
- ------------------------------------------------------------------------------
Undistributed ordinary income $ 26,408,536
- ------------------------------------------------------------------------------
Unrealized appreciation -- investments 487,792,647
- ------------------------------------------------------------------------------
Temporary book/tax differences (389,630)
- ------------------------------------------------------------------------------
Capital Loss carryover (651,097,059)
- ------------------------------------------------------------------------------
Shares of beneficial interest 2,876,266,621
==============================================================================
Total net assets $2,738,981,115
______________________________________________________________________________
==============================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's net unrealized
appreciation difference is attributable primarily to losses on wash sales. The
tax-basis unrealized appreciation on investments amount includes appreciation on
foreign currencies of $14,367.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan benefits.
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, 2006 to utilizing $620,301,601 of capital loss carryforward in the fiscal
year ended December 31, 2007.
The Fund utilized $111,534,892 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of December 31, 2006 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
December 31, 2009 $472,694,739
- -----------------------------------------------------------------------------
December 31, 2010 157,184,466
- -----------------------------------------------------------------------------
December 31, 2011 21,217,854
=============================================================================
Total capital loss carryforward $651,097,059
_____________________________________________________________________________
=============================================================================
</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 May 1, 2006, the date of the
reorganization of AIM V.I. Core Stock Fund and AIM V.I. Premier Equity Fund,
into the Fund are realized on securities held in each Fund at such date, the
capital loss carryforward may be further limited for up to five years from the
date of the reorganization.
NOTE 11--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities,
U.S. Treasury obligations and money market funds, if any) purchased and sold by
the Fund during the year ended December 31, 2006 was $612,819,737 and
$575,606,069, respectively.
<Table>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX
BASIS
- ----------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $498,072,123
- ----------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (10,293,843)
============================================================================
Net unrealized appreciation of investment securities $487,778,280
____________________________________________________________________________
============================================================================
Cost of investments for tax purposes is $2,264,792,719.
</Table>
NOTE 12--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of defaulted bonds,
capital loss carryforward limitations, foreign currency transactions and
expenses related to the plans of reorganization, on December 31, 2006,
undistributed net investment income was increased by $3,494,124, undistributed
net realized gain (loss) was decreased by $3,464,948 and shares of beneficial
interest decreased by $29,176. Further, as a result of tax deferrals acquired in
the reorganizations of AIM V.I. Core Stock Fund and V.I. Premier Equity Fund
into the Fund on May 1, 2006, undistributed net investment income was decreased
by $184,523, undistributed net realized gain (loss) was decreased by
$584,829,644 and shares of beneficial interest increased by $585,014,167. These
reclassifications had no effect on the net assets of the Fund.
AIM V.I. Core Equity Fund
NOTE 13--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ---------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------
2006(A) 2005
----------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------------------------------------
Sold:
Series I 6,743,339 $ 168,070,113 5,782,887 $ 128,067,074
- ---------------------------------------------------------------------------------------------------------------------------
Series II 392,367 10,002,894 46,605 1,038,635
===========================================================================================================================
Issued as reinvestment of dividends:
Series I 506,735 13,717,305 791,528 18,751,304
- ---------------------------------------------------------------------------------------------------------------------------
Series II 7,574 203,586 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 (25,886,608) (648,866,764) (19,247,047) (435,097,661)
- ---------------------------------------------------------------------------------------------------------------------------
Series II (221,253) (5,589,264) (68,927) (1,540,788)
===========================================================================================================================
47,328,116 $1,186,619,255 (12,692,906) $(288,733,154)
___________________________________________________________________________________________________________________________
===========================================================================================================================
</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 56% of
the outstanding shares of the Fund. ADI has an agreement with these
entities to sell Fund shares. The Fund, AIM and/or AIM affiliates may
make payments to these entities, which are considered to be related to
the Fund, for providing services to the Fund, AIM and/or AIM affiliates
including but not limited to services such as securities brokerage,
distribution, third party record keeping and account servicing. The
Trust has no knowledge as to whether all or any portion of the shares
owned of record by these 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 V.I. Core Stock Fund and AIM V.I. Premier Equity Fund
pursuant to the plans of reorganization approved by the Trustees of the
Fund on November 14, 2005 and by the shareholders of AIM V.I. Core Stock
Fund and AIM V.I. Premier Equity Fund, respectively on April 4, 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 V.I. Core
Stock Fund and 67,047,704 shares outstanding of AIM V.I. Premier Equity
Fund as of the close of business on April 28, 2006. Each class of shares
of AIM V.I. Core Stock Fund and AIM V.I. Premier Equity Fund was
exchanged for the like class of shares of the Fund based on the relative
net asset value of AIM V.I. Core Stock Fund and AIM V.I. Premier Equity
Fund, respectively to the net asset value of the Fund on the close of
business, April 28, 2006. AIM V.I. Core Stock Fund 's net assets as of
the close of business on April 28, 2006 of $85,632,841 including
$5,569,111 of unrealized appreciation and AIM V.I. Premier Equity Fund's
net assets as of the close of business on April 28, 2006 of
$1,563,448,544 including $199,249,945 of unrealized appreciation, were
combined with the net assets of the Fund immediately before the
acquisition of $1,233,787,778. The combined aggregate net assets of the
Fund subsequent to the reorganization were $2,882,869,163.
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 for 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. Core Equity Fund
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
---------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
2006 2005 2004 2003 2002
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 23.45 $ 22.60 $ 20.94 $ 16.99 $ 20.20
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.34(a) 0.24(a) 0.30(b) 0.17(a) 0.12(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 3.58 0.96 1.58 3.97 (3.27)
=================================================================================================================================
Total from investment operations 3.92 1.20 1.88 4.14 (3.15)
=================================================================================================================================
Less dividends from net investment income (0.15) (0.35) (0.22) (0.19) (0.06)
=================================================================================================================================
Net asset value, end of period $ 27.22 $ 23.45 $ 22.60 $ 20.94 $ 16.99
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(c) 16.70% 5.31% 8.97% 24.42% (15.58)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $2,699,252 $1,246,529 $1,487,462 $1,555,475 $1,385,050
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 0.89%(d) 0.89% 0.91% 0.81%(e) 0.78%
=================================================================================================================================
Ratio of net investment income to average net assets 1.35%(d) 1.08% 1.25%(b) 0.91% 0.67%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 45% 52% 52% 31% 113%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</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) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns do not reflect charges assessed
in connection with a variable product, which if included would reduce
total returns.
(d) Ratios are based on average daily net assets of $2,210,548,014.
(e) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 0.82%.
<Table>
<Caption>
SERIES II
---------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------
2006 2005 2004 2003 2002
- -----------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 23.33 $22.48 $20.85 $16.94 $ 20.19
- -----------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.28(a) 0.18(a) 0.21(b) 0.12(a) 0.07(a)
- -----------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 3.55 0.96 1.60 3.96 (3.26)
=================================================================================================================
Total from investment operations 3.83 1.14 1.81 4.08 (3.19)
=================================================================================================================
Less dividends from net investment income (0.14) (0.29) (0.18) (0.17) (0.06)
=================================================================================================================
Net asset value, end of period $ 27.02 $23.33 $22.48 $20.85 $ 16.94
_________________________________________________________________________________________________________________
=================================================================================================================
Total return(c) 16.42% 5.08% 8.67% 24.15% (15.79)%
_________________________________________________________________________________________________________________
=================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $39,729 $3,858 $4,173 $3,808 $ 1,949
_________________________________________________________________________________________________________________
=================================================================================================================
Ratio of expenses to average net assets 1.14%(d) 1.14% 1.16% 1.06%(e) 1.03%
=================================================================================================================
Ratio of net investment income to average net assets 1.10%(d) 0.83% 1.00%(b) 0.66% 0.42%
_________________________________________________________________________________________________________________
=================================================================================================================
Portfolio turnover rate 45% 52% 52% 31% 113%
_________________________________________________________________________________________________________________
=================================================================================================================
</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 do not reflect charges assessed
in connection with a variable product, which if included would reduce
total returns.
(d) Ratios are based on average daily net assets of $24,902,857.
(e) After fee waivers and/or expense reimbursements. Ratio of expense to
average net assets prior to fee waivers and/or expense reimbursements
was 1.07%.
AIM V.I. Core Equity Fund
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. 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 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; 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. On September 15, 2006, the
MDL Court granted the AMVESCAP defendants' motion to dismiss the Amended Class
Action Complaint for Violations of ERISA and dismissed such Complaint. The
plaintiff has commenced an appeal from that decision.
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.
AIM V.I. Core Equity Fund
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V.I. Core Equity Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM V.I. Core Equity Fund (one of
the funds constituting AIM Variable Insurance Funds, hereafter referred to as
the "Fund") at December 31, 2006, the results of its operations for the year
then ended, and the changes in its net assets and the financial highlights for
each of the two years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2006 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion. The financial highlights for each of the periods ended on or before
December 31, 2004 were audited by another independent registered public
accounting firm whose report dated February 4, 2005 expressed an unqualified
opinion on those statements.
PRICEWATERHOUSECOOPERS LLP
February 14, 2007
Houston, Texas
AIM V.I. Core Equity Fund
TAX INFORMATION
Form 1099-DIV, Form 1042-S and other year-end tax information provide
shareholders with actual calendar year amounts that should be included in their
tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the
Internal Revenue Code or to meet a specific state's requirement.
The Fund designates the following amounts or, if subsequently determined to be
different, the maximum amount allowable for its fiscal year ended December 31,
2006:
FEDERAL AND STATE INCOME TAX
<Table>
Corporate Dividends Received
Deduction* 100%
</Table>
* The above percentage is based on ordinary income dividends paid to
shareholders during the Fund's fiscal year.
AIM V.I. Core Equity Fund
TRUSTEES AND OFFICERS
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management None
Trustee and Vice Chair Group Inc. (financial services holding
company); Director and Vice Chairman,
AMVESCAP PLC; Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm) and
Trustee and Vice Chair of The AIM Family
of Funds--Registered Trademark--
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer);
Chief Executive Officer, AMVESCAP
PLC -- Managed Products; and President
and Principal Executive Officer of The
AIM Family of Funds--Registered
Trademark--
- -------------------------------------------------------------------------------------------------------------------------------
Philip A. Taylor(2) -- 1954 2006 Director, Chief Executive Officer and None
Trustee, President and President, A I M Management Group Inc.,
Principal AIM Mutual Fund Dealer Inc. (registered
Executive Officer broker dealer), AIM Funds Management
Inc. (registered investment advisor) and
1371 Preferred Inc. (holding company);
Director and President, A I M Advisors,
Inc., INVESCO Funds Group, Inc.
(registered investment advisor and
register transfer agent) and AIM GP
Canada Inc. (general partner for a
limited partnership); Director, A I M
Capital Management, Inc. and A I M
Distributors, Inc.; Director and
Chairman, AIM Investment Services, Inc.,
Fund Management Company and INVESCO
Distributors, Inc. (registered broker
dealer); Director, President and
Chairman, AVZ Callco Inc. (holding
company); AMVESCAP Inc. (holding
company) and AIM Canada Holdings Inc.
(holding company); Director and Chief
Executive Officer, AIM Trimark Corporate
Class Inc. (formerly AIM Trimark Global
Fund Inc.) (corporate mutual fund
company) and AIM Trimark Canada Fund
Inc. (corporate mutual fund company);
Trustee, President and Principal
Executive Officer of The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); Trustee and
Executive Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); and Manager,
Powershares Capital Management LLC
Formerly: President and Principal
Executive Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); Chairman, AIM
Canada Holdings, Inc.; Executive Vice
President and Chief Operations Officer,
AIM Funds Management Inc.; President,
AIM Trimark Global Fund Inc. and AIM
Trimark Canada Fund Inc.; and Director,
Trimark Trust (federally regulated
Canadian Trust Company)
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company
Formerly: Partner, law firm of Baker & (2 portfolios))
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Founder, Green, Manning & Bunch Ltd., None
Trustee (investment banking firm); and Director,
Policy Studies, Inc. and Van Gilder
Insurance Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and None
Trustee private business corporations, including
the Boss Group Ltd. (private investment
and management); Cortland Trust, Inc.
(Chairman) (registered investment
company (3 portfolios)); Annuity and
Life Re (Holdings), Ltd. (insurance
company); CompuDyne Corporation
(provider of products and services to
the public security market); and
Homeowners of America Holding
Corporation (property casualty company)
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and Director of various
affiliated Volvo companies; and
Director, Magellan Insurance Company
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund
company); and Owner, Dos Angelos Ranch, (non-profit)
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- -------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company
(3 portfolios))
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired Director, Mainstay VP Series
Trustee Funds, Inc. (21 portfolios)
Formerly: Partner, Deloitte & Touche
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
(2) Mr. Taylor is considered an interested person of the Trust because he is an
officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
TRUSTEES AND OFFICERS--(CONTINUED)
AIM V.I. Core Equity Fund
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Senior Vice President and Senior Officer N/A
Senior Vice President and of The AIM Family of Funds--Registered
Senior Officer Trademark--
Formerly: Director of Compliance and
Assistant General Counsel, ICON
Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
John M. Zerr -- 1962 2006 Director, Senior Vice President, N/A
Senior Vice President, Chief Secretary and General Counsel, A I M
Legal Officer and Secretary Management Group Inc. and A I M
Advisors, Inc.; Director, Vice President
and Secretary, INVESCO Distributors,
Inc.; Vice President and Secretary,
A I M Capital Management, Inc., AIM
Investment Services, Inc., and Fund
Management Company; Senior Vice
President and Secretary, A I M
Distributors, Inc.; Director and Vice
President, INVESCO Funds Group Inc.;
Senior Vice President, Chief Legal
Officer and Secretary of The AIM Family
of Funds--Registered Trademark--; and
Manager, Powershares Capital Management
LLC
Formerly: Chief Operating Officer,
Senior Vice President, General Counsel,
and Secretary, Liberty Ridge Capital,
Inc. (an investment adviser); Vice
President and Secretary, PBHG Funds (an
investment company); Vice President and
Secretary, PBHG Insurance Series Fund
(an investment company); General Counsel
and Secretary, Pilgrim Baxter Value
Investors (an investment adviser); Chief
Operating Officer, General Counsel and
Secretary, Old Mutual Investment
Partners (a broker-dealer); General
Counsel and Secretary, Old Mutual Fund
Services (an administrator); General
Counsel and Secretary, Old Mutual
Shareholder Services (a shareholder
servicing center); Executive Vice
President, General Counsel and
Secretary, Old Mutual Capital, Inc. (an
investment adviser); and Vice President
and Secretary, Old Mutual Advisors Funds
(an investment company)
- ------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Global Compliance Director, AMVESCAP N/A
Vice President PLC; and Vice President of The AIM
Family of Funds--Registered Trademark--
Formerly: Senior Vice President, A I M
Management Group Inc.; Senior Vice
President and Chief Compliance Officer,
A I M Advisors, Inc.; Vice President and
Chief Compliance Officer, A I M Capital
Management, Inc. and A I M Distributors,
Inc.; Vice President, AIM Investment
Services, Inc. and Fund Management
Company; Senior Vice President and Chief
Compliance Officer of The AIM Family of
Funds--Registered Trademark--; and
Senior Vice President and Compliance
Director, Delaware Investments Family of
Funds
- ------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Senior Vice President and General
Vice President Counsel, AMVESCAP PLC; Director, INVESCO
Funds Group, Inc.; and Vice President of
The AIM Family of Funds--Registered
Trademark--
Formerly: Director, Vice President and N/A
General Counsel, Fund Management
Company; Director, Senior Vice
President, Secretary and General
Counsel, A I M Management Group Inc. and
A I M Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Senior Vice President, A I M
Distributors, Inc.; Vice President,
A I M Capital Management, Inc. and AIM
Investment Services, Inc.; Senior Vice
President, Chief Legal Officer and
Secretary of The AIM Family of
Funds--Registered Trademark--; Chief
Executive Officer and President, INVESCO
Funds Group, Inc.; and Senior Vice
President, and General Counsel, Liberty
Financial Companies, Inc. and Senior
Vice President and General Counsel
Liberty Funds Group, LLC
- ------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President, Principal Advisors, Inc.; and Vice President,
Financial Officer and Treasurer and Principal Officer of The
Treasurer AIM Family of Funds--Registered
Trademark--
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
J. Philip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment Officer, A I M Advisors Inc.;
Director, Chairman, Chief Executive
Officer, President and Chief Investment
Officer, A I M Capital Management, Inc.;
Executive Vice President, A I M
Management Group Inc. and Vice President
of The AIM Family of Funds--Registered
Trademark--
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; and
Chief Equity Officer, Senior Vice
President and Senior Investment Officer,
A I M Capital Management, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc. and The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); and
President and Principal Executive
Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust Only)
Formerly: Vice President, The AIM Family N/A
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only)
- ------------------------------------------------------------------------------------------------------------------------------
Lance A. Rejsek -- 1967 2005 Anti-Money Laundering Compliance
Anti-Money Laundering Officer, A I M Advisors, Inc., A I M
Compliance Officer Capital Management, Inc., A I M
Distributors, Inc., AIM Investment
Services, Inc., AIM Private Asset
Management, Inc., Fund Management
Company and The AIM Family of
Funds--Registered Trademark--
Formerly: Manager of the Fraud N/A
Prevention Department, AIM Investment
Services, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
Todd L. Spillane -- 1958 2006 Senior Vice President, A I M Management N/A
Chief Compliance Officer Group Inc.; Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc.; and Vice President,
A I M Distributors, Inc., AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Global Head of Product
Development, AIG-Global Investment
Group, Inc.; Chief Compliance Officer
and Deputy General Counsel,
AIG-SunAmerica Asset Management; and
Chief Compliance Officer, Chief
Operating Officer and Deputy General
Counsel, American General Investment
Management
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers
Suite 100 11 Greenway Plaza Inc. LLP
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Ballard Spahr INDEPENDENT TRUSTEES AIM Investment State Street Bank and
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis Services, Inc. Trust Company
1735 Market Street, 51st & Frankel LLP P.O. Box 4739 225 Franklin Street
Floor 1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Philadelphia, PA 19103-7599 Americas
New York, NY 10036-2714
</Table>
FIXED INCOME AIM V.I. DIVERSIFIED
Intermediate-Term Taxable INCOME FUND
Investment Grade
Annual Report to Shareholders - December 31, 2006
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, [COVER GLOBE IMAGE]
sec.gov. Copies of the Fund's Forms N-Q
may be reviewed and copied at the SEC
Public Reference Room in Washington,
D.C.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 AIM V.I. DIVERSIFIED INCOME FUND seeks
department at 800-410-4246 or on the AIM to achieve a high level of current income.
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 UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT
click on Proxy Voting Activity. Next, IS AS OF DECEMBER 31, 2006, AND IS BASED ON TOTAL NET ASSETS.
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
[AIM INVESTMENTS LOGO] PROSPECTUS AND VARIABLE PRODUCT PROSPECTUS, WHICH CONTAIN MORE COMPLETE
-- Registered Trademark -- INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ
EACH CAREFULLY BEFORE INVESTING.
=========================================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE AIM V.I. DIVERSIFIED INCOME FUND
- An unanticipated change occurs involving
an individual issuer or sector.
=======================================================================================
PERFORMANCE SUMMARY Market conditions and your Fund
For the year ended December 31, 2006, AIM V.I. Diversified Income The U.S. economy continued to show signs
Fund Series I shares, excluding variable product issuer charges, of deceleration in growth by the end of
slightly outperformed its broad market and style-specific indexes. As 2006. Growth in real gross domestic
bond market returns in 2006 were primarily driven by the uncertainty product (GDP) slipped to a 2.0% annualized
over economic growth and strong performance of higher yielding rate in the third quarter, down from a
securities, the Fund's defensive to neutral stance in duration as 2.6% pace in the second quarter and from a
well as its positions in mortgage-backed securities and high yield surprisingly strong 5.6% in the first
bonds contributed to relative outperformance during the year. quarter. The slowdown was mostly
attributable to softening in the housing
Your Fund's long-term performance appears on pages 4-5. sector. However, the deceleration in
homebuilding did not noticeably impact
FUND VS. INDEXES other segments of the economy, as consumer
spending and business investment remained
Total returns, 12/31/05-12/31/06, excluding variable product issuer solid.
charges. If variable product issuer charges were included, returns
would be lower. On December 12, as widely anticipated by
financial markets, the U.S. Federal
Series I Shares 4.48% Reserve Board (the Fed) decided to keep
Series II Shares 4.17 the federal funds target rate at 5.25%.
Lehman Brothers U.S. Aggregate Bond Index (Broad Market Index) 4.33 This was the fourth consecutive meeting
Lehman Brothers U.S. Credit Index (Style-Specific Index) 4.26 that the Fed left the rate unchanged after
Lipper BBB Rated Funds Index (Peer Group Index) 5.28 17 consecutive rate increases. While this
======================================================================================= pause benefited the financial markets, the
Fed reiterated that some inflation risks
persist and that future target interest
How we invest of the bond market. Our focus is on bonds rate actions would continue to depend on
that are attractively valued relative to incoming economic data.
We seek to provide consistent returns the rest of the bond market.
while minimizing risk. Our security The U.S. Treasury yield curve, which
selection process involves both top-down In evaluating the credit quality of represents the yields of Treasury
analysis, which takes account of overall a security, we use input from various securities with different maturities, was
economic and market trends and bottom-up rating agencies and Wall Street inverted for much of 2006, as the Fed
analysis, which includes an evaluation of fixed-income and equity analysts, and raised short rates through June. That
individual bond issuers. conduct our own internal credit analysis. meant that shorter term Treasuries were
generally yielding more than longer term
We look for potential investments in We consider selling a bond when: Treasuries, a reversal of the norm. The
all sectors of the bond market: domestic two- to 10-year spread was inverted by 11
and foreign governments, U.S. corporate - It becomes fully valued. basis points (0.11%) on December 29.
bonds, mortgages, asset-backed securities,
money markets, high yield debt and - Overall market and economic trends
convertible corporate bonds. We make indicate that sector emphasis should be
allocation decisions based on performance changed.
and valuations among the different areas
- Fundamentals, such as credit quality
ratings, deteriorate for an individual
issuer or a sector.
====================================================================================================================================
PORTFOLIO COMPOSITION TOP 10 FIXED INCOME ISSUERS*
By industry 1. Ford Motor Credit Co. 3.9% Total Net Assets $47.46 million
Other Diversified Financial Services 14.3% 2. General Motors Acceptance Corp. 3.3
3. Patrons' Legacy 3.0 Total Number of Holdings* 205
Consumer Finance 9.1 4. Pemex Project Funding Master Trust 2.5
Diversified Banks 7.8 5. Regional Diversified Funding
Broadcasting & Cable TV 7.4 Property & Casualty Insurance 5.7
(Cayman Islands) 2.1
Integrated Telecommunication Services 5.5 6. Oil Insurance Ltd. 1.9
Municipal Obligations 3.2 7. First American Capital Trust I 1.8
Regional Banks 3.2 8. Citicorp Lease Pass-Through Trust 1.7
Life & Health Insurance 3.1 9. Mizuho JGB Investments LLC 1.6
Other Industries, Each With 10. Federal National Mortgage
Less Than 3% Of Total Net Assets 38.8 Association (FNMA) 1.6
Money Market Funds The Fund's holdings are subject to change, and there is no assurance that the Fund
Plus Other Assets Less Liabilities 1.9 will continue to hold any particular security.
*Excluding money market fund holdings.
====================================================================================================================================
2
In 2006, the bond market was year-end level since 1996. Our strategy of AIM V.I. DIVERSIFIED INCOME FUND Jan H.
characterized by low volatility. While overweighting the high yield [FRIEDLI FriedliSenior
there was more price movement during the benefited performance for the year. PHOTO] sector portfolio
first few months of the year, the second manager, is lead
half of 2006 was calmer due to a fairly portfolio manager of
complacent market. AIM V.I.
The Fund maintained a small position Diversified Income Fund. He began his
The fixed income markets were in mortgage-backed securities (MBS) as we investment career in 1990 and joined AIM
focused on the benchmark 10-year Treasury viewed mortgage bonds as offering in 1999. Mr. Friedli graduated cum laude
note, which finished the year with a attractive yields and relatively small from Villanova University with a B.S. in
slight gain, despite the Fed's actions prepayment risk by historical standards. computer science before earning an M.B.A.
over the past two years. Reflective of our Considering the MBS market delivered solid with honors from the University of
belief that the Fed would hike interest performance for the year, the Fund's Chicago.
rates to slow economic growth, we weight in mortgages had a positive effect
tactically traded duration focusing on the on performance. Peter Ehret
shorter end of the yield curve. Duration [EHRET Chartered Financial
is a measure of a bond's sensitivity to In the non-dollar sector, we PHOTO] Analyst, senior
interest rate changes. Shorter duration primarily had exposure to the U.K. portfoliomanager,is
bonds tend to be less sensitive to manager of
interest-rate changes. We used two- and government bond market through government AIM V.I. Diversified Income Fund. Mr.
five-year U.S. Treasury Note futures to bond futures. The use of U.K. government Ehret joined AIM in 2001. He graduated cum
shorten the Fund's duration, as we viewed bond futures allowed us to gain exposure laude with a B.S. in economics from the
the yields on the 10-year U.S. Treasuries to U.K. interest rates without the University of Minnesota. He also earned an
to be in the lower range. Our overall exposure to the British pound. In M.S. in real estate appraisal and
defensive to neutral stance toward addition, throughout the year we held investment analysis from the University of
duration benefited performance, as exposure in a corporate bond of a Japanese Wisconsin-Madison
interest rates rose over the year. finance company. The interest rate risk in
this position was hedged with Japanese Brendan D. Gau
In our view, gaining an exposure to government futures. Additionally, we [GAU Chartered Financial
the U.S. Treasury market through U.S. actively managed the currency exposure in PHOTO] Analyst, is manager of
Treasury futures is more effective way to this position using currency forwards. AIM V.I. Diversified
employ the Fund's cash for duration Despite being the worst performing Income Fund. Mr. Gau joined AIM in 1996.
management purposes versus buying actual currency against many major currencies in He graduated magna cum laude with a B.A.
bonds. U.S. Treasury futures offer a 2006, the Japanese yen did not lose much in economics, mathematics and physics
variety of standardized contracts, are of its value against the U.S. dollar. As a from Rice University.
exchange traded and provide a high level result, our position in Japan had no
of liquidity. significant impact on performance. Carolyn L. Gibbs
[GIBBS Chartered Financial
During the fiscal year, the Fund In closing PHOTO] Analyst, is manager of
invested primarily in U.S. corporate bonds AIM V.I. Diversified
of various credit ratings. We kept smaller Thank you for investing in AIM V.I. Income Fund. She began her investment
weightings in international bonds, Diversified Income Fund and for sharing career 1983 and joined AIM in 1992. Ms.
mortgage-backed securities and U.S. our long-term investment horizon. Gibbs is a Phi Beta Kappa graduate of
Treasuries and other government-related Texas Christian University, where she
securities. The views and opinions expressed in earned a B.A. in English. She also earned
management's discussion of Fund an M.B.A. in finance from The Wharton
Investment grade corporate bonds performance are those of A I M Advisors, School of the University of Pennsylvania.
posted solid returns, as they benefited Inc. These views and opinions are subject
from strong demand later in the year, to change at any time based on factors Darren Hughes
reflecting a strong company earnings such as market and economic conditions. [HUGHES Chartered Financial
season, stable credit fundamentals and a These views and opinions may not be relied PHOTO] Analyst, portfolio
low interest rate environment. Investment upon as investment advice or manager, is manager of
strategies that overweighted lower rated AIM V.I.
investment grade corporate bonds recommendations, or as an offer for a Diversified Income Fund. He joined AIM in
(BBB-rated) generally outperformed particular security. The information is 1992. Mr. Hughes earned a B.B.A. in
strategies of higher quality segments (A- not a complete analysis of every aspect of finance and economics from Baylor
and above) in the fourth quarter. The any market, country, industry, security or University.
Fund's underweight position in investment the Fund. Statements of fact are from
grade securities, which performed well sources considered reliable, but A I M Scot W. Johnson
during the year, detracted from Advisors, Inc. makes no representation or Chartered Financial
performance. warranty as to their completeness or [JOHNSON Analyst, senior
accuracy. Although historical performance PHOTO] portfolio manager, is
The U.S. high yield market continued is no guarantee of future results, these manager of AIM V.I.
to perform well due to solid corporate insights may help you understand our Diversified Income Fund. He joined AIM in
profitability, low default rates and investment management philosophy. 1994. Mr. Johnson earned both his
demand for higher yield from investors. On bachelor's degree in economics and an
a quality basis, CCC-rated bonds continued FOR A DISCUSSION OF THE RISKS OF INVESTING M.B.A. in finance from Vanderbilt
to outperform higher quality debt IN YOUR FUND, INDEXES USED IN THIS REPORT University.
instruments. Moody's Investors Service
global speculative grade corporate bond Assisted by the Taxable
issuer default rate finished the year at AND YOUR FUND'S LONG-TERM PERFORMANCE, Investment Grade Bond Team and the Taxable
1.7%, the lowest PLEASE SEE PAGES 4-5. High Yield Team
3
YOUR FUND'S LONG-TERM PERFORMANCE AIM V.I. DIVERSIFIED INCOME FUND
==========================================
AVERAGE ANNUAL TOTAL RETURNS RESTATED HISTORICAL PERFORMANCE OF SERIES THROUGH INSURANCE COMPANIES ISSUING
I SHARES (FOR PERIODS PRIOR TO INCEPTION VARIABLE PRODUCTS. YOU CANNOT PURCHASE
OF SERIES II SHARES) ADJUSTED TO REFLECT SHARES OF THE FUND DIRECTLY. PERFORMANCE
As of 12/31/06 THE RULE 12B-1 FEES APPLICABLE TO SERIES FIGURES GIVEN REPRESENT THE FUND AND ARE
SERIES I SHARES II SHARES. THE INCEPTION DATE OF SERIES I NOT INTENDED TO REFLECT ACTUAL VARIABLE
Inception (5/5/93) 4.94% SHARES IS MAY 5, 1993. THE PERFORMANCE OF PRODUCT VALUES. THEY DO NOT REFLECT SALES
10 Years 3.88 THE FUND'S SERIES I AND SERIES II SHARE CHARGES, EXPENSES AND FEES ASSESSED IN
5 Years 4.76 CLASSES WILL DIFFER PRIMARILY DUE TO CONNECTION WITH A VARIABLE PRODUCT. SALES
1 Year 4.48 DIFFERENT CLASS EXPENSES. CHARGES, EXPENSES AND FEES, WHICH ARE
DETERMINED BY THE VARIABLE PRODUCT
SERIES II SHARES THE PERFORMANCE DATA QUOTED ISSUERS, WILL VARY AND WILL LOWER THE
10 Years 3.61 REPRESENT PAST PERFORMANCE AND CANNOT TOTAL RETURN. PER NASD REQUIREMENTS, THE
5 Years 4.49 GUARANTEE COMPARABLE FUTURE RESULTS; MOST RECENT MONTH-END PERFORMANCE DATA AT
1 Year 4.17 CURRENT PERFORMANCE MAY BE LOWER OR THE FUND LEVEL, EXCLUDING VARIABLE PRODUCT
HIGHER. PLEASE CONTACT YOUR VARIABLE CHARGES, IS AVAILABLE ON THIS AIM
========================================== PRODUCT ISSUER OR FINANCIAL ADVISOR FOR AUTOMATED INFORMATION LINE, 866-702-4402.
THE MOST RECENT MONTH-END VARIABLE AS MENTIONED ABOVE, FOR THE MOST RECENT
========================================== PRODUCT PERFORMANCE. PERFORMANCE FIGURES MONTH-END PERFORMANCE INCLUDING VARIABLE
REFLECT FUND EXPENSES, REINVESTED PRODUCT CHARGES, PLEASE CONTACT YOUR
CUMULATIVE TOTAL RETURNS DISTRIBUTIONS AND CHANGES IN NET ASSET VARIABLE PRODUCT ISSUER OR FINANCIAL
VALUE. INVESTMENT RETURN AND PRINCIPAL ADVISOR.
6 months ended 12/31/06 VALUE WILL FLUCTUATE SO THAT YOU MAY HAVE
Series I Shares 5.23% A GAIN OR LOSS WHEN YOU SELL SHARES. HAD THE ADVISOR NOT WAIVED FEES
Series II Shares 5.05 AIM V.I. DIVERSIFIED INCOME FUND, A SERIES AND/OR REIMBURSED EXPENSES, PERFORMANCE
========================================== PORTFOLIO OF AIM VARIABLE INSURANCE FUNDS, WOULD HAVE BEEN LOWER.E
IS CURRENTLY OFFERED
SERIES II SHARES' INCEPTION DATE IS MARCH
14, 2002. RETURNS SINCE THAT DATE ARE
HISTORICAL. ALL OTHER RETURNS ARE THE
BLENDED RETURNS OF THE HISTORICAL
PERFORMANCE OF SERIES II SHARES SINCE
THEIR INCEPTION AND THE
====================================================================================================================================
Principal risks of investing in the Fund tion or declares bankruptcy, the Fund may which means that a faster-than-expected
experience delays in selling the principal prepayment rate will reduce both
Prices of equity securities change in securities underlying the repurchase the market value of and income from such
response to many factors including the agreement. securities.
historical and prospective earnings of the
issuer, the value of its assets, general There is no guarantee that the About indexes used in this report
economic conditions, interest rates, investment techniques and risk analyses
investor perceptions and market liquidity. used by the Fund's portfolio managers will The unmanaged LEHMAN BROTHERS U.S.
produce the desired results. AGGREGATE BOND INDEX (the Lehman
Foreign securities have additional Aggregate), which represents the U.S.
risks, including exchange rate changes, Debt securities are particularly investment-grade fixed-rate bond market
political and economic upheaval, the vulnerable to credit risk and interest (including government and corporate
relative lack of information about these rate fluctuations. securities, mortgage pass-through
companies, relatively low market liquidity securities and asset-backed securities),
and the potential lack of strict financial The Fund may invest in lower-quality is compiled by Lehman Brothers, a global
and accounting controls and standards. debt securities, commonly known as "junk investment bank.
bonds". Compared to higher quality debt
Investing in emerging markets securities, junk bonds involve greater The LEHMAN BROTHERS U.S. CREDIT
involves greater risk than investing in risk of default or price changes due to INDEX consists of publicly issued U.S.
more established markets. The risks changes in credit quality of the issuer corporate and specified foreign debentures
include the relatively smaller size and because they are generally unsecured and and secured notes that meet the specified
lesser liquidity of these markets, high may be subordinated to other creditors' maturity, liquidity, and quality
inflation rates, adverse political claims. Credit ratings on junk bonds do requirements. It is compiled by Lehman
developments and lack of timely not necessarily reflect their actual Brothers, a global investment bank. To
information. market risk. qualify, bonds must be SEC-registered.
To the extent the Fund holds cash or Some securities purchased by the The unmanaged LIPPER BBB-RATED FUNDS
cash equivalents rather than equity Fund are not guaranteed by the U.S. INDEX represents an average of the 30
securities for risk management purposes, government. The agencies or largest BBB-rated bond funds tracked by
the Fund may not achieve its investment instrumentalities issuing such securities Lipper Inc., an independent mutual fund
objective. may default or otherwise be unable to performance monitor.
honor a financial obligation.
If the seller of a repurchase
agreement in which the Fund invests The Fund can invest in U.S.
defaults on its obliga- government agency mortgage-backed
securities. The Fund may purchase such
securities at a premium,
Continued on page 5
4
AIM V.I. DIVERSIFIED INCOME FUND
Past performance cannot guarantee
comparable future results.
This chart, which is a logarithmic value of an investment, is constructed
chart, presents the fluctuations in the with each segment representing a percent
value of the Fund and its indexes. We change in the value of the investment. In
believe that a logarithmic chart is more this chart, each segment represents a
effective than other types of charts in doubling, or 100% change, in the value of
illustrating changes in value during the the investment. In other words, the space
early years shown in the chart. The between $5,000 and $10,000 is the same
vertical axis, the one that indicates the size as the space between $10,000 and
dollar $20,000, and so on.
====================================================================================================================================
Continued from page 4
In conjunction with the annual A direct investment cannot be made ally, the returns and net asset values
prospectus update on or about May 1, 2007, in an index. Unless otherwise indicated, shown throughout this report are at the
the AIM V.I Diversified Income Fund index results include reinvested Fund level only and do not include
prospectus will be amended to reflect that dividends, and they do not reflect sales variable product issuer charges. If such
the Fund has elected to use the Lipper charges. Performance of an index of funds charges were included, the total returns
Variable Underlying Funds (VUF) Corporate reflects fund expenses; performance of a would be lower.
Debt BBB-Rated Funds Index as its peer market index does not.
group rather than the Lipper BBB-Rated Industry classifications used in
Funds Index. The Lipper VUF Corporate Debt Other information this report are generally according to the
BBB-Rated Funds Index, recently published Global Industry Classification Standard,
by Lipper Inc., comprises the largest The returns shown in the management's which was developed by and is the
underlying funds in each variable discussion of Fund performance are based exclusive property and a service mark of
insurance category and does not include on net asset values calculated for Morgan Stanley Capital International Inc.
mortality and expense fees. shareholder transactions. Generally and Standard & Poor's.
accepted accounting principles require
The Fund is not managed to track the adjustments to be made to the net assets The Chartered Financial Analyst
performance of any particular index, of the Fund at period end for financial --Registered Trademark-- (CFA--Registered
including the indexes defined here, and reporting purposes, and as such, the net Trademark--) designation is a globally
consequently, the performance of the Fund asset values for shareholder transactions recognized standard for measuring the
may deviate significantly from the and the returns based on those net asset competence and integrity of investment
performance of the indexes. values may differ from the net asset professionals.
values and returns reported in the
Financial Highlights. Addition-
5
====================================================================================================================================
[MOUNTAIN CHART]
RESULTS OF A $10,000 INVESTMENT
Index data from 4/30/93, Fund data from 5/5/93
AIM V.I. DIVERSIFIED INCOME FUND LEHMAN BROTHERS
DATE -SERIES I SHARES U.S. AGGREGATE BOND INDEX LEHMAN BROTHERS U.S. CREDIT INDEX LIPPER BBB RATED FUNDS INDEX
4/30/93 $10000 $10000 $10000
5/93 $9980 10013 10012 10024
6/93 10160 10194 10255 10249
7/93 10240 10252 10329 10345
8/93 10480 10432 10586 10586
9/93 10510 10460 10611 10616
10/93 10622 10499 10665 10690
11/93 10500 10410 10534 10567
12/93 10605 10466 10596 10638
1/94 10833 10608 10801 10823
2/94 10574 10423 10546 10587
3/94 10271 10166 10223 10285
4/94 10166 10085 10124 10161
5/94 10093 10084 10087 10135
6/94 10124 10062 10062 10093
7/94 10178 10261 10316 10266
8/94 10188 10274 10328 10306
9/94 10177 10123 10135 10164
10/94 10231 10114 10112 10131
11/94 10090 10091 10095 10104
12/94 10068 10161 10179 10155
1/95 10146 10362 10395 10319
2/95 10446 10609 10694 10554
3/95 10603 10674 10782 10637
4/95 10795 10823 10964 10829
5/95 11123 11242 11480 11296
6/95 11191 11324 11584 11381
7/95 11281 11299 11533 11354
8/95 11372 11435 11718 11521
9/95 11564 11546 11857 11656
10/95 11734 11696 12012 11812
11/95 11812 11872 12242 12005
12/95 11984 12038 12443 12203
1/96 12056 12118 12524 12302
2/96 11971 11908 12226 12043
3/96 11983 11825 12122 11955
4/96 12007 11758 12021 11878
5/96 12043 11734 12000 11870
6/96 12235 11892 12176 12006
7/96 12259 11925 12200 12036
8/96 12343 11905 12162 12030
9/96 12582 12112 12420 12271
10/96 12881 12380 12759 12565
11/96 13182 12592 13032 12845
12/96 13205 12475 12852 12721
1/97 13129 12514 12870 12761
2/97 13244 12545 12924 12834
3/97 12989 12406 12723 12636
4/97 13168 12591 12916 12823
5/97 13372 12710 13062 12970
6/97 13577 12861 13247 13163
7/97 13947 13208 13731 13618
8/97 13806 13095 13529 13438
9/97 14178 13289 13765 13674
10/97 14242 13481 13940 13813
11/97 14293 13543 14019 13880
12/97 14446 13680 14167 14029
1/98 14688 13855 14335 14208
2/98 14740 13845 14331 14203
3/98 14931 13893 14384 14275
4/98 14945 13965 14474 14336
5/98 15047 14098 14646 14459
6/98 15047 14217 14754 14565
7/98 15072 14247 14741 14554
8/98 14739 14479 14810 14448
9/98 14881 14818 15289 14746
10/98 14625 14740 15054 14564
11/98 14983 14824 15337 14833
12/98 14963 14868 15382 14870
1/99 15168 14974 15534 15000
2/99 14841 14713 15165 14675
3/99 14977 14794 15272 14839
4/99 15100 14841 15317 14945
5/99 14759 14711 15112 14743
6/99 14663 14664 15033 14666
7/99 14622 14602 14950 14592
8/99 14525 14595 14914 14538
9/99 14634 14764 15076 14663
====================================================================================================================================
SOURCE: LIPPER INC.
====================================================================================================================================
[MOUNTAIN CHART]
10/99 14580 14818 15145 14692
11/99 14621 14817 15161 14727
12/99 14677 14746 15081 14703
1/00 14618 14698 15028 14660
2/00 14779 14875 15167 14841
3/00 14793 15071 15296 14977
4/00 14487 15028 15162 14796
5/00 14225 15021 15106 14683
6/00 14531 15334 15485 15055
7/00 14574 15473 15673 15119
8/00 14764 15697 15877 15395
9/00 14764 15796 15960 15439
10/00 14603 15900 15976 15389
11/00 14530 16160 16183 15532
12/00 14777 16460 16497 15857
1/01 15291 16729 16948 16240
2/01 15400 16875 17096 16401
3/01 15150 16960 17202 16391
4/01 14932 16890 17140 16301
5/01 15072 16991 17297 16448
6/01 14979 17056 17385 16467
7/01 15337 17437 17839 16840
8/01 15493 17637 18078 17042
9/01 15198 17842 18051 16897
10/01 15571 18215 18499 17255
11/01 15478 17964 18338 17143
12/01 15308 17850 18213 17039
1/02 15341 17995 18367 17132
2/02 15257 18169 18505 17214
3/02 15056 17867 18164 16988
4/02 15223 18213 18417 17248
5/02 15273 18368 18660 17384
6/02 15071 18527 18691 17303
7/02 14702 18750 18681 17216
8/02 15021 19067 19165 17564
9/02 15255 19376 19529 17722
10/02 15021 19288 19303 17596
11/02 15238 19282 19553 17849
12/02 15657 19681 20130 18265
1/03 15767 19698 20195 18386
2/03 16040 19970 20599 18695
3/03 16094 19955 20614 18727
4/03 16423 20119 20995 19105
5/03 16878 20495 21657 19605
6/03 16950 20454 21604 19631
7/03 16294 19766 20683 18962
8/03 16403 19897 20845 19112
9/03 16913 20424 21573 19700
10/03 16822 20234 21343 19622
11/03 16894 20282 21441 19757
12/03 17104 20488 21680 20045
1/04 17297 20653 21899 20227
2/04 17434 20877 22174 20406
3/04 17570 21033 22389 20546
4/04 17143 20486 21683 20023
5/04 17066 20404 21531 19871
6/04 17143 20519 21622 19988
7/04 17297 20723 21889 20197
8/04 17646 21118 22405 20607
9/04 17743 21175 22531 20735
10/04 17898 21353 22749 20940
11/04 17801 21183 22521 20870
12/04 17963 21377 22815 21108
1/05 18087 21512 22996 21220
2/05 18025 21385 22861 21185
3/05 17861 21275 22576 20947
4/05 18108 21563 22879 21118
5/05 18334 21796 23199 21338
6/05 18479 21915 23383 21519
7/05 18355 21715 23149 21419
8/05 18623 21994 23501 21685
9/05 18398 21767 23149 21469
10/05 18212 21595 22896 21283
11/05 18314 21690 23035 21370
12/05 18486 21897 23262 21580
1/06 18508 21898 23215 21659
2/06 18595 21971 23318 21758
3/06 18398 21755 22990 21520
4/06 18288 21716 22906 21506
5/06 18310 21692 22866 21454
6/06 18354 21738 22901 21457
7/06 18616 22032 23238 21754
8/06 18901 22370 23668 22151
9/06 19120 22566 23932 22370
10/06 19229 22715 24123 22565
11/06 19449 22979 24464 22878
12/06 19315 22846 24253 22719
CALCULATING YOUR ONGOING FUND EXPENSES
AIM V.I. DIVERSIFIED INCOME FUND
Example You may use the information in this table, The hypothetical account values and
together with the amount you invested, to expenses may not be used to estimate the
As a shareholder of the Fund, you incur estimate the expenses that you paid over actual ending account balance or expenses
ongoing costs, including management fees; the period. Simply divide your account you paid for the period. You may use this
distribution and/or service (12b-1) fees; value by $1,000 (for example, an $8,600 information to compare the ongoing costs
and other Fund expenses. This example is account value divided by $1,000 = 8.6), of investing in the Fund and other funds.
intended to help you understand your then multiply the result by the number in To do so, compare this 5% hypothetical
ongoing costs (in dollars) of investing in the table under the heading entitled example with the 5% hypothetical examples
the Fund and to compare these costs with "Actual Expenses Paid During Period" to that appear in the shareholder reports of
ongoing costs of investing in other mutual estimate the expenses you paid on your the other funds.
funds. The example is based on an account during this period.
investment of $1,000 invested at the Please note that the expenses shown
beginning of the period and held for the Hypothetical example for comparison in the table are meant to highlight your
entire period July 1, 2006, through purposes ongoing costs. Therefore, the hypothetical
December 31, 2006. information is useful in comparing ongoing
The table below also provides information costs, and will not help you determine the
The actual and hypothetical expenses about hypothetical account values and relative total costs of owning different
in the examples below do not represent the hypothetical expenses based on the Fund's funds.
effect of any fees or other expenses actual expense ratio and an assumed rate
assessed in connection with a variable of return of 5% per year before expenses,
product; if they did, the expenses shown which is not the Fund's actual return. The
would be higher while the ending account Fund's actual cumulative total returns at
values shown would be lower. net asset value after expenses for the six
months ended December 31, 2006, appear in
Actual expenses the table "Cumulative Total Returns" on
page 4.
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 (7/1/06) (12/31/06)(1) PERIOD(2) (12/31/06) PERIOD(2) RATIO
Series I $ 1,000.00 $ 1,052.30 $ 3.93 $ 1,021.37 $ 3.87 0.76%
Series II 1,000.00 1,050.50 5.22 1,020.11 5.14 1.01
- ---------
(1) The actual ending account value is based on the actual total return of the Fund for the period July 1, 2006, through December
31, 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 December 31, 2006, appear in the table "Cumulative Total Returns" on page 4.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 184/365 to reflect the most recent fiscal half year.
====================================================================================================================================
6
Approval of Investment Advisory Agreement AIM V.I. DIVERSIFIED INCOME FUND
The Board of Trustees of AIM Variable - The nature and extent of the advisory concluded that no changes should be made
Insurance Funds (the "Board") oversees the services to be provided by AIM. The Board to the Fund and that it was not
management of AIM V.I. Diversified Income reviewed the services to be provided by necessary to change the Fund's portfolio
Fund (the "Fund") and, as required by law, AIM under the Advisory Agreement. Based on management team at this time. Although
determines annually whether to approve the such review, the Board concluded that the the independent written evaluation of
continuance of the Fund's advisory range of services to be provided by AIM the Fund's Senior Officer (discussed
agreement with A I M Advisors, Inc. under the Advisory Agreement was below) only considered Fund performance
("AIM"). Based upon the recommendation of appropriate and that AIM currently is through the most recent calendar year,
the Investments Committee of the Board, at providing services in accordance with the the Board also reviewed more recent Fund
a meeting held on June 27, 2006, the terms of the Advisory Agreement. performance, which did not change their
Board, including all of the independent conclusions.
trustees, approved the continuance of the - The quality of services to be provided
advisory agreement (the "Advisory by AIM. The Board reviewed the credentials - Meetings with the Fund's portfolio
Agreement") between the Fund and AIM for and experience of the officers and managers and investment personnel. With
another year, effective July 1, 2006. employees of AIM who will provide respect to the Fund, the Board is meeting
investment advisory services to the Fund. periodically with such Fund's portfolio
The Board considered the factors In reviewing the qualifications of AIM to managers and/or other investment personnel
discussed below in evaluating the fairness provide investment advisory services, the and believes that such individuals are
and reasonableness of the Advisory Board considered such issues as AIM's competent and able to continue to carry
Agreement at the meeting on June 27, 2006 portfolio and product review process, out their responsibilities under the
and as part of the Board's ongoing various back office support functions Advisory Agreement.
oversight of the Fund. In their provided by AIM and AIM's equity and fixed
deliberations, the Board and the income trading operations. Based on the - Overall performance of AIM. The Board
independent trustees did not identify any review of these and other factors, the considered the overall performance of AIM
particular factor that was controlling, Board concluded that the quality of in providing investment advisory and
and each trustee attributed different services to be provided by AIM was portfolio administrative services to the
weights to the various factors. appropriate and that AIM currently is Fund and concluded that such performance
providing satisfactory services in was satisfactory.
One responsibility of the accordance with the terms of the Advisory
independent Senior Officer of the Fund is Agreement. - Fees relative to those of clients of AIM
to manage the process by which the Fund's with comparable investment strategies. The
proposed management fees are negotiated to - The performance of the Fund relative to Board reviewed the effective advisory fee
ensure that they are negotiated in a comparable funds. The Board reviewed the rate (before waivers) for the Fund under
manner which is at arms' length and performance of the Fund during the past the Advisory Agreement. The Board noted
reasonable. To that end, the Senior one, three and five calendar years against that this rate was (i) above the effective
Officer must either supervise a the performance of funds advised by other advisory fee rate (before waivers) for a
competitive bidding process or prepare an advisors with investment strategies mutual fund advised by AIM with investment
independent written evaluation. The Senior comparable to those of the Fund. The Board strategies comparable to those of the
Officer has recommended an independent noted that the Fund's performance was Fund; and (ii) above the effective
written evaluation in lieu of a above the median performance of such advisory fee rate (before waivers) for a
competitive bidding process and, upon the comparable funds for the one and three mutual fund advised by AIM and used
direction of the Board, has prepared such year periods and below such median exclusively for separately managed
an independent written evaluation. Such performance for the five year period. accounts/wrap accounts managed by AIM
written evaluation also considered certain Based on this review and after taking affiliates with investment strategies
of the factors discussed below. In account of all of the other factors that comparable to those of the Fund. The Board
addition, as discussed below, the Senior the Board considered in determining noted that AIM has agreed to limit the
Officer made a recommendation to the Board whether to continue the Advisory Agreement Fund's total operating expenses, as
in connection with such written for the Fund, the Board concluded that no discussed below. Based on this review, the
evaluation. changes should be made to the Fund and Board concluded that the advisory fee rate
that it was not necessary to change the for the Fund under the Advisory Agreement
The discussion below serves as a Fund's portfolio management team at this was fair and reasonable.
summary of the Senior Officer's time. Although the independent written
independent written evaluation and evaluation of the Fund's Senior Officer - Fees relative to those of comparable
recommendation to the Board in connection (discussed below) only considered Fund funds with other advisors. The Board
therewith, as well as a discussion of the performance through the most recent reviewed the advisory fee rate for the
material factors and the conclusions with calendar year, the Board also reviewed Fund under the Advisory Agreement. The
respect thereto that formed the basis for more recent Fund performance, which did Board compared effective contractual
the Board's approval of the Advisory not change their conclusions. advisory fee rates at a common asset level
Agreement. After consideration of all of at the end of the past calendar year and
the factors below and based on its - The performance of the Fund relative noted that the Fund's rate was comparable
informed business judgment, the Board to indices. The Board reviewed the to the median rate of the funds advised by
determined that the Advisory Agreement is performance of the Fund during the past other advisors with investment strategies
in the best interests of the Fund and its one, three and five calendar years comparable to those of the Fund that the
shareholders and that the compensation to against the performance of the Lipper Board reviewed. The Board noted that AIM
AIM under the Advisory Agreement is fair Variable Underlying Fund Corporate has agreed to limit the Fund's total
and reasonable and would have been - BBB Index. The Board noted that the operating expenses, as discussed below.
obtained through arm's length Fund's performance was above the Based on this review, the Board concluded
negotiations. performance of such Index for the one that the advisory fee rate for the Fund
and three year periods and below such under the Advisory Agreement was fair and
Unless otherwise stated, information Index for the five year period. Based on reasonable.
presented below is as of June 27, 2006 and this review and after taking account of
does not reflect any changes that may have all of the other factors that the Board
occurred since June 27, 2006, including considered in determining whether to
but not limited to changes to the Fund's continue the Advisory Agreement for the
performance, advisory fees, expense Fund, the Board
limitations and/or fee waivers.
7
AIM V.I. DIVERSIFIED INCOME FUND
- - Expense limitations and fee waivers. The - Independent written evaluation and trustees also considered the
Board noted that AIM has contractually recommendations of the Fund's Senior organizational structure employed by AIM
agreed to waive fees and/or limit expenses Officer. The Board noted that, upon their and its affiliates to provide those
of the Fund through April 30, 2008 so that direction, the Senior Officer of the Fund, services. Based on the review of these and
total annual operating expenses are who is independent of AIM and AIM's other factors, the Board concluded that
limited to a specified percentage of affiliates, had prepared an independent AIM and its affiliates were qualified to
average daily net assets for each class of written evaluation in order to assist the continue to provide non-investment
the Fund. The Board considered the Board in determining the reasonableness of advisory services to the Fund, including
contractual nature of this fee waiver and the proposed management fees of the AIM administrative, transfer agency and
noted that it remains in effect until Funds, including the Fund. The Board noted distribution services, and that AIM and
April 30, 2008. The Board considered the that the Senior Officer's written its affiliates currently are providing
effect this fee waiver/expense limitation evaluation had been relied upon by the satisfactory non-investment advisory
would have on the Fund's estimated Board in this regard in lieu of a services.
expenses and concluded that the levels of competitive bidding process. In
fee waivers/expense limitations for the determining whether to continue the - Other factors and current trends. The
Fund were fair and reasonable. Advisory Agreement for the Fund, the Board Board considered the steps that AIM and
considered the Senior Officer's written its affiliates have taken over the last
- - Breakpoints and economies of scale. The evaluation. several years, and continue to take, in
Board reviewed the structure of the Fund's order to improve the quality and
advisory fee under the Advisory Agreement, - Profitability of AIM and its affiliates. efficiency of the services they provide to
noting that it includes one breakpoint. The Board reviewed information concerning the Funds in the areas of investment
The Board reviewed the level of the Fund's the profitability of AIM's (and its performance, product line diversification,
advisory fees, and noted that such fees, affiliates') investment advisory and other distribution, fund operations, shareholder
as a percentage of the Fund's net assets, activities and its financial condition. services and compliance. The Board
would decrease as net assets increase The Board considered the overall concluded that these steps taken by AIM
because the Advisory Agreement includes a profitability of AIM, as well as the have improved, and are likely to continue
breakpoint. The Board noted that, due to profitability of AIM in connection with to improve, the quality and efficiency of
the Fund's asset levels at the end of the managing the Fund. The Board noted that the services AIM and its affiliates
past calendar year and the way in which AIM's operations remain profitable, provide to the Fund in each of these
the advisory fee breakpoint has been although increased expenses in recent areas, and support the Board's approval of
structured, the Fund has yet to benefit years have reduced AIM's profitability. the continuance of the Advisory Agreement
from the breakpoint. The Board concluded Based on the review of the profitability for the Fund.
that the Fund's fee levels under the of AIM's and its affiliates' investment
Advisory Agreement therefore would reflect advisory and other activities and its
economies of scale at higher asset levels financial condition, the Board concluded
and that it was not necessary to change that the compensation to be paid by the
the advisory fee breakpoints in the Fund's Fund to AIM under its Advisory Agreement
advisory fee schedule. was not excessive.
- - Investments in affiliated money market - Benefits of soft dollars to AIM. The
funds. The Board also took into account Board considered the benefits realized by
the fact that uninvested cash and cash AIM as a result of brokerage transactions
collateral from securities lending executed through "soft dollar"
arrangements, if any (collectively, "cash arrangements. Under these arrangements,
balances") of the Fund may be invested in brokerage commissions paid by the Fund
money market funds advised by AIM pursuant and/or other funds advised by AIM are used
to the terms of an SEC exemptive order. to pay for research and execution
The Board found that the Fund may realize services. This research may be used by AIM
certain benefits upon investing cash in making investment decisions for the
balances in AIM advised money market Fund. The Board concluded that such
funds, including a higher net return, arrangements were appropriate.
increased liquidity, increased
diversification or decreased transaction - AIM's financial soundness in light of
costs. The Board also found that the Fund the Fund's needs. The Board considered
will not receive reduced services if it whether AIM is financially sound and has
invests its cash balances in such money the resources necessary to perform its
market funds. The Board noted that, to the obligations under the Advisory Agreement,
extent the Fund invests uninvested cash in and concluded that AIM has the financial
affiliated money market funds, AIM has resources necessary to fulfill its
voluntarily agreed to waive a portion of obligations under the Advisory Agreement.
the advisory fees it receives from the
Fund attributable to such investment. The - Historical relationship between the Fund
Board further determined that the proposed and AIM. In determining whether to
securities lending program and related continue the Advisory Agreement for the
procedures with respect to the lending Fund, the Board also considered the prior
Fund is in the best interests of the relationship between AIM and the Fund, as
lending Fund and its respective well as the Board's knowledge of AIM's
shareholders. The Board therefore operations, and concluded that it was
concluded that the investment of cash beneficial to maintain the current
collateral received in connection with the relationship, in part, because of such
securities lending program in the money knowledge. The Board also reviewed the
market funds according to the procedures general nature of the non-investment
is in the best interests of the lending advisory services currently performed by
Fund and its respective shareholders. AIM and its affiliates, such as
administrative, 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
8
AIM V.I. Diversified Income Fund
SCHEDULE OF INVESTMENTS
December 31, 2006
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------
U.S. DOLLAR DENOMINATED BONDS & NOTES-82.56%
AEROSPACE & DEFENSE-0.73%
Systems 2001 Asset Trust LLC (United
Kingdom)- Series 2001, Class G, Pass
Through Ctfs., (INS-MBIA Insurance Corp.)
6.66%, 09/15/13 (Acquired
02/09/05-10/27/05; Cost $365,115)(a)(b)(c) $ 332,451 $ 348,294
============================================================================
AGRICULTURAL PRODUCTS-0.41%
Corn Products International Inc., Sr. Unsec.
Notes, 8.25%, 07/15/07(b) 190,000 192,692
============================================================================
APPAREL RETAIL-0.28%
Gap Inc. (The), Unsec. Notes, 6.90%,
09/15/07(b) 130,000 131,348
============================================================================
ASSET MANAGEMENT & CUSTODY BANKS-1.52%
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) 250,000 259,082
- ----------------------------------------------------------------------------
GAMCO Investors, Inc., Sr. Unsec. Unsub.
Notes,
5.22%, 02/17/07(b) 155,000 154,907
- ----------------------------------------------------------------------------
Mellon Capital II-Series B, Jr. Unsec. Gtd.
Sub. Trust Pfd. Bonds, 8.00%, 01/15/27(b) 180,000 187,969
- ----------------------------------------------------------------------------
Nuveen Investments, Inc., Sr. Unsec. Sub.
Notes,
5.50%, 09/15/15(b) 125,000 120,941
============================================================================
722,899
============================================================================
AUTOMOBILE MANUFACTURERS-1.07%
DaimlerChrysler North America Holding Corp.,
Gtd. Floating Rate Global Notes,
5.60%, 03/07/07(b)(d) 205,000 205,040
- ----------------------------------------------------------------------------
Notes,
4.13%, 03/07/07(b) 305,000 304,292
============================================================================
509,332
============================================================================
BROADCASTING & CABLE TV-6.52%
Adelphia Communications Corp., Sr. Unsec.
Unsub. Notes, 10.88%, 10/01/10(b)(e) 90,000 82,800
- ----------------------------------------------------------------------------
CBS Corp.,
Sr. Unsec. Gtd. Global Notes,
5.63%, 05/01/07(b) 530,000 530,064
- ----------------------------------------------------------------------------
Unsec. Gtd. Deb.,
7.88%, 09/01/23(b) 80,000 84,488
- ----------------------------------------------------------------------------
Clear Channel Communications, Inc., Sr.
Unsec. Notes, 3.13%, 02/01/07(b) 180,000 179,672
- ----------------------------------------------------------------------------
Comcast Cable Communications Holdings Inc.,
Unsec. Gtd. Global Notes, 9.46%,
11/15/22(b) 440,000 572,590
- ----------------------------------------------------------------------------
Comcast Corp., Sr. Sub. Deb., 10.63%,
07/15/12(b) 485,000 587,025
- ----------------------------------------------------------------------------
Cox Enterprises, Inc., Notes, 8.00%, 02/15/07
(Acquired 01/27/06-02/24/06; Cost
$533,412)(a)(b) 520,000 521,253
- ----------------------------------------------------------------------------
CSC Holdings Inc.,
Sr. Unsec. Notes,
7.88%, 12/15/07(b) 155,000 157,712
- ----------------------------------------------------------------------------
</Table>
<Table>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------
<Caption>
BROADCASTING & CABLE TV-(CONTINUED)
Series B, Sr. Unsec. Unsub. Notes,
7.63%, 04/01/11(b) $ 55,000 $ 56,306
- ----------------------------------------------------------------------------
Hearst-Argyle Television Inc.,, Sr. Unsec.
Unsub. Notes, 7.00%, 11/15/07(b) 145,000 146,504
- ----------------------------------------------------------------------------
Time Warner Entertainment Co. L.P., Sr.
Unsec. Deb., 8.38%, 03/15/23(b) 150,000 175,909
============================================================================
3,094,323
============================================================================
BUILDING PRODUCTS-0.24%
Masco Corp., Unsec. Notes, 4.63%, 08/15/07(b) 115,000 114,420
============================================================================
CASINOS & GAMING-0.76%
Harrah's Operating Co., Inc., Sr. Unsec. Gtd.
Global Notes, 7.13%, 06/01/07(b) 360,000 360,990
============================================================================
COMPUTER & ELECTRONICS RETAIL-0.42%
RadioShack Corp., Unsec. Notes, 6.95%,
09/01/07(b) 200,000 201,056
============================================================================
CONSUMER FINANCE-8.17%
Capital One Capital I, Sub. Floating Rate
Trust Pfd. Bonds, 6.92%, 02/01/27 (Acquired
09/15/04-04/12/06; Cost $486,249)(a)(b)(d) 480,000 484,013
- ----------------------------------------------------------------------------
Ford Motor Credit Co.,
Floating Rate Medium Term Notes,
6.19%, 09/28/07(b)(d) 240,000 240,087
- ----------------------------------------------------------------------------
Medium Term Notes,
7.75%, 02/15/07(b) 50,000 50,102
- ----------------------------------------------------------------------------
Notes,
6.63%, 06/16/08(b) 240,000 241,061
- ----------------------------------------------------------------------------
Sr. Unsec. Notes,
4.95%, 01/15/08(b) 1,000,000 987,450
- ----------------------------------------------------------------------------
Unsec. Floating Rate Euro Medium Term
Notes,
5.56%, 03/13/07(b)(d) 310,000 308,062
- ----------------------------------------------------------------------------
General Motors Acceptance Corp.,
Floating Rate Medium Term Notes,
6.27%, 01/16/07(b)(d) 720,000 720,807
- ----------------------------------------------------------------------------
6.23%, 03/20/07(b)(d) 130,000 130,168
- ----------------------------------------------------------------------------
Global Notes,
6.15%, 04/05/07(b) 230,000 230,504
- ----------------------------------------------------------------------------
Series GM, Sr. Medium Term Notes,
6.31%, 11/30/07(b) 482,000 482,709
============================================================================
3,874,963
============================================================================
DEPARTMENT STORES-0.34%
JC Penney Corp. Inc., Unsec. Deb., 8.13%,
04/01/27(b) 160,000 163,272
============================================================================
</Table>
AIM V.I. Diversified Income Fund
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------
DIVERSIFIED BANKS-7.76%
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 $ 498,260
- ----------------------------------------------------------------------------
BankAmerica Institutional-Series A, Gtd.
Trust Pfd. Bonds, 8.07%, 12/31/26 (Acquired
02/15/06-09/26/06; Cost $209,596)(a)(b) 200,000 207,602
- ----------------------------------------------------------------------------
BankBoston Capital Trust II-Series B, Gtd.
Trust Pfd. Bonds, 7.75%, 12/15/26(b) 310,000 321,197
- ----------------------------------------------------------------------------
Barclays Bank PLC (United Kingdom), Floating
Rate Global Notes, 4.47%, 08/08/07
(Acquired 04/06/06; Cost $99,481)(a)(b)(d) 100,000 100,035
- ----------------------------------------------------------------------------
Centura Capital Trust I, Gtd. Trust Pfd.
Notes,
8.85%, 06/01/27 (Acquired 05/22/03; Cost
$632,715)(a)(b) 500,000 528,550
- ----------------------------------------------------------------------------
First Empire Capital Trust I, Gtd. Trust Pfd.
Notes, 8.23%, 02/01/27(b) 260,000 271,843
- ----------------------------------------------------------------------------
Lloyds Bank PLC (United Kingdom)-Series 1,
Unsec. Sub. Floating Rate Euro Notes,
5.63%(b)(d)(f) 180,000 158,373
- ----------------------------------------------------------------------------
Mizuho Financial Group Cayman Ltd. (Cayman
Islands), Gtd. Sub. Second Tier Euro Bonds,
8.38%(b)(f) 100,000 105,705
- ----------------------------------------------------------------------------
National Bank of Canada (Canada), Floating
Rate Euro Deb., 5.63%, 08/29/87,(b)(d) 200,000 163,527
- ----------------------------------------------------------------------------
National Westminster Bank PLC (United
Kingdom)- Series B, Unsec. Sub. Floating
Rate Euro Notes, 5.69%(b)(d)(f) 280,000 241,995
- ----------------------------------------------------------------------------
NBD Bank N.A. Michigan, Unsec. Sub. Deb.,
8.25%, 11/01/24(b) 140,000 174,509
- ----------------------------------------------------------------------------
RBS Capital Trust III, Sub. Trust Pfd. Global
Notes, 5.51%(b)(f) 120,000 119,352
- ----------------------------------------------------------------------------
Sumitomo Mitsui Banking Corp. (Japan), Sub.
Second Tier Euro Notes, 8.15%(b)(f) 280,000 290,459
- ----------------------------------------------------------------------------
US Trust Capital Trust A, Trust Pfd. Bonds,
8.41%, 02/01/27 (Acquired 02/15/06; Cost
$277,014)(a)(b) 260,000 271,349
- ----------------------------------------------------------------------------
VTB Capital S.A. (Russia), Sr. Floating Rate
Notes, 6.12%, 09/21/07 (Acquired 12/14/05;
Cost $230,000)(a)(b)(d) 230,000 230,661
============================================================================
3,683,417
============================================================================
DIVERSIFIED CHEMICALS-0.42%
Hercules Inc., Unsec. Putable Deb., 6.60%,
08/01/07(b) 200,000 200,090
============================================================================
DIVERSIFIED METALS & MINING-0.30%
Reynolds Metals Co., Medium Term Notes,
7.00%, 05/15/09(b) 141,000 143,663
============================================================================
DRUG RETAIL-0.17%
Rite Aid Corp., Sr. Unsec. Unsub. Notes,
7.13%, 01/15/07(b) 80,000 80,300
============================================================================
ELECTRIC UTILITIES-2.19%
Commonwealth Edison Co., Unsec. Notes, 7.63%,
01/15/07(b) 430,000 430,219
- ----------------------------------------------------------------------------
Mission Energy Holding Co., Sr. Sec. Global
Notes, 13.50%, 07/15/08(b) 160,000 177,400
- ----------------------------------------------------------------------------
</Table>
<Table>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------
<Caption>
ELECTRIC UTILITIES-(CONTINUED)
Potomac Electric Power Co.-Series A, Medium
Term Notes, 7.64%, 01/17/07(b) $ 100,000 $ 100,062
- ----------------------------------------------------------------------------
Southern Co. Capital Trust I, Gtd. Trust Pfd.
Notes, 8.19%, 02/01/37(b) 320,000 333,363
============================================================================
1,041,044
============================================================================
FOOD RETAIL-1.25%
Kroger Co. (The), Notes, 7.80%, 08/15/07(b) 240,000 243,190
- ----------------------------------------------------------------------------
Sr. Unsec. Notes, 7.65%, 04/15/07(b) 260,000 261,425
- ----------------------------------------------------------------------------
Safeway Inc., Sr. Unsec. Notes, 7.00%,
09/15/07(b) 88,000 88,847
============================================================================
593,462
============================================================================
FOREST PRODUCTS-0.11%
Weyerhaeuser Co., Unsec. Unsub. Global Notes,
6.13%, 03/15/07(b) 50,000 50,060
============================================================================
GENERAL MERCHANDISE STORES-0.17%
Pantry, Inc. (The), Sr. Sub. Global Notes,
7.75%, 02/15/14(b) 80,000 80,900
============================================================================
HEALTH CARE SERVICES-0.33%
Orlando Lutheran Towers Inc., Bonds, 7.75%,
07/01/11(b) 155,000 154,248
============================================================================
HOME IMPROVEMENT RETAIL-0.17%
Sherwin-Williams Co. (The), Sr. Notes, 6.85%,
02/01/07(b) 80,000 80,078
============================================================================
HOMEBUILDING-0.89%
D.R. Horton, Inc., Sr. Unsec. Gtd. Notes,
8.00%, 02/01/09(b) 200,000 209,644
- ----------------------------------------------------------------------------
Sr. Unsec. Notes,
7.88%, 08/15/11(b) 200,000 214,814
============================================================================
424,458
============================================================================
HOTELS, RESORTS & CRUISE LINES-0.35%
Starwood Hotels & Resorts Worldwide, Inc.,
Sr. Gtd. Global Notes, 7.38%, 05/01/07(b) 164,000 164,615
============================================================================
HOUSEWARES & SPECIALTIES-0.05%
Newell Rubbermaid Inc., Unsec. Notes, 6.00%,
03/15/07(b) 25,000 25,017
============================================================================
INSURANCE BROKERS-0.87%
Aon Corp., Unsec. Notes, 6.95%, 01/15/07(b) 20,000 20,008
- ----------------------------------------------------------------------------
Marsh & McLennan Cos., Inc., Sr. Unsec.
Global Notes, 5.38%, 03/15/07(b) 395,000 394,913
============================================================================
414,921
============================================================================
INTEGRATED OIL & GAS-1.85%
ConocoPhillips, Unsec. Deb., 7.13%,
03/15/28(b) 300,000 311,352
- ----------------------------------------------------------------------------
Husky Oil Ltd. (Canada), Yankee Bonds, 8.90%,
08/15/28(b) 540,000 567,000
============================================================================
878,352
============================================================================
</Table>
AIM V.I. Diversified Income Fund
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------
INTEGRATED TELECOMMUNICATION SERVICES-5.46%
Embarq Corp., Sr. Unsec. Notes, 7.08%,
06/01/16(b) $ 230,000 $ 235,048
- ----------------------------------------------------------------------------
TCI Communications Financing III, Gtd. Trust
Pfd. Bonds, 9.65%, 03/31/27(b) 450,000 476,505
- ----------------------------------------------------------------------------
TELUS Corp. (Canada), Yankee Notes, 7.50%,
06/01/07(b) 250,000 251,985
- ----------------------------------------------------------------------------
Verizon California Inc.-Series G, Unsec.
Deb.,
5.50%, 01/15/09(b) 160,000 160,402
- ----------------------------------------------------------------------------
Verizon Communications Inc., Unsec. Deb.,
8.75%, 11/01/21(b) 460,000 548,320
- ----------------------------------------------------------------------------
Verizon Florida Inc.-Series F, Sr. Unsec.
Deb.,
6.13%, 01/15/13(b) 120,000 122,681
- ----------------------------------------------------------------------------
Verizon New York Inc., Unsec. Deb., 7.00%,
12/01/33(b) 180,000 184,360
- ----------------------------------------------------------------------------
Verizon Virginia Inc.-Series A, Unsec. Global
Deb., 4.63%, 03/15/13(b) 648,000 611,323
============================================================================
2,590,624
============================================================================
INTERNET RETAIL-0.30%
Expedia, Inc., Putable Bonds, 7.46%, 08/15/13
(Acquired 08/16/06; Cost $135,000)(a)(b) 135,000 140,991
============================================================================
INVESTMENT BANKING & BROKERAGE-0.17%
Dryden Investor Trust, Bonds, 7.16%, 07/23/08
(Acquired 04/10/06; Cost $31,022)(a)(b) 30,475 30,876
- ----------------------------------------------------------------------------
Jefferies Group, Inc.-Series B, Sr. Unsec.
Notes,
7.50%, 08/15/07(b) 50,000 50,586
============================================================================
81,462
============================================================================
LIFE & HEALTH INSURANCE-2.69%
Americo Life Inc., Notes, 7.88%, 05/01/13
(Acquired 04/25/03; Cost $93,875)(a)(b) 95,000 95,564
- ----------------------------------------------------------------------------
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)(c) 500,000 578,890
- ----------------------------------------------------------------------------
Sun Life Canada (U.S.) Capital Trust, Gtd.
Trust Pfd. Notes, 8.53% (Acquired
02/13/06-11/15/06; Cost $607,333)(a)(b)(f) 570,000 600,262
============================================================================
1,274,716
============================================================================
MANAGED HEALTH CARE-0.28%
Cigna Corp., Unsec. Notes, 7.40%, 05/15/07(b) 130,000 130,930
============================================================================
METAL & GLASS CONTAINERS-0.31%
Owens-Brockway Glass Container Inc., Sr.
Unsec. Gtd. Global Notes, 8.25%,
05/15/13(b) 140,000 145,075
============================================================================
MOVIES & ENTERTAINMENT-2.26%
News America Holdings Inc., Sr. Unsec. Gtd.
Deb.,
7.75%, 12/01/45(b) 205,000 233,427
- ----------------------------------------------------------------------------
Time Warner Cos., Inc., Unsec. Deb., 9.15%,
02/01/23(b) 480,000 597,365
- ----------------------------------------------------------------------------
Time Warner Inc., Sr. Unsec. Gtd. Deb.,
6.50%, 11/15/36(b) 240,000 240,163
============================================================================
1,070,955
============================================================================
</Table>
<Table>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------
<Caption>
MULTI-UTILITIES-1.58%
Ameren Corp., Bonds, 4.26%, 05/15/07(b) $ 195,000 $ 194,165
- ----------------------------------------------------------------------------
Dominion Capital Trust I, Jr. Unsec. Gtd.
Trust Pfd. Bonds, 7.83%, 12/01/27(b) 400,000 417,784
- ----------------------------------------------------------------------------
Duke Energy Indiana, Inc., Unsec. Deb.,
7.85%, 10/15/07(b) 65,000 66,165
- ----------------------------------------------------------------------------
Sempra Energy, Sr. Notes, 4.62%, 05/17/07(b) 70,000 69,787
============================================================================
747,901
============================================================================
OFFICE REIT'S-0.32%
EOP Operating L.P., Sr. Unsec. Notes, 7.75%,
11/15/07(b) 150,000 153,111
============================================================================
OIL & GAS EXPLORATION & PRODUCTION-2.66%
Pemex Project Funding Master Trust, Unsec.
Gtd. Unsub. Global Notes,
5.75%, 12/15/15(b) 325,000 324,447
- ----------------------------------------------------------------------------
8.63%, 02/01/22(b) 675,000 836,359
- ----------------------------------------------------------------------------
Talisman Energy Inc. (Canada), Unsec. Unsub.
Yankee Deb., 7.13%, 06/01/07(b) 100,000 100,504
============================================================================
1,261,310
============================================================================
OIL & GAS REFINING & MARKETING-0.18%
Premcor Refining Group Inc. (The), Sr. Unsec.
Global Notes,, 9.50%, 02/01/13(b) 80,000 86,504
============================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-9.55%
BankAmerica Capital II-Series 2, Jr. Unsec.
Gtd. Sub. Trust Pfd. Notes, 8.00%,
12/15/26(b) 130,000 134,840
- ----------------------------------------------------------------------------
General Electric Capital Corp., Unsec.
Floating Rate Putable Deb., 5.11%,
09/01/07(b)(d) 50,000 49,755
- ----------------------------------------------------------------------------
JPM Capital Trust I, Gtd. Trust Pfd. Notes,
7.54%, 01/15/27(b) 300,000 312,477
- ----------------------------------------------------------------------------
Mizuho JGB Investment LLC-Series A, Sub.
Bonds,
9.87% (Acquired 06/16/04-03/03/06; Cost
$787,636)(a)(b)(f) 700,000 743,316
- ----------------------------------------------------------------------------
NB Capital Trust IV, Gtd. Trust Pfd. Bonds,
8.25%, 04/15/27(b) 280,000 293,199
- ----------------------------------------------------------------------------
Pemex Finance Ltd. (Mexico), Sr. Unsec.
Global Notes,
8.02%, 05/15/07(b) 85,000 85,513
- ----------------------------------------------------------------------------
Series 1999-2, Class A1, Global Bonds,
9.69%, 08/15/09(b) 368,500 388,358
- ----------------------------------------------------------------------------
Regional Diversified Funding (Cayman
Islands),
Sr. Notes, 9.25%, 03/15/30 (Acquired
01/10/03-09/22/04; Cost $525,327)(a)(b) 453,889 515,600
- ----------------------------------------------------------------------------
Class A-1a, Sr. Floating Rate Notes,
5.71%, 01/25/36 (Acquired 03/21/05; Cost
$493,302)(a)(b)(d)(g) 493,302 480,610
- ----------------------------------------------------------------------------
Residential Capital LLC,
Sr. Unsec. Floating Rate Global Notes,
6.74%, 06/29/07(b)(d) 250,000 251,211
- ----------------------------------------------------------------------------
Sr. Unsec. Gtd. Floating Rate Notes,
5.85%, 06/09/08(b)(d) 395,000 394,627
- ----------------------------------------------------------------------------
</Table>
AIM V.I. Diversified Income Fund
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------
OTHER DIVERSIFIED FINANCIAL SERVICES-(CONTINUED)
Twin Reefs Pass-Through Trust, Floating Rate
Pass Through Ctfs., 6.35% (Acquired
12/07/04-04/03/06; Cost
$300,332)(a)(b)(d)(f) $ 300,000 $ 300,571
- ----------------------------------------------------------------------------
Two-Rock Pass-Through Trust (Bermuda),
Floating Rate Pass Through Ctfs., 6.32%
(Acquired 11/10/06; Cost
$220,260)(a)(b)(d)(f) 220,000 216,748
- ----------------------------------------------------------------------------
UFJ Finance Aruba AEC (Aruba), Gtd. Sub.
Second Tier Euro Bonds, 8.75%(b)(f) 250,000 263,979
- ----------------------------------------------------------------------------
Windsor Financing LLC, Sr. Gtd. Notes, 5.88%,
07/15/17 (Acquired 02/07/06; Cost
$102,859)(a)(b) 102,859 102,391
============================================================================
4,533,195
============================================================================
PAPER PRODUCTS-0.19%
International Paper Co., Unsec. Notes, 7.63%,
01/15/07(b) 91,000 91,055
============================================================================
PROPERTY & CASUALTY INSURANCE-5.68%
Executive Risk Capital Trust-Series B, Gtd.
Trust Pfd. Bonds, 8.68%, 02/01/27(b) 260,000 272,363
- ----------------------------------------------------------------------------
First American Capital Trust I, Gtd. Trust
Pfd. Notes, 8.50%, 04/15/12(b) 790,000 838,277
- ----------------------------------------------------------------------------
North Front Pass-Through Trust, Bonds, 5.81%,
12/15/24 (Acquired 12/08/04; Cost
$351,994)(a)(b) 350,000 345,674
- ----------------------------------------------------------------------------
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) 330,000 328,848
- ----------------------------------------------------------------------------
Oil Insurance Ltd., Notes, 7.56% (Acquired
06/15/06; Cost $870,000)(a)(b)(f) 870,000 908,445
============================================================================
2,693,607
============================================================================
PUBLISHING-0.23%
Belo Corp., Sr. Unsec. Unsub. Notes, 7.13%,
06/01/07(b) 110,000 110,785
============================================================================
REAL ESTATE MANAGEMENT & DEVELOPMENT-1.40%
Realogy Corp.,
Sr. Floating Rate Notes, 6.07%, 10/20/09
(Acquired 10/13/06; Cost $45,000)(a)(b)(d) 45,000 45,028
- ----------------------------------------------------------------------------
Sr. Notes, 6.50%, 10/15/16 (Acquired
10/13/06-10/16/06; Cost $340,659)(a)(b) 340,000 342,836
- ----------------------------------------------------------------------------
Southern Investments UK PLC (United Kingdom),
Gtd. Trust Pfd. Yankee Notes, 8.23%,
02/01/27(b) 270,000 274,050
============================================================================
661,914
============================================================================
REGIONAL BANKS-3.20%
Cullen/Frost Capital Trust I, Unsec. Sub.
Floating Rate Notes, 6.92%, 03/01/34(b)(d) 600,000 613,344
- ----------------------------------------------------------------------------
PNC Capital Trust C, Gtd. Floating Rate Trust
Pfd. Bonds, 5.94%, 06/01/28(b)(d) 100,000 96,628
- ----------------------------------------------------------------------------
Popular North America Inc.-Series F, Medium
Term Notes, 5.20%, 12/12/07(b) 140,000 139,080
- ----------------------------------------------------------------------------
</Table>
<Table>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------
<Caption>
REGIONAL BANKS-(CONTINUED)
TCF National Bank, Sub. Notes, 5.00%,
06/15/14(b) $ 175,000 $ 171,973
- ----------------------------------------------------------------------------
Western Financial Bank, Unsec. Sub. Deb.,
9.63%, 05/15/12(b) 450,000 499,185
============================================================================
1,520,210
============================================================================
REINSURANCE-1.33%
Reinsurance Group of America, Inc., Jr.
Unsec. Sub. Deb., 6.75%, 12/15/65(b) 165,000 165,827
- ----------------------------------------------------------------------------
Stingray Pass-Through Trust, Pass Through
Ctfs.,
5.90%, 01/12/15 (Acquired
01/07/05-11/03/05; Cost $493,840)(a)(b) 500,000 467,570
============================================================================
633,397
============================================================================
SOVEREIGN DEBT-0.70%
Russian Federation (Russia)-REGS, Unsec.
Unsub. Euro Bonds, 10.00%, 06/26/07
(Acquired 05/14/04; Cost $364,406)(a)(b) 325,000 332,703
============================================================================
SPECIALIZED REIT'S-1.24%
Health Care Property Investors, Inc.,
Floating Rate Medium Term Notes,
5.81%, 09/15/08(b)(d) 240,000 240,698
- ----------------------------------------------------------------------------
Notes,
5.63%, 05/01/17(b) 180,000 172,550
- ----------------------------------------------------------------------------
Health Care REIT, Inc., Sr. Notes, 5.88%,
05/15/15(b) 175,000 173,084
============================================================================
586,332
============================================================================
STEEL-0.31%
Commercial Metals Co., Unsec. Unsub. Notes,
6.80%, 08/01/07(b) 145,000 145,986
============================================================================
THRIFTS & MORTGAGE FINANCE-1.63%
Dime Capital Trust I-Series A, Gtd. Trust
Pfd. Notes, 9.33%, 05/06/27(b) 110,000 116,384
- ----------------------------------------------------------------------------
Greenpoint Capital Trust I, Gtd. Sub. Trust
Pfd. Notes, 9.10%, 06/01/27(b) 275,000 291,236
- ----------------------------------------------------------------------------
Telebanc Capital Trust I, Gtd. Trust Pfd.
Notes, 11.00%, 06/01/27(b) 240,000 260,362
- ----------------------------------------------------------------------------
Washington Mutual Capital I, Gtd. Sub. Trust
Pfd. Notes, 8.38%, 06/01/27(b) 100,000 105,200
============================================================================
773,182
============================================================================
TOBACCO-0.23%
Altria Group, Inc., Unsec. Notes, 7.20%,
02/01/07(b) 110,000 110,131
============================================================================
TRADING COMPANIES & DISTRIBUTORS-0.87%
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) 375,000 414,079
============================================================================
TRUCKING-1.43%
Roadway Corp., Sr. Sec. Gtd. Global Notes,
8.25%, 12/01/08(b) 650,000 678,165
============================================================================
</Table>
AIM V.I. Diversified Income Fund
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES-1.02%
Alamosa Delaware Inc., Sr. Gtd. Global Notes,
8.50%, 01/31/12(b) $ 190,000 $ 202,096
- ----------------------------------------------------------------------------
Sprint Nextel Corp., Deb., 9.25%, 04/15/22(b) 235,000 282,639
============================================================================
484,735
============================================================================
Total U.S. Dollar Denominated Bonds &
Notes (Cost $39,672,015) 39,181,269
============================================================================
ASSET-BACKED SECURITIES-4.97%
COLLATERALIZED MORTGAGE OBLIGATIONS-0.25%
Federal Home Loan Bank (FHLB)-Series TQ-2015,
Class A, Pass Through Ctfs., 5.07%,
10/20/15(b) 122,792 121,379
============================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-4.72%
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) 675,000 795,479
- ----------------------------------------------------------------------------
Patrons' Legacy 2003-III LILACS-III-A, Ctfs.,
5.65%, 01/17/17 (Acquired 11/04/04; Cost
$487,214)(a)(g) 475,141 470,897
- ----------------------------------------------------------------------------
Patrons' Legacy 2004-1 LILACS-I-Series A,
Ctfs.,
6.67%, 05/04/18 (Acquired 04/30/04; Cost
$972,222)(a)(g) 972,222 972,582
============================================================================
2,238,958
============================================================================
Total Asset-Backed Securities (Cost
$2,352,737) 2,360,337
============================================================================
MUNICIPAL OBLIGATIONS-3.56%
Detroit (City of), Michigan; Series 2005 A-1,
Taxable Capital Improvement Limited Tax GO,
(INS-Ambac Assurance Corp.) 4.96%,
04/01/20(b)(c) 130,000 122,126
- ----------------------------------------------------------------------------
Florida (State of) Development Finance Corp.
(Palm Bay Academy Inc.) Series 2006 B,
Taxable RB, 7.50%, 05/15/17(b) 65,000 64,074
- ----------------------------------------------------------------------------
Indianapolis (City of), Indiana Local Public
Improvement Bond Bank; Series
2005 A, Taxable RB,
4.87%, 07/15/16(b) 100,000 96,162
- ----------------------------------------------------------------------------
5.22%, 07/15/20(b) 125,000 121,920
- ----------------------------------------------------------------------------
5.28%, 01/15/22(b) 100,000 97,369
- ----------------------------------------------------------------------------
Industry (City of), California Urban
Development Agency (Project 3); Series
2003, Taxable Allocation RB, (INS-MBIA
Insurance Corp.)
6.10%, 05/01/24(b)(c) 650,000 666,705
- ----------------------------------------------------------------------------
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)(c) 225,000 223,220
- ----------------------------------------------------------------------------
4.21%, 07/01/08(b)(c) 300,000 295,578
============================================================================
Total Municipal Obligations (Cost
$1,592,747) 1,687,154
============================================================================
</Table>
<Table>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------
<Caption>
U.S. MORTGAGE-BACKED SECURITIES-2.38%
FEDERAL HOME LOAN MORTGAGE CORP.
(FHLMC)-0.87%
Pass Through Ctfs.,
8.50%, 03/01/10(b) $ 327 $ 330
- ----------------------------------------------------------------------------
6.50%, 05/01/16 to 08/01/32(b) 30,397 31,109
- ----------------------------------------------------------------------------
6.00%, 05/01/17 to 11/01/33(b) 277,707 280,622
- ----------------------------------------------------------------------------
5.50%, 09/01/17(b) 102,376 102,582
============================================================================
414,643
============================================================================
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-0.93%
Pass Through Ctfs.,
7.00%, 02/01/16 to 09/01/32(b) 47,862 49,249
- ----------------------------------------------------------------------------
6.50%, 05/01/16 to 10/01/35(b) 73,588 75,410
- ----------------------------------------------------------------------------
5.00%, 11/01/18(b) 97,122 95,723
- ----------------------------------------------------------------------------
7.50%, 04/01/29 to 10/01/29(b) 105,277 109,937
- ----------------------------------------------------------------------------
6.50%, 05/01/31(b) 100,752(h) 103,176
- ----------------------------------------------------------------------------
8.00%, 04/01/32(b) 6,282 6,632
============================================================================
440,127
============================================================================
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA)-0.58%
Pass Through Ctfs.,
7.50%, 06/15/23(b) 20,621 21,528
- ----------------------------------------------------------------------------
8.50%, 11/15/24(b) 19,988 21,596
- ----------------------------------------------------------------------------
7.00%, 07/15/31 to 08/15/31(b) 5,188 5,363
- ----------------------------------------------------------------------------
6.50%, 11/15/31 to 09/15/32(b) 42,034 43,208
- ----------------------------------------------------------------------------
6.00%, 12/15/31 to 11/15/32(b) 60,504 61,452
- ----------------------------------------------------------------------------
5.50%, 02/15/34(b) 122,213(h) 121,739
============================================================================
274,886
============================================================================
Total U.S. Mortgage-Backed Securities
(Cost $1,143,983) 1,129,656
============================================================================
<Caption>
SHARES
PREFERRED STOCKS-2.21%
LIFE & HEALTH INSURANCE-0.41%
Aegon N.V., 6.38% Pfd. (Netherlands) 7,500 194,775
============================================================================
THRIFTS & MORTGAGE FINANCE-1.16%
Fannie Mae,
Series J,
6.45% Floating Rate Pfd.(d) 5,550 278,610
- ----------------------------------------------------------------------------
Series K,
5.40% Floating Rate Pfd.(d) 5,450 272,773
============================================================================
551,383
============================================================================
WIRELESS TELECOMMUNICATION SERVICES-0.64%
Telephone & Data Systems, Inc.-Series A,
7.60% Pfd 12,000 300,840
============================================================================
Total Preferred Stocks (Cost $1,048,587) 1,046,998
============================================================================
</Table>
AIM V.I. Diversified Income Fund
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- ----------------------------------------------------------------------------
NON-U.S. DOLLAR DENOMINATED BONDS &
NOTES-0.97%
CONSUMER FINANCE-0.97%
Takefuji Corp. (Japan), Sr. Unsec. Medium
Term Euro Notes, 1.01%, 03/01/34 (Cost
$527,645)(g)(i) JPY 100,000,000 $ 459,793
============================================================================
COMMERCIAL PAPER-0.84%
BROADCASTING & CABLE TV-0.84%
Cox Communications Inc., Floating Rate,
5.38%, 08/15/07 (Acquired 08/15/07; Cost
$400,000)(a)(b)(d) 400,000 400,068
============================================================================
U.S. GOVERNMENT AGENCY SECURITIES-0.62%
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-0.62%
Unsec. Floating Rate Global Notes, 3.20%,
02/17/09 (Cost $300,000)(b)(d) 300,000 293,469
============================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- ----------------------------------------------------------------------------
WARRANTS-0.00%
INTEGRATED TELECOMMUNICATION SERVICES-0.00%
NTELOS Inc.-Wts., expiring 08/15/10 (Acquired
11/15/00; Cost $0)(a)(g)(j)(k) 275 $ 0
============================================================================
MONEY MARKET FUNDS-0.50%
Liquid Assets Portfolio-Institutional
Class(l) 119,019 119,019
- ----------------------------------------------------------------------------
Premier Portfolio-Institutional Class(l) 119,019 119,019
============================================================================
Total Money Market Funds (Cost $238,038) 238,038
============================================================================
TOTAL INVESTMENTS-98.61% (Cost $47,275,752) 46,796,782
============================================================================
OTHER ASSETS LESS LIABILITIES-1.39% 659,191
============================================================================
NET ASSETS-100.00% $47,455,973
____________________________________________________________________________
============================================================================
</Table>
Investment Abbreviations:
<Table>
Ctfs. - Certificates
Deb. - Debentures
GO - General Obligation Bonds
Gtd. - Guaranteed
INS - Insurer
JPY - Japanese Yen
Jr. - Junior
LILACS - Life Insurance and Life Annuities Based Certificates
Pfd. - Preferred
RB - Revenue Bonds
REGS - Regulation S
REIT - Real Estate Investment Trust
Sec. - Secured
Sr. - Senior
Sub. - Subordinated
Unsec. - Unsecure
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 December 31, 2006 was
$13,079,127, which represented 27.56% 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 December 31,
2006 was $43,608,474, which represented 91.89% of the Fund's Net Assets. See
Note 1A.
(c) Principal and/or interest payments are secured by the bond insurance company
listed.
(d) Interest or dividend rate is redetermined periodically. Rate shown is the
rate in effect on December 31, 2006.
(e) Defaulted security. Currently, the issuer is in default with respect to
interest payments. The value of this security at December 31, 2006
represented 0.17% of the Fund's Net Assets.
(f) Perpetual bond with no specified maturity date.
(g) Security considered to be illiquid. The Fund is limited to investing 15% of
net assets in illiquid securities at the time of purchase. The aggregate
value of these securities considered illiquid at December 31, 2006 was
$2,383,882, which represented 5.02% of the Fund's Net Assets.
(h) All or a portion of the principal balance was pledged as collateral to cover
margin requirements for open futures contracts. See Note 1N and Note 10.
(i) Foreign denominated security. Principal amount is denominated in currency
indicated.
(j) Non-income producing security acquired as part of a unit with or in exchange
for other securities.
(k) Security fair valued in good faith in accordance with the procedures
established by the Board of Trustees. The value of this security at December
31, 2006 represented 0.00% of the Fund's Net Assets. See Note 1A.
(l) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. Diversified Income Fund
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2006
<Table>
ASSETS:
Investments, at value (cost $47,037,714) $46,558,744
- ----------------------------------------------------------------
Investments in affiliated money market funds (cost
$238,038) 238,038
================================================================
Total investments (cost $47,275,752) 46,796,782
================================================================
Cash 58,718
- ----------------------------------------------------------------
Receivables for:
Fund shares sold 8,912
- ----------------------------------------------------------------
Dividends and interest 686,292
- ----------------------------------------------------------------
Foreign currency contracts outstanding 3,937
- ----------------------------------------------------------------
Investment for trustee deferred compensation and
retirement plans 52,359
- ----------------------------------------------------------------
Other assets 370
================================================================
Total assets 47,607,370
________________________________________________________________
================================================================
LIABILITIES:
Payables for:
Fund shares reacquired 6,185
- ----------------------------------------------------------------
Dividends 133
- ----------------------------------------------------------------
Trustee deferred compensation and retirement
plans 58,633
- ----------------------------------------------------------------
Unrealized depreciation on credit default swap
transactions 2,743
- ----------------------------------------------------------------
Variation margin 14,804
- ----------------------------------------------------------------
Accrued administrative services fees 25,958
- ----------------------------------------------------------------
Accrued distribution fees -- Series II 472
- ----------------------------------------------------------------
Accrued trustees' and officer's fees and benefits 3,388
- ----------------------------------------------------------------
Accrued transfer agent fees 649
- ----------------------------------------------------------------
Accrued operating expenses 38,432
================================================================
Total liabilities 151,397
================================================================
Net assets applicable to shares outstanding $47,455,973
________________________________________________________________
================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $65,668,692
- ----------------------------------------------------------------
Undistributed net investment income 2,853,143
- ----------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies,
foreign currency contracts, futures contracts,
option contracts and credit default swap
agreements (20,297,524)
- ----------------------------------------------------------------
Unrealized appreciation (depreciation) of
investment securities, foreign currencies,
foreign currency contracts, futures contracts and
credit default swap agreements (768,338)
================================================================
$47,455,973
________________________________________________________________
================================================================
NET ASSETS:
Series I $46,743,414
________________________________________________________________
================================================================
Series II $ 712,559
________________________________________________________________
================================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 5,647,186
________________________________________________________________
================================================================
Series II 86,794
________________________________________________________________
================================================================
Series I:
Net asset value per share $ 8.28
________________________________________________________________
================================================================
Series II:
Net asset value per share $ 8.21
________________________________________________________________
================================================================
</Table>
STATEMENT OF OPERATIONS
For the year ended December 31, 2006
<Table>
INVESTMENT INCOME:
Interest $3,058,694
- ----------------------------------------------------------------
Dividends 125,239
- ----------------------------------------------------------------
Dividends from affiliated money market funds 18,000
================================================================
Total investment income 3,201,933
================================================================
EXPENSES:
Advisory fees 308,867
- ----------------------------------------------------------------
Administrative services fees 141,102
- ----------------------------------------------------------------
Custodian fees 17,734
- ----------------------------------------------------------------
Distribution fees -- Series II 2,084
- ----------------------------------------------------------------
Transfer agent fees 7,834
- ----------------------------------------------------------------
Trustees' and officer's fees and benefits 16,433
- ----------------------------------------------------------------
Professional services fees 51,491
- ----------------------------------------------------------------
Other 23,744
================================================================
Total expenses 569,289
================================================================
Less: Fees waived and expense offset arrangements (181,000)
================================================================
Net expenses 388,289
================================================================
Net investment income 2,813,644
================================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM INVESTMENT
SECURITIES, FOREIGN CURRENCIES, FOREIGN CURRENCY
CONTRACTS, FUTURES CONTRACTS, OPTION CONTRACTS AND
CREDIT DEFAULT SWAP AGREEMENTS:
Net realized gain (loss) from:
Investment securities (includes net gains (losses)
from securities sold to affiliates of $(3,070)) (75,028)
- ----------------------------------------------------------------
Foreign currencies 1,721
- ----------------------------------------------------------------
Foreign currency contracts 12,686
- ----------------------------------------------------------------
Futures contracts (101,592)
- ----------------------------------------------------------------
Option contracts written 9,915
- ----------------------------------------------------------------
Credit default swap agreements (804)
================================================================
(153,102)
================================================================
Change in net unrealized appreciation (depreciation)
of:
Investment securities (173,006)
- ----------------------------------------------------------------
Foreign currencies 785
- ----------------------------------------------------------------
Foreign currency contracts (21,788)
- ----------------------------------------------------------------
Futures contracts (315,352)
- ----------------------------------------------------------------
Credit default swap agreements (1,771)
================================================================
(511,132)
================================================================
Net gain (loss) from investment securities, foreign
currencies, foreign currency contracts, futures
contracts, option contracts and credit default
swap agreements (664,234)
================================================================
Net increase in net assets resulting from operations $2,149,410
________________________________________________________________
================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. Diversified Income Fund
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2006 and 2005
<Table>
<Caption>
2006 2005
- -----------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 2,813,644 $ 2,765,023
- -----------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities,
foreign currencies, foreign currency contracts, futures
contracts, option contracts and credit default swap
agreements (153,102) 529,078
- -----------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies, foreign
currency contracts, futures contracts and credit default
swap agreements (511,132) (1,562,880)
=========================================================================================
Net increase in net assets resulting from operations 2,149,410 1,731,221
=========================================================================================
Distributions to shareholders from net investment income:
Series I (2,878,667) (3,444,080)
- -----------------------------------------------------------------------------------------
Series II (41,567) (56,114)
=========================================================================================
Decrease in net assets resulting from distributions (2,920,234) (3,500,194)
=========================================================================================
Share transactions-net:
Series I (7,560,790) (8,266,475)
- -----------------------------------------------------------------------------------------
Series II (179,546) (46,419)
=========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (7,740,336) (8,312,894)
=========================================================================================
Net increase (decrease) in net assets (8,511,160) (10,081,867)
=========================================================================================
NET ASSETS:
Beginning of year 55,967,133 66,049,000
=========================================================================================
End of year (including undistributed net investment income
of $2,853,143 and $2,867,820, respectively) $47,455,973 $ 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
December 31, 2006
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-one separate portfolios. The Fund currently offers two classes of shares,
Series I and Series II, both of which are offered to insurance company separate
accounts funding variable annuity contracts and variable life insurance policies
("variable products"). Matters affecting each portfolio or class will be voted
on exclusively by the shareholders of such portfolio or class. Current
Securities and Exchange Commission ("SEC") guidance, however, requires
participating insurance companies offering separate accounts to vote shares
proportionally in accordance with the instructions of the contract owners whose
investments are funded by shares of each portfolio or class. The assets,
liabilities and operations of each portfolio are accounted for separately.
Information presented in these financial statements pertains only to the Fund.
The Fund's investment objective is to achieve a high level of current
income.
The 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.
Debt obligations (including convertible bonds) and unlisted equities 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.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price or official closing price as of the close of
the customary trading session on the exchange where the security is
principally traded, or lacking any sales or official closing price on a
particular day, the security may be valued at the closing bid price on that
day. Securities traded in the over-the-counter market 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. 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 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 open-end and closed-end registered
investment companies that trade on an exchange are valued at the last sales
price or official closing price as of the close of the customary trading
session on the exchange where the security is principally traded.
Swap agreements are fair valued using an evaluated quote provided by an
independent pricing service. Evaluated quotes provided by the pricing
service are valued based on a model which may include end of day net
present values, spreads, ratings, industry, and company performance.
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. If market quotations are available and reliable for
foreign exchange traded equity securities, the securities will be valued at
the market quotations. Because trading hours for certain foreign securities
end before the close of the NYSE, closing market quotations may become
unreliable. If between the time trading ends on a particular security and
the close of the customary trading session on the NYSE, events occur that
are significant and may make the closing price unreliable, the Fund may
fair value the security. 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 prices are not provided by any of the above
methods may be 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
AIM V.I. Diversified Income Fund
(losses) on securities per share in the Financial Highlights. Transaction
costs are included in the calculation of the Fund's net asset value and,
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 the 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 to distribute substantially all of the
Fund's taxable earnings to shareholders. As such, the Fund will not be
subject to federal income taxes on otherwise taxable income (including net
realized capital gain) that 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. ACCOUNTING ESTIMATES -- 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.
H. INDEMNIFICATIONS -- 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.
I. DOLLAR ROLL TRANSACTIONS -- The Fund may engage in dollar roll transactions
with respect to mortgage-backed securities issued by GNMA, FNMA and FHLMC.
In a dollar roll transaction, the Fund sells a mortgage-backed security
held in the Fund to a financial institution such as a bank or
broker-dealer, and simultaneously agrees to purchase a substantially
similar security (same type, coupon and maturity) from the institution at
an agreed upon price and future date. The mortgage-backed securities to be
purchased will bear the same interest rate as those sold, but generally
will be collateralized by different pools of mortgages with different
prepayment histories. Based on the typical structure of dollar roll
transactions by the Fund, the dollar roll transactions are accounted for as
financing transactions in which the Fund receives compensation as either a
"fee" or a "drop". "Fee" income which is agreed upon amongst the parties at
the commencement of the dollar roll and the "drop" which is the difference
between the selling price and the repurchase price of the mortgage-backed
securities are amortized to income. 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
the return on the securities sold.
J. 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.
The Fund may invest in foreign securities which may be subject to foreign
taxes on income, gains on investments or currency repatriation, a portion
of which may be recoverable. Taxes are accrued based on the Fund's current
interpretation of tax regulations and rates that exist in the foreign
markets in which the Fund invests.
AIM V.I. Diversified Income Fund
K. 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.
Fluctuations in the value of these contracts are recorded as unrealized
appreciation (depreciation) until the contracts are closed. When these
contracts are closed, realized gains (losses) are recorded. Realized and
unrealized gains and losses on these contracts are included in the
Statement of Operations. The Fund could be exposed to risk, which may be in
excess of the amount reflected in the Statement of Assets and Liabilities,
if counterparties to the contracts are unable to meet the terms of their
contracts or if the value of the foreign currency changes unfavorably.
L. COVERED CALL OPTIONS -- The Fund may write call options, including options
on futures. A call option gives the purchaser of such option the right to
buy, and the writer (the Fund) the obligation to sell, the underlying
security at the stated exercise price during the option period. Written
call options are recorded as a liability in the Statement of Assets and
Liabilities. The amount of the liability is subsequently "marked-to-market"
to reflect the current market value of the option written. 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. Realized gains and
losses on these contracts are included in the Statement of Operations. 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.
An option on a futures contract gives the holder the right to receive a
cash "exercise settlement amount" equal to the difference between the
exercise price of the option and the value of the underlying futures
contract on the exercise date. The value of a futures contract fluctuates
with changes in the market values of the securities underlying the futures
contract. In writing futures contract options, the principal risk is that
the Fund could bear a loss on the options that would be only partially
offset (or not offset at all) by the increased value or reduced cost of
underlying portfolio securities. Risks may exceed amounts recognized in the
Statement of Assets and Liabilities.
M. PUT OPTIONS PURCHASED AND WRITTEN -- The Fund may purchase and write put
options including options on securities indexes and/or futures contracts.
By purchasing a put option, the Fund obtains the right (but not the
obligation) to sell the option's underlying instrument at a fixed strike
price. In return for this right, the Fund pays an option premium. The
option's underlying instrument may be a security, securities index, or a
futures contract. Put options may be used by the Fund to hedge securities
it owns by locking in a minimum price at which the Fund can sell. If
security prices fall, the put option could be exercised to offset all or a
portion of the Fund's resulting losses. At the same time, because the
maximum the Fund has at risk is the cost of the option, purchasing put
options does not eliminate the potential for the Fund to profit from an
increase in the value of the underlying portfolio securities. The Fund may
write put options to earn additional income in the form of option premiums
if it expects the price of the underlying instrument to remain stable or
rise during the option period so that the option will not be exercised. The
risk in this strategy is that the price of the underlying securities may
decline by an amount greater than the premium received. Put options written
are reported as a liability in the Statement of Assets and Liabilities.
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.
N. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts.
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. Risks may exceed
amounts recognized in the Statement of Assets and Liabilities.
O. SWAP AGREEMENTS -- The Fund may enter into various swap transactions,
including interest rate, index, currency exchange rate and credit default
swap contracts ("CDS") for investment purposes or to manage interest rate,
currency or credit risk.
Interest rate, index, and currency exchange rate swap agreements are
two-party contracts entered into primarily to exchange the returns (or
differentials in rates of returns) earned or realized on particular
predetermined investments or instruments. The gross returns to be exchanged
or "swapped" between the parties are calculated with respect to a notional
amount, i.e., the return on or increase in value of a particular dollar
amount invested at a particular interest rate, in a particular foreign
currency, or in a "basket" of securities representing a particular index.
A CDS is an agreement between two parties ("Counterparties") to exchange
the credit risk of an issuer. A buyer of a CDS is said to buy protection by
paying a fixed payment over the life of the agreement to the seller of the
CDS. If a defined credit event occurs (such as payment default or
bankruptcy), the Fund as a protection buyer would cease paying its fixed
payment, the Fund would deliver the corresponding bonds, or other similar
bonds issued by the same reference entity to the seller, and the seller
would pay the full notional value, or the "par value", of the referenced
obligation to the Fund. A seller of a CDS is said to sell protection and
thus would receive the fixed payment stream. If a credit event occurs, the
Fund as a protection seller would cease to receive the fixed payment
stream, the Fund would pay the buyer the full notional value of the
referenced obligation, and the Fund would receive the corresponding bonds
or similar bonds issued by the same reference entity. If no credit event
occurs, the Fund receives the fixed payment over the life of the agreement.
As the seller, the Fund would effectively add leverage to its portfolio
because, in addition to its total net assets, the Fund would be subject to
investment exposure on the notional amount of the CDS. Because the CDS is a
bilateral agreement between Counterparties, the transaction can
alternatively be settled by a cash payment in the case of a credit event.
AIM V.I. Diversified Income Fund
Changes in the value of swap agreements are recognized as unrealized
gains (losses) in the Statement of Operations by "marking to market" on a
daily basis to reflect the value of the swap agreement at the end of each
trading day. The Fund accrues for the fixed payments on swap agreements on
a daily basis with the net amount recorded as a component of realized gain
(loss) on the Statement of Operations. A liquidation payment received or
made at the termination of a swap agreement is recorded as realized gain
(loss) on the Statement of Operations. The Fund segregates liquid
securities having a value at least equal to the amount of the potential
obligation of a Fund under any swap transaction. Entering into these
agreements involves, to varying degrees, lack of liquidity and elements of
credit, market, and counterparty risk in excess of amounts recognized on
the Statement of Assets and Liabilities.
P. 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.
Q. 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 at least 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. In addition, the Fund may also benefit from a one time credit to be used
to offset future custodian expenses. These credits are used to pay certain
expenses incurred by the Fund.
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in
the amount of 25% of the advisory fee AIM receives from the affiliated money
market funds on investments by the Fund in such affiliated money market funds.
Voluntary fee waivers or reimbursements may be modified or discontinued at any
time upon consultation with the Board of Trustees without further notice to
investors.
For the year ended December 31, 2006, AIM waived advisory fees of $179,148.
At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the year ended December 31, 2006, AMVESCAP did not
reimburse any such expenses.
The Trust has entered into a master administrative services agreement with
AIM pursuant to which the Fund 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. The
Fund may reimburse AIM for up to 0.25% of average daily assets invested by each
insurance company providing administrative services to the Fund. Pursuant to
such agreement, for the year ended December 31, 2006, AIM was paid $50,000 for
accounting and fund administrative services and reimbursed $91,102 for services
provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with AIM
Investment Services, Inc. ("AIS") pursuant to which the Fund has agreed to pay
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 year ended December 31, 2006, expenses incurred under the
agreement are shown in the Statement of Operations as transfer agent fees.
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 Plan payments, 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. For the year ended December 31, 2006, expenses
incurred under the Plan are shown in the Statement of Operations as distribution
fees.
Certain officers and trustees of the Trust are officers and directors of
AIM, AIS and/or ADI.
AIM V.I. Diversified Income Fund
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to 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 year ended December 31, 2006.
<Table>
<Caption>
CHANGE IN
UNREALIZED REALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND GAIN
FUND 12/31/05 AT COST FROM SALES (DEPRECIATION) 12/31/06 INCOME (LOSS)
- -------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-Institutional
Class $124,432 $12,320,493 $(12,325,906) $ -- $119,019 $ 8,998 $ --
- -------------------------------------------------------------------------------------------------------------------------------
Premier
Portfolio-Institutional
Class -- 5,465,614 (5,346,595) -- 119,019 4,644 --
- -------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-Institutional
Class 124,432 6,863,019 (6,987,451) -- -- 4,358 --
===============================================================================================================================
Total
Investments
in
Affiliates $248,864 $24,649,126 $(24,659,952) $ -- $238,038 $18,000 $ --
_______________________________________________________________________________________________________________________________
===============================================================================================================================
</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 year ended December 31, 2006, the Fund
engaged in securities sales of $84,322, which resulted in net realized gains
(losses) of $(3,070), and securities purchases of $1,084,564.
NOTE 5--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) custodian credits which
result from periodic overnight cash balances at the custodian and (ii) a one
time custodian fee credit to be used to offset future custodian fees. For the
year ended December 31, 2006, the Fund received credits from these arrangements,
which resulted in the reduction of the Fund's total expenses of $1,852.
NOTE 6--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to each Trustee and Officer of the Fund who is not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Fund, and "Trustees' and Officer's Fees and Benefits" also
include amounts accrued by the Fund to fund such deferred compensation amounts.
Those Trustees who defer compensation have the option to select various AIM
Funds in which their deferral accounts shall be deemed to be invested. Finally,
current Trustees are eligible to participate in a retirement plan that provides
for benefits to be paid upon retirement to Trustees over a period of time based
on the number of years of service. The Fund may have certain former Trustees who
also participate in a retirement plan and receive benefits under such plan.
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to fund such retirement benefits. Obligations under the deferred compensation
and retirement plans represent unsecured claims against the general assets of
the Fund.
During the year ended December 31, 2006, the Fund paid legal fees of $3,963
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. Diversified Income Fund
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the Securities and Exchange Commission, the
Fund may participate in an interfund lending facility that AIM has established
for temporary borrowings by the AIM Funds. An interfund loan will be made under
this facility only if the loan rate (an average of the rate available on bank
loans and the rate available on investments in overnight repurchase agreements)
is favorable to both the lending fund and the borrowing fund. A loan will be
secured by collateral if the Fund's aggregate borrowings from all sources
exceeds 10% of the Fund's total assets. To the extent that the loan is required
to be secured by collateral, the collateral is marked to market daily to ensure
that the market value is at least 102% of the outstanding principal value of the
loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended December 31, 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 bank 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 contractually agreed upon rate.
NOTE 8--FOREIGN CURRENCY CONTRACTS
<Table>
<Caption>
OPEN FOREIGN CURRENCY CONTRACTS AT PERIOD END
- -----------------------------------------------------------------------------------------------------------------------------
CONTRACT TO
---------------------------- VALUE UNREALIZED
SETTLEMENT DATE DELIVER RECEIVE 12/31/06 APPRECIATION
- -----------------------------------------------------------------------------------------------------------------------------
01/11/07 JPY 50,000,000 USD 424,827 $420,890 $3,937
_____________________________________________________________________________________________________________________________
=============================================================================================================================
</Table>
Currency Abbreviations:
<Table>
JPY - Japanese Yen
USD - United States Dollar
</Table>
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 20 3,400 42 6,790
- ------------------------------------------------------------------------------------------------------------
Closed -- -- (26) (3,995)
- ------------------------------------------------------------------------------------------------------------
Exercised -- -- -- --
- ------------------------------------------------------------------------------------------------------------
Expired (20) (3,400) (16) (2,795)
============================================================================================================
End of period -- $ -- -- $ --
____________________________________________________________________________________________________________
============================================================================================================
</Table>
AIM V.I. Diversified Income Fund
NOTE 10--FUTURES CONTRACTS
On December 31, 2006, $222,965 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/ VALUE APPRECIATION
CONTRACT CONTRACTS COMMITMENT 12/31/06 (DEPRECIATION)
- --------------------------------------------------------------------------------------------------------------------------
Long Gilt 10 Mar-07/Long $ 2,117,780 $ (32,915)
- --------------------------------------------------------------------------------------------------------------------------
U.S. Treasury 2 Year Notes 65 Mar-07/Long 13,262,031 (50,741)
- --------------------------------------------------------------------------------------------------------------------------
U.S. Treasury 10 Year Notes 139 Mar-07/Long 14,938,156 (186,316)
- --------------------------------------------------------------------------------------------------------------------------
U.S. Treasury 30 Year Bonds 15 Mar-07/Long 1,671,563 (34,233)
==========================================================================================================================
Subtotal 31,989,530 (304,205)
==========================================================================================================================
Japan 10 Year Bond 1 Mar-07/Short (1,126,376) 5,462
- --------------------------------------------------------------------------------------------------------------------------
Eurodollar GLOBEX2 E-Trade 30 Dec-07/Short (7,128,750) 7,279
==========================================================================================================================
Subtotal (8,255,126) 12,741
==========================================================================================================================
$23,734,404 $(291,464)
__________________________________________________________________________________________________________________________
==========================================================================================================================
</Table>
NOTE 11--CREDIT DEFAULT SWAPS
<Table>
<Caption>
OPEN CREDIT DEFAULT SWAP AGREEMENTS AT PERIOD END
- ---------------------------------------------------------------------------------------------------------------------------------
NOTIONAL UNREALIZED
BUY/SELL PAY/RECEIVE EXPIRATION AMOUNT APPRECIATION
COUNTERPARTY REFERENCE ENTITY PROTECTION FIXED RATE DATE (000) (DEPRECIATION)
- ---------------------------------------------------------------------------------------------------------------------------------
Lehman Brothers, Inc. Dow Jones CDX.NA.IG Index Buy 0.40% 12/20/11 $1,000 $(1,771)
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
AIM V.I. Diversified Income Fund
NOTE 12--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended December 31, 2006
and 2005 was as follows:
<Table>
<Caption>
2006 2005
- --------------------------------------------------------------------------------------
Distributions paid from ordinary income $2,920,234 $3,500,194
______________________________________________________________________________________
======================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2006, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2006
- ----------------------------------------------------------------------------
Undistributed ordinary income $ 2,922,920
- ----------------------------------------------------------------------------
Net unrealized appreciation (depreciation) -- investments (502,876)
- ----------------------------------------------------------------------------
Temporary book/tax differences (53,141)
- ----------------------------------------------------------------------------
Capital loss carryforward (20,346,428)
- ----------------------------------------------------------------------------
Post-October capital loss deferral (211,171)
- ----------------------------------------------------------------------------
Post-October currency loss deferral (22,023)
- ----------------------------------------------------------------------------
Shares of beneficial interest 65,668,692
============================================================================
Total net assets $ 47,455,973
____________________________________________________________________________
============================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to the
treatment of partnership and defaulted bonds and the realization for tax
purposes of unrealized gains on certain foreign currency contracts, futures
contracts and credit default swaps. The tax-basis net unrealized appreciation
(depreciation) on investments amount includes appreciation (depreciation) on
foreign currencies, futures contracts and credit default swaps of $(25,213).
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions.
The Fund has a capital loss carryforward as of December 31, 2006 which
expires as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
December 31, 2007 $ 2,582,661
- -----------------------------------------------------------------------------
December 31, 2008 4,437,761
- -----------------------------------------------------------------------------
December 31, 2009 6,105,069
- -----------------------------------------------------------------------------
December 31, 2010 6,879,053
- -----------------------------------------------------------------------------
December 31, 2014 341,884
=============================================================================
Total capital loss carryforward $20,346,428
_____________________________________________________________________________
=============================================================================
</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 13--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities,
U.S. Treasury obligations and money market funds, if any) purchased and sold by
the Fund during the year ended December 31, 2006 was $36,291,607 and
$43,400,649, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 284,455
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (762,118)
===============================================================================
Net unrealized appreciation (depreciation) of investment
securities $(477,663)
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $47,274,445.
</Table>
AIM V.I. Diversified Income Fund
NOTE 14--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions and paydowns, dollar roll transactions, credit default swaps and
capital loss carryforwards, on December 31, 2006, undistributed net investment
income was increased by $91,913, undistributed net realized gain (loss) was
increased by $24,546 and shares of beneficial interest decreased by $116,459.
This reclassification had no effect on the net assets of the Fund.
NOTE 15--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31,
--------------------------------------------------------
2006(A) 2005
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Series I 305,992 $ 2,591,467 4,117,347 $ 35,952,572
- ----------------------------------------------------------------------------------------------------------------------
Series II 12,578 106,190 91,797 794,699
======================================================================================================================
Issued as reinvestment of dividends:
Series I 345,164 2,878,667 411,971 3,444,080
- ----------------------------------------------------------------------------------------------------------------------
Series II 5,026 41,567 6,769 56,114
======================================================================================================================
Reacquired:
Series I (1,533,737) (13,030,924) (5,441,529) (47,663,127)
- ----------------------------------------------------------------------------------------------------------------------
Series II (38,705) (327,303) (103,637) (897,232)
======================================================================================================================
(903,682) $ (7,740,336) (917,282) $ (8,312,894)
______________________________________________________________________________________________________________________
======================================================================================================================
</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 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 16--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 for 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
currently intends for the Fund to adopt FIN 48 provisions during the fiscal year
ending December 31, 2007.
AIM V.I. Diversified Income Fund
NOTE 17--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
{SERIES I
----------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
2006 2005 2004 2003 2002
- ------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 8.43 $ 8.74 $ 8.82 $ 8.60 $ 9.13
- ------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) 0.46 0.40 0.36 0.42 0.55
- ------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.08) (0.15) 0.08 0.37 (0.35)
========================================================================================================================
Total from investment operations 0.38 0.25 0.44 0.79 0.20
========================================================================================================================
Less dividends from net investment income (0.53) (0.56) (0.52) (0.57) (0.73)
========================================================================================================================
Net asset value, end of period $ 8.28 $ 8.43 $ 8.74 $ 8.82 $ 8.60
________________________________________________________________________________________________________________________
========================================================================================================================
Total return(b) 4.48% 2.90% 5.03% 9.24% 2.30%
________________________________________________________________________________________________________________________
========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $46,743 $55,065 $65,069 $71,860 $70,642
________________________________________________________________________________________________________________________
========================================================================================================================
Ratio of expenses to average net assets 0.75%(c)(d) 0.89%(d) 1.01% 0.95% 0.94%
========================================================================================================================
Ratio of net investment income to average net assets 5.47%(c) 4.54% 4.01% 4.71% 6.15%
________________________________________________________________________________________________________________________
========================================================================================================================
Portfolio turnover rate 78% 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 do not reflect charges assessed
in connection with a variable product, which if included would reduce
total returns.
(c) Ratios are based on average daily net assets of $50,644,181.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.10% and 1.08% for the years ended December 31, 2006 and 2005,
respectively.
<Table>
<Caption>
{SERIES II
------------------------------------------------------------------
MARCH 14, 2002
YEAR ENDED DECEMBER 31, (DATE SALES COMMENCED)
---------------------------------------- TO 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) 0.44 0.38 0.33 0.40 0.42
- --------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.09) (0.15) 0.08 0.37 (0.08)
================================================================================================================================
Total from investment operations 0.35 0.23 0.41 0.77 0.34
================================================================================================================================
Less dividends from net investment income (0.50) (0.54) (0.52) (0.57) (0.73)
================================================================================================================================
Net asset value, end of period $8.21 $8.36 $8.67 $8.78 $ 8.58
________________________________________________________________________________________________________________________________
================================================================================================================================
Total return(b) 4.17% 2.67% 4.69% 9.02% 3.90%
________________________________________________________________________________________________________________________________
================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 713 $ 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 5.22%(c) 4.29% 3.76% 4.46% 5.90%(e)
________________________________________________________________________________________________________________________________
================================================================================================================================
Portfolio turnover rate(f) 78% 92% 113% 153% 86%
________________________________________________________________________________________________________________________________
================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(c) Ratios are based on average daily net assets of $833,576.
(d) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.35% and 1.33% for the years ended December 31, 2006 and 2005,
respectively.
(e) Annualized.
(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 18--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. 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 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; 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. On September 15, 2006, the
MDL Court granted the AMVESCAP defendants' motion to dismiss the Amended Class
Action Complaint for Violations of ERISA and dismissed such Complaint. The
plaintiff has commenced an appeal from that decision.
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.
AIM V.I. Diversified Income Fund
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V.I. Diversified Income Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM V.I. Diversified Income Fund
(one of the funds constituting AIM Variable Insurance Funds, hereafter referred
to as the "Fund") at December 31, 2006, and the results of its operations for
the year then ended and the changes in its net assets and the financial
highlights for each of the two years in the period then ended, in conformity
with accounting principles generally accepted in the United States of America.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2006 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion. The financial highlights for each of the periods ended on or before
December 31, 2004 were audited by another independent registered public
accounting firm whose report dated February 4, 2005 expressed an unqualified
opinion on those statements.
PRICEWATERHOUSECOOPERS LLP
February 14, 2007
Houston, Texas
AIM V.I. Diversified Income Fund
TAX INFORMATION
Form 1099-DIV, Form 1042-S and other year-end tax information provide
shareholders with actual calendar year amounts that should be included in their
tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the
Internal Revenue Code or to meet a specific state's requirement.
The Fund designates the following amounts or, if subsequently determined to be
different, the maximum amount allowable for its fiscal year ended December 31,
2006:
FEDERAL AND STATE INCOME TAX
<Table>
Corporate Dividends Received
Deduction* 1.41%
</Table>
* The above percentage is based on ordinary income dividends paid to
shareholders during the Fund's fiscal year.
AIM V.I. Diversified Income Fund
TRUSTEES AND OFFICERS
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management None
Trustee and Vice Chair Group Inc. (financial services holding
company); Director and Vice Chairman,
AMVESCAP PLC; Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm) and
Trustee and Vice Chair of The AIM Family
of Funds--Registered Trademark--
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer);
Chief Executive Officer, AMVESCAP
PLC -- Managed Products; and President
and Principal Executive Officer of The
AIM Family of Funds--Registered
Trademark--
- -------------------------------------------------------------------------------------------------------------------------------
Philip A. Taylor(2) -- 1954 2006 Director, Chief Executive Officer and None
Trustee, President and President, A I M Management Group Inc.,
Principal AIM Mutual Fund Dealer Inc. (registered
Executive Officer broker dealer), AIM Funds Management
Inc. (registered investment advisor) and
1371 Preferred Inc. (holding company);
Director and President, A I M Advisors,
Inc., INVESCO Funds Group, Inc.
(registered investment advisor and
register transfer agent) and AIM GP
Canada Inc. (general partner for a
limited partnership); Director, A I M
Capital Management, Inc. and A I M
Distributors, Inc.; Director and
Chairman, AIM Investment Services, Inc.,
Fund Management Company and INVESCO
Distributors, Inc. (registered broker
dealer); Director, President and
Chairman, AVZ Callco Inc. (holding
company); AMVESCAP Inc. (holding
company) and AIM Canada Holdings Inc.
(holding company); Director and Chief
Executive Officer, AIM Trimark Corporate
Class Inc. (formerly AIM Trimark Global
Fund Inc.) (corporate mutual fund
company) and AIM Trimark Canada Fund
Inc. (corporate mutual fund company);
Trustee, President and Principal
Executive Officer of The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); Trustee and
Executive Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); and Manager,
Powershares Capital Management LLC
Formerly: President and Principal
Executive Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); Chairman, AIM
Canada Holdings, Inc.; Executive Vice
President and Chief Operations Officer,
AIM Funds Management Inc.; President,
AIM Trimark Global Fund Inc. and AIM
Trimark Canada Fund Inc.; and Director,
Trimark Trust (federally regulated
Canadian Trust Company)
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company
Formerly: Partner, law firm of Baker & (2 portfolios))
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Founder, Green, Manning & Bunch Ltd., None
Trustee (investment banking firm); and Director,
Policy Studies, Inc. and Van Gilder
Insurance Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and None
Trustee private business corporations, including
the Boss Group Ltd. (private investment
and management); Cortland Trust, Inc.
(Chairman) (registered investment
company (3 portfolios)); Annuity and
Life Re (Holdings), Ltd. (insurance
company); CompuDyne Corporation
(provider of products and services to
the public security market); and
Homeowners of America Holding
Corporation (property casualty company)
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and Director of various
affiliated Volvo companies; and
Director, Magellan Insurance Company
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund
company); and Owner, Dos Angelos Ranch, (non-profit)
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- -------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company
(3 portfolios))
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired Director, Mainstay VP Series
Trustee Formerly: Partner, Deloitte & Touche Funds, Inc. (21 portfolios)
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
(2) Mr. Taylor is considered an interested person of the Trust because he is an
officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
TRUSTEES AND OFFICERS--(CONTINUED)
AIM V.I. Diversified Income Fund
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Senior Vice President and Senior Officer N/A
Senior Vice President and of The AIM Family of Funds--Registered
Senior Officer Trademark--
Formerly: Director of Compliance and
Assistant General Counsel, ICON
Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
John M. Zerr -- 1962 2006 Director, Senior Vice President, N/A
Senior Vice President, Chief Secretary and General Counsel, A I M
Legal Officer and Secretary Management Group Inc. and A I M
Advisors, Inc.; Director, Vice President
and Secretary, INVESCO Distributors,
Inc.; Vice President and Secretary,
A I M Capital Management, Inc., AIM
Investment Services, Inc., and Fund
Management Company; Senior Vice
President and Secretary, A I M
Distributors, Inc.; Director and Vice
President, INVESCO Funds Group Inc.;
Senior Vice President, Chief Legal
Officer and Secretary of The AIM Family
of Funds--Registered Trademark--; and
Manager, Powershares Capital Management
LLC
Formerly: Chief Operating Officer,
Senior Vice President, General Counsel,
and Secretary, Liberty Ridge Capital,
Inc. (an investment adviser); Vice
President and Secretary, PBHG Funds (an
investment company); Vice President and
Secretary, PBHG Insurance Series Fund
(an investment company); General Counsel
and Secretary, Pilgrim Baxter Value
Investors (an investment adviser); Chief
Operating Officer, General Counsel and
Secretary, Old Mutual Investment
Partners (a broker-dealer); General
Counsel and Secretary, Old Mutual Fund
Services (an administrator); General
Counsel and Secretary, Old Mutual
Shareholder Services (a shareholder
servicing center); Executive Vice
President, General Counsel and
Secretary, Old Mutual Capital, Inc. (an
investment adviser); and Vice President
and Secretary, Old Mutual Advisors Funds
(an investment company)
- ------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Global Compliance Director, AMVESCAP N/A
Vice President PLC; and Vice President of The AIM
Family of Funds--Registered Trademark--
Formerly: Senior Vice President, A I M
Management Group Inc. (financial
services holding company); Senior Vice
President and Chief Compliance Officer,
A I M Advisors, Inc. and The AIM Family
of Funds--Registered Trademark--; Vice
President and Chief Compliance Officer,
A I M Capital Management, Inc. and A I M
Distributors, Inc.; Vice President, AIM
Investment Services, Inc. and Fund
Management Company; Senior Vice
President and Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; and Senior Vice President
and Compliance Director, Delaware
Investments Family of Funds
- ------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Senior Vice President and General
Vice President Counsel, AMVESCAP PLC; Director, INVESCO
Funds Group, Inc.; and Vice President of
The AIM Family of Funds--Registered
Trademark--
Formerly: Director, Vice President and N/A
General Counsel, Fund Management
Company; Director, Senior Vice
President, Secretary and General
Counsel, A I M Management Group Inc. and
A I M Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Senior Vice President, A I M
Distributors, Inc.; Vice President,
A I M Capital Management, Inc. and AIM
Investment Services, Inc.; Senior Vice
President, Chief Legal Officer and
Secretary of The AIM Family of
Funds--Registered Trademark--; Chief
Executive Officer and President, INVESCO
Funds Group, Inc.; and Senior Vice
President, and General Counsel, Liberty
Financial Companies, Inc. and Senior
Vice President and General Counsel
Liberty Funds Group, LLC
- ------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President, Principal Advisors, Inc.; and Vice President,
Financial Officer and Treasurer and Principal Officer of The
Treasurer AIM Family of Funds--Registered
Trademark--
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
J. Philip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment Officer, A I M Advisors Inc.;
Director, Chairman, Chief Executive
Officer, President and Chief Investment
Officer, A I M Capital Management, Inc.;
Executive Vice President, A I M
Management Group Inc. and Vice President
of The AIM Family of Funds--Registered
Trademark--
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; and
Chief Equity Officer, Senior Vice
President and Senior Investment Officer,
A I M Capital Management, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc. and The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); and
President and Principal Executive
Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust Only)
Formerly: Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only)
- ------------------------------------------------------------------------------------------------------------------------------
Lance A. Rejsek -- 1967 2005 Anti-Money Laundering Compliance N/A
Anti-Money Laundering Officer, A I M Advisors, Inc., A I M
Compliance Officer Capital Management, Inc., A I M
Distributors, Inc., AIM Investment
Services, Inc., AIM Private Asset
Management, Inc., Fund Management
Company and The AIM Family of
Funds--Registered Trademark--
Formerly: Manager of the Fraud
Prevention Department, AIM Investment
Services, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
Todd L. Spillane -- 1958 2006 Senior Vice President, A I M Management N/A
Chief Compliance Officer Group Inc.; Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc.; and Vice President,
A I M Distributors, Inc., AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Global Head of Product
Development, AIG-Global Investment
Group, Inc.; Chief Compliance Officer
and Deputy General Counsel,
AIG-SunAmerica Asset Management; and
Chief Compliance Officer, Chief
Operating Officer and Deputy General
Counsel, American General Investment
Management
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers
Suite 100 11 Greenway Plaza Inc. LLP
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Ballard Spahr INDEPENDENT TRUSTEES AIM Investment State Street Bank and
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis Services, Inc. Trust Company
1735 Market Street, 51st & Frankel LLP P.O. Box 4739 225 Franklin Street
Floor 1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Philadelphia, PA 19103-7599 Americas
New York, NY 10036-2714
</Table>
DOMESTIC EQUITY
AIM V.I. DYNAMICS FUND
MID-CAP GROWTH Annual Report to Shareholders - December 31, 2006
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 in Washington,
D.C. You can obtain information on the [COVER GLOBE IMAGE]
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 AIM V.I. DYNAMICS FUND SEEKS
securities is available without charge, LONG-TERM CAPITAL GROWTH.
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.
UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT IS AS OF DECEMBER
31, 2006, AND IS BASED ON TOTAL NET ASSETS.
======================================================================================
THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND PROSPECTUS
[AIM INVESTMENTS LOGO] AND VARIABLE PRODUCT PROSPECTUS, WHICH CONTAIN MORE COMPLETE INFORMATION, INCLUDING
--Registered Trademark-- SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ EACH CAREFULLY BEFORE INVESTING.
======================================================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
AIM V.I. DYNAMICS FUND
Management's discussion of Fund performance industries and companies with strong drivers of
================================================================================ growth.
PERFORMANCE SUMMARY Risk management plays an important role in
portfolio construction, as our target portfolio
For the year ended December 31, 2006, AIM V.I. Dynamics Fund, excluding variable attempts to limit volatility and downside risk.
product issuer charges, had double-digit returns and outperformed the broad We seek to accomplish this goal by investing in
market, as measured by the S&P 500 --REGISTERED TRADEMARK-- Index, and the Fund's sectors, industries and companies with attractive
style-specific index, the Russell Midcap --REGISTERED TRADEMARK-- Growth Index. fundamental prospects. We limit the Fund's sector
exposure and also seek to minimize stock-specific
Solid stock selection and strong performance by mid-cap stocks enabled the risk by building a diversified portfolio.
Fund to outperform the large-cap oriented S&P 500 Index. Stock selection across
sectors also enabled the Fund to outperform the Russell Midcap Growth Index. We consider selling a stock for any of the
following reasons:
Your Fund's long-term performance appears on pages 4-5.
- The stock is overvalued based on our analysis.
FUND VS. INDEXES
- A change in fundamental metrics indicates
Total returns, 12/31/05-12/31/06, excluding variable product issuer charges. potential problems.
If variable product issuer charges were included, returns would be lower.
- A change in market capitalization--if a stock
Series I Shares 16.11% grows and moves into the large-cap range.
Series II Shares 15.84
S&P 500 Index (Broad Market Index) 15.78 - A better stock candidate with higher potential
Russell Midcap Growth Index (Style-Specific Index) 10.66 return is found.
Lipper Mid-Cap Growth Funds Index (Peer Group Index) 11.02
SOURCE: LIPPER INC. MARKET CONDITIONS AND YOUR FUND
================================================================================
Domestic equities posted solid returns in 2006,
HOW WE INVEST - Earnings-focus on companies leaving several major market indexes near
exhibiting strong growth in earnings, multi-year highs. Strong economic growth,
We believe a growth investment strategy revenue and cash flows favorable corporate earnings results and
is an essential component of a diversi- continued benign inflation benefited equities,
fied portfolio. offsetting high energy prices, a slowing housing
market and the U.S. Federal Reserve Board's
Our investment process combines - Quality-focus on companies with (the Fed) tightening campaign.
quantitative and fundamental analysis sustain-able earnings growth and
to uncover companies exhibiting long- management teams that profitably While small-cap stocks continued to lead the
term, sustainable earnings and cash reinvest shareholder cash flow market higher, large- and mid-cap stocks also had
flow growth that is not yet reflected double-digit returns. Additionally, value stocks
by the stock's market price. outperformed growth stocks. Positive performance
was broad among Russell Midcap
Our quantitative model ranks - Valuation-focus on companies that
companies based on factors we have are attractively valued given their
found to be highly correlated with growth potential
outperformance in the mid-cap growth
universe, including: Stocks that are ranked highest by
our quantitative model are the focus
of our fundamental research efforts.
Our fundamental analysis focuses on
identifying both
====================================================================================================================================
PORTFOLIO COMPOSITION TOP FIVE INDUSTRIES* TOP 10 EQUITY HOLDINGS*
- ------------------------------------------------------------------------------------------------------------------------------------
By sector 1. Application Software 4.3% 1. Precision Castparts Corp. 1.5%
Information Technology 18.7% 2. Aerospace & Defense 4.3 2. NII Holdings Inc. 1.5
Industrials 16.5 3. Wireless Telecommunication 3. CB Richard Ellis Group, Inc.-Class A 1.4
Consumer Discretionary 16.2 Services 4.3 4. Burger King Holdings Inc. 1.3
Health Care 15.5 4. Pharmaceuticals 4.0 5. Polo Ralph Lauren Corp. 1.3
Financials 9.9 5. Computer Storage & Peripherals 3.5 6. Hilton Hotels Corp. 1.3
Energy 7.6 Total Net Assets $120.81 million 7. Corrections Corp. of America 1.3
Telecommunication Services 5.2 Total Number of Holdings* 105 8. Aveta, Inc. 1.3
Consumer Staples 3.6 9. Cooper Industries, Ltd.-Class A 1.3
Materials 2.1 10.Foster Wheeler Ltd. 1.3
Money Market Funds Plus
Other Assets Less Liabilities 4.7
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. DYNAMICS FUND
Growth Index sectors with the best returns The energy sector experienced wide IN CLOSING
found in telecommunication services, swings but finished positive for the year.
materials and utilities. In this volatile environment, the Fund Although we are pleased to have provided
benefited from strong stock selection and strong absolute and relative performance
The Fund benefited from positive an overweight position relative to the for the year, we are always striving to
absolute performance in nine out of 10 style-specific index. Within this sector, improve performance and help you meetyour
economic sectors, with the highest one of the top contributors to Fund financial goals.
positive impact on performance coming from performance for the year was AVENTINE
holdings in the industrials, information RENEWABLE ENERGY HOLDINGS, one of the WE THANK YOU FOR YOUR COMMITMENT TO
technology and consumer discretionary leading producers and marketers of AIM V.I. DYNAMICS FUND.
sectors. On a relative basis, the Fund ethanol. Aventine's stock price was up
outperformed the Russell Midcap Growth close to 75% for the year due to strong
Index in seven out of 10 sectors, with the demand and rising prices for ethanol. This
widest margin of outperformance in the stock was also sold before the end of the The views and opinions expressed in
industrials, consumer discretionary, fiscal year. management's discussion of Fund
consumer staples and energy sectors. performance are those of A I M Advisors,
Our investment process led us to Inc. These views and opinions are subject
The industrials sector rallied during increase the Fund's exposure in the to change at any time based on factors
much of the year, and the Fund benefited telecommunication services sectors as we such as market and economic conditions.
from solid performance from holdings in a identified a number of attractive These views and opinions may not be
number of different industries including investment opportunities. Within this relied upon as investment advice or
aerospace and defense and commercial sector, the Fund's overweight position and recommendations, or as an offer for a
services and supplies. One holding that stock selection drove outperformance particular security. The information is
made a significant contribution to versus the Russell Midcap Growth Index. not a complete analysis of every aspect
performance was CORRECTIONS CORP. OF of any market, country, industry,
AMERICA, the nation's largest owner and The Fund underperformed relative to security or the Fund. Statements of fact
operator of privatized detention and the Russell Midcap Growth Index in three are from sources considered reliable, but
juvenile facilities. The stock price of sectors--financials, materials and A I M Advisors, Inc. makes no represent
this holding rose after the company was utilities. The widest margin of ation or warranty as to their
able to secure a number of new contracts underperformance was in the financials completeness or accuracy. Although
with government agencies. sector, where stock selection and an historical performance is no guarantee of
underweight position in real estate future results, these insights may help
Despite facing a number of headwinds, investment trust (REIT) holdings were the you understand our investment management
consumer spending remained resilient key detractors from performance. However, philosophy.
throughout much of 2006, and the Fund one holding that offset some of this
benefited from solid stock selection in a underperformance in the financials sector PAUL J. RASPLICKA
variety of different areas, including the was commercial real estate services Chartered Financial
textiles, apparel and luxury goods holding CB RICHARD ELLIS, which was up [RASPLICKA Analyst, senior portfolio
industry. Holdings in this industry that more than 60% in 2006. PHOTO] manager, is lead manager
made key contributions included POLO RALPH of AIM V.I. Dynamics
LAUREN AND COACH. The Fund also benefited An underweight position and stock Fund. Mr. Rasplicka
by not owning many of the home builder selection in the materials sector also began his investment career in 1982. A
stocks that performed poorly during the contributed to underperformance. In this native of Denver, Mr. Rasplicka is a
year. sector, SMURFIT STONE CONTAINER detracted magna cum laude graduate of the
from Fund returns. We subsequently sold University of Colorado at Boulder with a
The Fund also benefited from strong this holding due to deteriorating business administration. He earned an
stock selection within the more defensive fundamentals. B.S. in M.B.A. from the University of
consumer staples sector. Within this Chicago.
sector, one holding that made a Underperformance in the utilities KARL F. FARMER
significant contribution to Fund sector was largely due to the fact that Chartered Financial
performance was ARCHER-DANIELS MIDLAND, the Fund had no exposure in the utilities [FARMER Analyst, portfolio
one of the world's largest processors of sector, as many utilities stocks performed PHOTO] manager, is a manager of
corn, wheat and oilseeds. One of the well during the year. AIM V.I. Dynamics Fund.
products the company produces with corn is He spent six years as a
ethanol, so the company benefited from During the year, the most significant pension actuary, focusing on retirement
high demand and rising prices of ethanol. changes to portfolio positioning included plans and other benefit programs prior to
Ethanol was in strong demand after many additions to the industrials, materials joining AIM in 1998. He earned a B.S. in
refiners phased out the use of MTBE, a and financials sectors and reductions in economics from Texas A&M University,
fuel additive, due to legal concerns. This the energy, consumer discretionary and graduating magna cum laude. He subse-
stock was sold before the end of the year information technology sectors. All quently earned his M.B.A. in finance from
due to concerns about valuation. changes to the Fund were based on our The Wharton School at the University of
bottom-up stock selection process of Pennsylvania.
identifying high quality growth companies
trading at what we believe are attractive Assisted by the Mid-Cap Growth/GARP
valuations. (growth at a reasonable price) Team
FOR A DISCUSSION OF THE RISKS OF
INVESTING IN YOUR FUND, INDEXES USED
IN THIS REPORT AND YOUR FUND'S LONG-
TERM PERFORMANCE, PLEASE SEE PAGES 4-5.
3
AIM V.I. DYNAMICS FUND
YOUR FUND'S LONG-TERM PERFORMANCE
=========================================== RESTATED HISTORICAL PERFORMANCE OF SERIES I FUNDS, IS CURRENTLY OFFERED THROUGH
AVERAGE ANNUAL TOTAL RETURNS SHARES (FOR PERIODS PRIOR TO INCEPTION OF INSURANCE COMPANIES ISSUING VARIABLE
SERIES II SHARES) ADJUSTED TO REFLECT THE PRODUCTS. YOU CANNOT PURCHASE SHARES OF
As of 12/31/06 RULE 12b-1 FEES APPLICABLE TO SERIES II THE FUND DIRECTLY. PERFORMANCE FIGURES
SERIES I SHARES SHARES. THE INCEPTION DATE OF SERIES I GIVEN REPRESENT THE FUND AND ARE NOT
Inception (8/22/97) 6.12% SHARES IS AUGUST 22, 1997. THE PERFORMANCE INTENDED TO REFLECT ACTUAL VARIABLE
5 Years 6.46 OF THE FUND'S SERIES I AND SERIES II SHARE PRODUCT VALUES. THEY DO NOT REFLECT SALES
1 Year 16.11 CLASSES WILL DIFFER PRIMARILY DUE TO CHARGES, EXPENSES AND FEES ASSESSED IN
DIFFERENT CLASS EXPENSES. CONNECTION WITH A VARIABLE PRODUCT. SALES
SERIES II SHARES CHARGES, EXPENSES AND FEES, WHICH ARE
Inception 5.86% THE PERFORMANCE DATA QUOTED REPRESENT DETERMINED BY THE VARIABLE PRODUCT
5 Years 6.20 PAST PERFORMANCE AND CANNOT GUARANTEE ISSUERS, WILL VARY AND WILL LOWER THE
1 Year 15.84 COMPARABLE FUTURE RESULTS; CURRENT TOTAL RETURN.
=========================================== PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE
=========================================== CONTACT YOUR VARIABLE PRODUCT ISSUER OR PER NASD REQUIREMENTS, THE MOST RECENT
CUMULATIVE TOTAL RETURNS FINANCIAL ADVISOR FOR THE MOST RECENT MONTH-END PERFORMANCE DATA AT THE FUND
MONTH END VARIABLE PRODUCT PERFORMANCE. LEVEL, EXCLUDING VARIABLE PRODUCT CHARGES,
6 months ended 12/31/06 PERFORMANCE FIGURES REFLECT FUND EXPENSES, IS AVAILABLE ON THIS AIM AUTOMATED
REINVESTED DISTRIBUTIONS AND CHANGES IN NET INFORMATION LINE, 866-702-4402. AS
Series I Shares 8.13% ASSET VALUE. INVESTMENT RETURN AND MENTIONED ABOVE, FOR THE MOST RECENT
Series II Shares 8.05 PRINCIPAL VALUE WILL FLUCTUATE SO THAT YOU MONTH-END PERFORMANCE INCLUDING VARIABLE
=========================================== MAY HAVE A GAIN OR LOSS WHEN YOU SELL PRODUCT CHARGES, PLEASE CONTACT YOUR
SERIES II SHARES' INCEPTION DATE IS APRIL SHARES. VARIABLE PRODUCT ISSUER OR FINANCIAL
30, 2004. RETURNS SINCE THAT DATE ARE ADVISOR.
HISTORICAL. ALL OTHER RETURNS ARE THE AIM V.I. DYNAMICS FUND, A SERIES
BLENDED RETURNS OF THE HISTORICAL PORTFOLIO OF AIM VARIABLE INSURANCE
PERFORMANCE OF SERIES II SHARES SINCE THEIR
INCEPTION AND THE
====================================================================================================================================
PRINCIPAL RISKS OF INVESTING IN THE FUND The prices of securities held by the If the seller of a repurchase
Fund may decline in response to market agreement in which the Fund invests
Prices of equity securities change in risks. defaults on its obligation or declares
response to many factors including the bankruptcy, the Fund may experience delays
historical and prospective earnings of the The Fund may use enhanced investment in selling the securities underlying the
issuer, the value of its assets, general techniques such as derivatives. The repurchase agreement.
economic conditions, interest rates, principal risk of investments in
investor perceptions and market liquidity. derivatives is that the fluctuations in There is no guarantee that the
their values may not correlate perfectly investment techniques and risk analyses
Growth investing may be more volatile with the overall securities markets. used by the Fund's portfolio managers will
than other investment styles because Derivatives are subject to counter party produce the desired results.
growth stocks are more sensitive to risk--the risk that the other party will
investor perceptions of an issuing not complete the transaction with the ABOUT INDEXES USED IN THIS REPORT
company's growth potential. Fund.
The unmanaged STANDARD & POOR'S COMPOSITE
At any given time, the Fund may be Foreign securities have additional INDEX OF 500 STOCKS (the S&P 500 Index) is
subject to sector risk, which means a risks, including exchange rate changes, an index of common stocks fre-quently
certain sector may under perform other political and economic upheaval, the used as a general measure of U.S. stock
sectors or the market as a whole. The Fund relative lack of information about these market performance.
is not limited with respect to the sectors companies, relatively low market liquidity
in which it can invest. and the potential lack of strict financial The unmanaged LIPPER MID-CAP GROWTH
and accounting controls and standards. FUNDS INDEX represents an average of the
Investing in a fund that invests in performance of the 30 largest
smaller companies involves risks not Investing in emerging markets mid-capitalization growth funds tracked by
associated with investing in more involves greater risk than investing in Lipper Inc., an independent mutual fund
established companies, such as business more established markets. The risks performance monitor.
risk, stock price fluctuations and include the relatively smaller size and
illiquidity. lesser liquidity of these markets, high The unmanaged RUSSELL MIDCAP GROWTH
inflation rates, adverse political INDEX is a subset of the Russell Midcap
Investments in mid-size companies developments and lack of timely Index, which represents the performance of
carry greater risk than investments in information. the stocks of domestic mid-capitalization
larger, more established companies. companies; the Growth subset measures the
To the extent the Fund holds cash or performance of
cash equivalents rather than equity
securities for risk management purposes,
the Fund may not achieve its investment
objective.
Continued on page 5
4
AIM V.I. DYNAMICS FUND
Past performance cannot guarantee compara- value of an investment, is constructed
ble future results. with each segment representing a percent
change in the value of the investment. In
This chart, which is a logarithmic this chart, each segment represents a
chart, presents the fluctuations in the doubling, or 100% change, in the value of
value of the Fund and its indexes. We the investment. In other words, the space
believe that a logarithmic chart is more between $5,000 and $10,000 is the same
effective than other types of charts in size as the space between $10,000 and
illustrating changes in value during the $20,000 and so on.
early years shown in the chart. The
vertical axis, the one that indicates the
dollar
====================================================================================================================================
CONTINUED FROM PAGE 4
Russell Midcap companies with higher The Fund is not managed to track the asset value for shareholder transactions
price/book ratios and higher forecasted performance of any particular index, and the returns based on those net asset
growth values. including the indexes defined here, and values may differ from the net asset
consequently, the performance of the Fund values and returns reported in the
The Russell Midcap Growth Index is a may deviate significantly from the Financial Highlights. Additionally, the
trademark/service mark of the Frank performance of the indexes. returns and net asset values shown
Russell Company. Russell--REGISTERED throughout this report are at the fund
TRADEMARK-- is a trademark of the Frank A direct investment cannot be made in level only and do not include variable
Russell Company. an index. Unless otherwise indicated, product issuer charges. If such charges
index results include reinvested were included, the total returns would be
In conjunction with the annual dividends, and they do not reflect sales lower.
prospectus update on or about May 1, 2007, charges. Performance of an index of funds
the AIM V.I Dynamics Fund prospectus will reflects fund expenses; performance of a Industry classifications used in this
be amended to reflect that the Fund has market index does not. report are generally according to the
elected to use the Lipper Variable Global Industry Classification Standard,
Underlying Funds (VUF) Mid-Cap Growth OTHER INFORMATION which was developed by and is the
Funds Index as its peer group rather than exclusive property and a service mark of
the Lipper Mid-Cap Growth Funds Index. The The returns shown in the Management's Morgan Stanley Capital International Inc.
Lipper VUF Mid-Cap Growth Funds Index, Discussion of Fund Performance are based and Standard & Poor's.
recently published by Lipper Inc., on net asset values calculated for
comprises the largest underlying funds in shareholder transactions. Generally The Chartered Financial Analyst
each variable insurance category and does accepted accounting principles require --REGISTERED TRADEMARK--(CFA--REGISTERED
not include mortality and expense fees. adjustments to be made to the net assets TRADEMARK--) designation is a globally
of the fund at period end for financial recognized standard for measuring the
reporting purposes, and as such, the net competence and integrity of investment
professionals.
5
==================================================================================================================
[MOUNTAIN CHART]
RESULTS OF A $10,000 INVESTMENT
Fund data from 8/22/97, Index data from 8/31/97
AIM V.I. DYNAMICS FUND
DATE -SERIES I SHARES S&P 500 INDEX RUSSELL MIDCAP GROWTH INDEX LIPPER MID-CAP GROWTH FUNDS INDEX
8/22/97 $ 10000
8/97 9930 $ 10000 $ 10000 $ 10000
9/97 10610 10547 10506 10716
10/97 10240 10196 9980 10116
11/97 10190 10667 10085 9954
12/97 10340 10850 10217 10187
1/98 10290 10970 10033 9995
2/98 11240 11761 10977 10843
3/98 11889 12363 11437 11405
4/98 12069 12489 11592 11455
5/98 11609 12275 11115 10787
6/98 12179 12773 11430 11283
7/98 11619 12638 10940 10532
8/98 8959 10812 8852 8261
9/98 9749 11505 9522 9123
10/98 10550 12440 10223 9458
11/98 10980 13193 10912 10177
12/98 12341 13953 12043 11490
1/99 13184 14536 12404 12060
2/99 12462 14085 11797 11124
3/99 13549 14648 12454 11917
4/99 14148 15215 13022 12405
5/99 14077 14856 12854 12354
6/99 14849 15679 13751 13350
7/99 14524 15191 13314 13167
8/99 14229 15116 13175 13100
9/99 14412 14702 13063 13483
10/99 15682 15632 14073 14675
11/99 16855 15950 15530 16515
12/99 19201 16888 18220 19960
1/00 18917 16040 18216 19618
2/00 23001 15736 22046 24534
3/00 21985 17275 22068 22807
4/00 20085 16755 19926 19798
5/00 18926 16412 18473 18019
6/00 21822 16816 20434 20819
7/00 21141 16553 19140 19955
8/00 24158 17581 22026 22565
9/00 24047 16653 20949 21480
10/00 22056 16582 19516 19743
11/00 17298 15276 15275 15615
12/00 18518 15351 16079 16740
1/01 19147 15895 16998 16968
2/01 15527 14447 14057 14422
3/01 13240 13532 12046 12892
4/01 15416 14583 14053 14592
5/01 15162 14681 13987 14712
6/01 14989 14323 13995 14655
7/01 13881 14182 13051 13884
8/01 12518 13295 12105 12954
9/01 9864 12222 10104 11086
10/01 10912 12455 11167 11703
11/01 12366 13410 12369 12664
12/01 12754 13528 12839 13213
1/02 12570 13330 12422 12708
2/02 11401 13073 11718 12076
3/02 12316 13565 12612 12837
4/02 11502 12743 11944 12410
5/02 11024 12649 11588 11996
6/02 9773 11749 10309 10919
7/02 8827 10833 9308 9741
8/02 8633 10904 9275 9625
9/02 7942 9720 8538 9027
10/02 8765 10575 9200 9482
11/02 9345 11197 9920 10045
12/02 8684 10539 9320 9451
1/03 8684 10264 9229 9311
2/03 8542 10109 9149 9167
3/03 8633 10207 9319 9299
4/03 9233 11048 9953 9951
5/03 9925 11629 10911 10774
6/03 10066 11778 11067 10942
7/03 10412 11985 11462 11374
8/03 10920 12219 12094 11933
==================================================================================================================
SOURCE: LIPPER INC.
================================================================================
[MOUNTAIN CHART]
9/03 10554 12089 11859 11533
10/03 11480 12773 12815 12438
11/03 11836 12885 13158 12733
12/03 11968 13560 13301 12799
1/04 12253 13809 13741 13122
2/04 12375 14001 13971 13303
3/04 12294 13790 13944 13300
4/04 12141 13574 13551 12878
5/04 12344 13760 13870 13158
6/04 12517 14027 14091 13475
7/04 11663 13563 13158 12517
8/04 11491 13617 12996 12301
9/04 11969 13765 13481 12827
10/04 12253 13975 13938 13206
11/04 13006 14540 14658 13940
12/04 13565 15035 15360 14595
1/05 13311 14669 14949 14123
2/05 13546 14977 15328 14305
3/05 13363 14712 15104 14020
4/05 12621 14433 14506 13345
5/05 13313 14892 15337 14137
6/05 13730 14913 15622 14460
7/05 14594 15468 16534 15292
8/05 14615 15327 16433 15245
9/05 14646 15451 16645 15511
10/05 14117 15193 16155 15080
11/05 14850 15767 17032 15895
12/05 15022 15773 17219 15992
1/06 16079 16190 18250 17091
2/06 16070 16234 18025 16943
3/06 16589 16436 18529 17508
4/06 17005 16657 18607 17672
5/06 16192 16178 17732 16688
6/06 16131 16199 17659 16696
7/06 15510 16299 17026 15990
8/06 15784 16686 17419 16251
9/06 16120 17116 17816 16484
10/06 16791 17674 18500 17061
11/06 17503 18009 19226 17771
12/06 17443 18262 19054 17755
================================================================================
AIM V.I. DYNAMICS FUND
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE ACTUAL EXPENSES 5% per year before expenses, which is not
the Fund's actual return. The Fund's
As a shareholder of the Fund, you incur The table below provides information about actual cumulative total returns at net
ongoing costs, including management fees; actual account values and actual expenses. asset value after expenses for the six
distribution and/or service (12b-1) fees; You may use the information in this table, months ended December 31, 2006, appear in
and other Fund expenses. This example is together with the amount you invested, to the table "Cumulative Total Returns" on
intended to help you understand your estimate the expenses that you paid over page 4.
ongoing costs (in dollars) of investing in the period. Simply divide your account
the Fund and to compare these costs with value by $1,000 (for example, an $8,600 The hypothetical account values and
ongoing costs of investing in other mutual account value divided by $1,000 = 8.6), expenses may not be used to estimate the
funds. The example is based on an then multiply the result by the number in actual ending account balance or expenses
investment of $1,000 invested at the the table under the heading entitled you paid for the period. You may use this
beginning of the period and held for the "Actual Expenses Paid During Period" to information to compare the ongoing costs
entire period July 1, 2006, through estimate the expenses you paid on your of investing in the Fund and other funds.
December 31, 2006. account during this period. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples
The actual and hypothetical expenses HYPOTHETICAL EXAMPLE FOR COMPARISON that appear in the shareholder reports of
in the examples below do not represent the PURPOSES the other funds.
effect of any fees or other expenses
assessed in connection with a variable The table below also provides information Please note that the expenses shown
product; if they did, the expenses shown about hypothetical account values and in the table are meant to highlight your
would be higher while the ending account hypothetical expenses based on the Fund's ongoing costs. Therefore, the hypothetical
values shown would be lower. actual expense ratio and an assumed rate information is useful in comparing ongoing
of return of costs, and will not help you determine the
relative total costs of owning different
funds.
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (7/1/06) (12/31/06)(1) PERIOD(2) (12/31/06) PERIOD(2) RATIO
- ------------------------------------------------------------------------------------------------------------------------------------
Series I $ 1,000.00 $ 1,081.30 $ 5.82 $ 1,019.61 $ 5.65 1.11%
Series II 1,000.00 1,080.50 7.13 1,018.35 6.92 1.36
====================================================================================================================================
(1) The actual ending account value is based on the actual total return of the
Fund for the period July 1, 2006, through December 31, 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 December 31, 2006, appear in
the table "Cumulative Total Returns" on page 4.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated
above multiplied by the average account value over the period, multiplied
by 184/365 to reflect the most recent fiscal half year.
AIM V.I. DYNAMICS FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
The Board of Trustees of AIM Variable - The nature and extent of the advisory review and after taking account of all of
Insurance Funds (the "Board") oversees the services to be provided by AIM. The Board the other factors that the Board
management of AIM V.I. Dynamics Fund (the reviewed the services to be provided by considered in determining whether to
"Fund") and, as required by law, AIM under the Advisory Agreement. Based on continue the Advisory Agreement for the
determines annually whether to approve the such review, the Board concluded that the Fund, the Board concluded that no changes
continuance of the Fund's advisory range of services to be provided by AIM should be made to the Fund and that it was
agreement with A I M Advisors, Inc. under the Advisory Agreement was not necessary to change the Fund's
("AIM"). Based upon the recommendation of appropriate and that AIM currently is portfolio management team at this time.
the Investments Committee of the Board, at providing services in accordance with the Although the independent written
a meeting held on June 27, 2006, the terms of the Advisory Agreement. evaluation of the Fund's Senior Officer
Board, including all of the independent (discussed below) only considered Fund
trustees, approved the continuance of the - The quality of services to be provided performance through the most recent
advisory agreement (the "Advisory by AIM. The Board reviewed the credentials calendar year, the Board also reviewed
Agreement") between the Fund and AIM for and experience of the officers and more recent Fund performance, which did
another year, effective July 1, 2006. employees of AIM who will provide not change their conclusions.
investment advisory services to the Fund.
The Board considered the factors In reviewing the qualifications of AIM to - Meetings with the Fund's portfolio
discussed below in evaluating the fairness provide investment advisory services, the managers and investment personnel. With
and reasonableness of the Advisory Board considered such issues as AIM's respect to the Fund, the Board is meeting
Agreement at the meeting on June 27, 2006 portfolio and product review process, periodically with such Fund's portfolio
and as part of the Board's ongoing various back office support functions managers and/or other investment personnel
oversight of the Fund. In their provided by AIM and AIM's equity and fixed and believes that such individuals are
deliberations, the Board and the income trading operations. Based on the competent and able to continue to carry
independent trustees did not identify any review of these and other factors, the out their responsibilities under the
particular factor that was controlling, Board concluded that the quality of Advisory Agreement.
and each trustee attributed different services to be provided by AIM was
weights to the various factors. appropriate and that AIM currently is - Overall performance of AIM. The Board
providing satisfactory services in considered the overall performance of AIM
One responsibility of the independent accordance with the terms of the Advisory in providing investment advisory and
Senior Officer of the Fund is to manage Agreement. portfolio administrative services to the
the process by which the Fund's proposed Fund and concluded that such performance
management fees are negotiated to ensure - The performance of the Fund relative to was satisfactory.
that they are negotiated in a manner which comparable funds. The Board reviewed the
is at arms' length and reasonable. To that performance of the Fund during the past - Fees relative to those of clients of AIM
end, the Senior Officer must either one, three and five calendar years against with comparable investment strategies. The
supervise a competitive bidding process or the performance of funds advised by other Board reviewed the effective advisory fee
prepare an independent written evaluation. advisors with investment strategies rate (before waivers) for the Fund under
The Senior Officer has recommended an comparable to those of the Fund. The Board the Advisory Agreement. The Board noted
independent written evaluation in lieu of noted that the Fund's performance was that this rate was (i) above the effective
a competitive bidding process and, upon below the median performance of such advisory fee rates (before waivers) for
the direction of the Board, has prepared comparable funds for the one and five year two mutual funds advised by AIM with
such an independent written evaluation. periods and above such median performance investment strategies comparable to those
Such written evaluation also considered for the three year period. The Board also of the Fund; (ii) the same as the
certain of the factors discussed below. In noted that AIM began serving as investment effective advisory fee rate (before
addition, as discussed below, the Senior advisor to the Fund in April 2004. Based waivers) for a variable insurance fund
Officer made a recommendation to the Board on this review and after taking account of advised by AIM and offered to insurance
in connection with such written evaluation. all of the other factors that the Board company separate accounts with investment
considered in determining whether to strategies comparable to those of the
The discussion below serves as a continue the Advisory Agreement for the Fund; (iii) above the effective
summary of the Senior Officer's Fund, the Board concluded that no changes sub-advisory fee rate for one offshore
independent written evaluation and should be made to the Fund and that it was fund advised and sub-advised by AIM
recommendation to the Board in connection not necessary to change the Fund's affiliates with investment strategies
therewith, as well as a discussion of the portfolio management team at this time. comparable to those of the Fund, although
material factors and the conclusions with Although the independent written the total advisory fees for such offshore
respect thereto that formed the basis for evaluation of the Fund's Senior Officer fund were above those for the Fund; and
the Board's approval of the Advisory (discussed below) only considered Fund (iv) above the effective sub-advisory fee
Agreement. After consideration of all of performance through the most recent rates for two variable insurance funds
the factors below and based on its calendar year, the Board also reviewed sub-advised by an AIM affiliate and
informed business judgment, the Board more recent Fund performance, which did offered to insurance company separate
determined that the Advisory Agreement is not change their conclusions. accounts with investment strategies
in the best interests of the Fund and its comparable to those of the Fund, although
shareholders and that the compensation to - The performance of the Fund relative to the total advisory fees for such variable
AIM under the Advisory Agreement is fair indices. The Board reviewed the insurance funds were the same as or above
and reasonable and would have been performance of the Fund during the past those for the Fund. The Board noted that
obtained through arm's length one, three and five calendar years against AIM has agreed to waive advisory fees of
negotiations. the performance of the Lipper Variable the Fund and to limit the Fund's total
Underlying Fund Mid-Cap Growth Index. The operating expenses, as discussed below.
Unless otherwise stated, information Board noted that the Fund's performance Based on this review, the Board concluded
presented below is as of June 27, 2006 and was above the performance of such Index that the advisory fee rate for the Fund
does not reflect any changes that may have for the one and five year periods and under the Advisory Agreement was fair and
occurred since June 27, 2006, including comparable to such Index for the three reasonable.
but not limited to changes to the Fund's year period. The Board also noted that AIM
performance, advisory fees, expense began serving as investment advisor to the - Fees relative to those of comparable
limitations and/or fee waivers. Fund in April 2004. Based on this funds with other advisors. The Board
reviewed the advisory fee rate for the
Fund under the Advisory Agreement. The
Board compared effective contractual
advisory fee rates
7
AIM V.I. DYNAMICS FUND
at a common asset level at the end of the - Investments in affiliated money market - ates' investment advisory and other
past calendar year and noted that the funds. The Board also took into account activities and its financial condition,
Fund's rate was comparable to the median the fact that uninvested cash and cash the Board concluded that the compensation
rate of the funds advised by other collateral from securities lending to be paid by the Fund to AIM under its
advisors with investment strategies arrangements, if any (collectively, "cash Advisory Agreement was not excessive.
comparable to those of the Fund that the balances") of the Fund may be invested in
Board reviewed. The Board noted that AIM money market funds advised by AIM pursuant - Benefits of soft dollars to AIM. The
has agreed to waive advisory fees of the to the terms of an SEC exemptive order. Board considered the benefits realized by
Fund and to limit the Fund's total The Board found that the Fund may realize AIM as a result of brokerage transactions
operating expenses, as discussed below. certain benefits upon investing cash executed through "soft dollar"
Based on this review, the Board concluded balances in AIM advised money market arrangements. Under these arrangements,
that the advisory fee rate for the Fund funds, including a higher net return, brokerage commissions paid by the Fund
under the Advisory Agreement was fair and increased liquidity, increased and/or other funds advised by AIM are used
reasonable. diversification or decreased transaction to pay for research and execution
costs. The Board also found that the Fund services. This research may be used by AIM
- - Expense limitations and fee waivers. The will not receive reduced services if it in making investment decisions for the
Board noted that AIM has contractually invests its cash balances in such money Fund. The Board concluded that such
agreed to waive advisory fees of the Fund market funds. The Board noted that, to the arrangements were appropriate.
through April 30, 2008 to the extent extent the Fund invests uninvested cash in
necessary so that the advisory fees affiliated money market funds, AIM has - AIM's financial soundness in light of
payable by the Fund do not exceed a voluntarily agreed to waive a portion of the Fund's needs. The Board considered
specified maximum advisory fee rate, which the advisory fees it receives from the whether AIM is financially sound and has
maximum rate includes breakpoints and is Fund attributable to such investment. The the resources necessary to perform its
based on net asset levels. The Board Board further determined that the proposed obligations under the Advisory Agreement,
considered the contractual nature of this securities lending program and related and concluded that AIM has the financial
fee waiver and noted that it remains in procedures with respect to the lending resources necessary to fulfill its
effect until April 30, 2008. The Board Fund is in the best interests of the obligations under the Advisory Agreement.
noted that AIM has contractually agreed to lending Fund and its respective
waive fees and/or limit expenses of the shareholders. The Board therefore - Historical relationship between the Fund
Fund through April 30, 2008 in an amount concluded that the investment of cash and AIM. In determining whether to
necessary to limit total annual operating collateral received in connection with the continue the Advisory Agreement for the
expenses to a specified percentage of securities lending program in the money Fund, the Board also considered the prior
average daily net assets for each class of market funds according to the procedures relationship between AIM and the Fund, as
the Fund. The Board considered the is in the best interests of the lending well as the Board's knowledge of AIM's
contractual nature of this fee Fund and its respective shareholders. operations, and concluded that it was
waiver/expense limitation and noted that beneficial to maintain the current
it remains in effect until April 30, 2008. - Independent written evaluation and relationship, in part, because of such
The Board considered the effect these fee recommendations of the Fund's Senior knowledge. The Board also reviewed the
waivers/expense limitations would have on Officer. The Board noted that, upon their general nature of the non-investment
the Fund's estimated expenses and direction, the Senior Officer of the Fund, advisory services currently performed by
concluded that the levels of fee who is independent of AIM and AIM's AIM and its affiliates, such as
waivers/expense limitations for the Fund affiliates, had prepared an independent administrative, transfer agency and
were fair and reasonable. written evaluation in order to assist the distribution services, and the fees
Board in determining the reasonableness of received by AIM and its affiliates for
- - Breakpoints and economies of scale. The the proposed management fees of the AIM performing such services. In addition to
Board reviewed the structure of the Fund's Funds, including the Fund. The Board noted reviewing such services, the trustees also
advisory fee under the Advisory Agreement, that the Senior Officer's written considered the organizational structure
noting that it does not include any evaluation had been relied upon by the employed by AIM and its affiliates to
breakpoints. The Board considered whether Board in this regard in lieu of a provide those services. Based on the
it would be appropriate to add advisory competitive bidding process. In review of these and other factors, the
fee breakpoints for the Fund or whether, determining whether to continue the Board concluded that AIM and its
due to the nature of the Fund and the Advisory Agreement for the Fund, the Board affiliates were qualified to continue to
advisory fee structures of comparable considered the Senior Officer's written provide non-investment advisory services
funds, it was reasonable to structure the evaluation and the recommendation made by to the Fund, including administrative,
advisory fee without breakpoints. Based on the Senior Officer to the Board that the transfer agency and distribution services,
this review, the Board concluded that it Board consider whether the advisory fee and that AIM and its affiliates currently
was not necessary to add advisory fee waivers for certain equity AIM Funds, are providing satisfactory non-investment
breakpoints to the Fund's advisory fee including the Fund, should be simplified. advisory services.
schedule. The Board reviewed the level of The Board concluded that it would be
the Fund's advisory fees, and noted that advisable to consider this issue and reach - Other factors and current trends. The
such fees, as a percentage of the Fund's a decision prior to the expiration date of Board considered the steps that AIM and
net assets, would remain constant under such advisory fee waivers. its affiliates have taken over the last
the Advisory Agreement because the several years, and continue to take, in
Advisory Agreement does not include any - Profitability of AIM and its affiliates. order to improve the quality and
breakpoints. The Board noted that AIM has The Board reviewed information concerning efficiency of the services they provide to
contractually agreed to waive advisory the profitability of AIM's (and its the Funds in the areas of investment
fees of the Fund through April 30, 2008 to affiliates') investment advisory and other performance, product line diversification,
the extent necessary so that the advisory activities and its financial condition. distribution, fund operations, shareholder
fees payable by the Fund do not exceed a The Board considered the overall services and compliance. The Board
specified maximum advisory fee rate, which profitability of AIM, as well as the concluded that these steps taken by AIM
maximum rate includes breakpoints and is profitability of AIM in connection with have improved, and are likely to continue
based on net asset levels. The Board managing the Fund. The Board noted that to improve, the quality and efficiency of
concluded that the Fund's fee levels under AIM's operations remain profitable, the services AIM and its affiliates
the Advisory Agreement therefore would not although increased expenses in recent provide to the Fund in each of these
reflect economies of scale, although the years have reduced AIM's profitability. areas, and support the Board's approval of
advisory fee waiver reflects economies of Based on the review of the profitability the continuance of the Advisory Agreement
scale. of AIM's and its affili for the Fund.
8
AIM V.I. Dynamics Fund
SCHEDULE OF INVESTMENTS
December 31, 2006
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-95.25%
ADVERTISING-1.03%
Clear Channel Outdoor Holdings, Inc.-Class
A(a) 44,754 $ 1,249,084
========================================================================
AEROSPACE & DEFENSE-4.26%
Armor Holdings, Inc.(a) 22,361 1,226,501
- ------------------------------------------------------------------------
KBR, Inc.(a) 24,794 648,611
- ------------------------------------------------------------------------
Precision Castparts Corp. 23,126 1,810,303
- ------------------------------------------------------------------------
Spirit Aerosystems Holdings Inc.-Class A(a) 43,509 1,456,246
========================================================================
5,141,661
========================================================================
AGRICULTURAL PRODUCTS-1.51%
Bunge Ltd. 16,160 1,171,762
- ------------------------------------------------------------------------
Corn Products International, Inc. 18,722 646,658
========================================================================
1,818,420
========================================================================
AIR FREIGHT & LOGISTICS-1.25%
UTI Worldwide, Inc.(b) 50,566 1,511,923
========================================================================
ALTERNATIVE CARRIERS-0.99%
Level 3 Communications, Inc.(a) 213,109 1,193,410
========================================================================
APPAREL RETAIL-1.06%
Abercrombie & Fitch Co.-Class A 18,359 1,278,337
========================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-3.42%
Carter's, Inc.(a) 51,395 1,310,572
- ------------------------------------------------------------------------
Coach, Inc.(a) 28,521 1,225,262
- ------------------------------------------------------------------------
Polo Ralph Lauren Corp. 20,536 1,594,826
========================================================================
4,130,660
========================================================================
APPLICATION SOFTWARE-4.33%
Amdocs Ltd.(a) 32,363 1,254,066
- ------------------------------------------------------------------------
BEA Systems, Inc.(a) 51,188 643,945
- ------------------------------------------------------------------------
Cadence Design Systems, Inc.(a) 67,144 1,202,549
- ------------------------------------------------------------------------
Citrix Systems, Inc.(a) 39,558 1,070,044
- ------------------------------------------------------------------------
TIBCO Software Inc.(a) 112,711 1,063,992
========================================================================
5,234,596
========================================================================
ASSET MANAGEMENT & CUSTODY BANKS-0.65%
AllianceBernstein Holding L.P. 9,806 788,402
========================================================================
BIOTECHNOLOGY-2.51%
Celgene Corp.(a)(c) 21,000 1,208,130
- ------------------------------------------------------------------------
Cephalon, Inc.(a)(b) 12,069 849,778
- ------------------------------------------------------------------------
Human Genome Sciences, Inc.(a) 53,000 659,320
- ------------------------------------------------------------------------
Vertex Pharmaceuticals Inc.(a) 8,500 318,070
========================================================================
3,035,298
========================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
BUILDING PRODUCTS-0.50%
NCI Building Systems, Inc.(a) 11,715 $ 606,251
========================================================================
CASINOS & GAMING-1.18%
Scientific Games Corp.-Class A(a) 47,281 1,429,305
========================================================================
COMMUNICATIONS EQUIPMENT-0.54%
Comverse Technology, Inc.(a) 30,711 648,309
========================================================================
COMPUTER STORAGE & PERIPHERALS-3.47%
Logitech International S.A.
(Switzerland)(a)(d) 43,797 1,257,213
- ------------------------------------------------------------------------
Network Appliance, Inc.(a) 19,469 764,742
- ------------------------------------------------------------------------
QLogic Corp.(a) 55,851 1,224,254
- ------------------------------------------------------------------------
Seagate Technology 35,471 939,981
========================================================================
4,186,190
========================================================================
CONSTRUCTION & ENGINEERING-1.26%
Foster Wheeler Ltd.(a) 27,692 1,526,937
========================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-0.70%
Joy Global Inc. 17,448 843,436
========================================================================
CONSUMER ELECTRONICS-0.96%
Harman International Industries, Inc. 11,644 1,163,352
========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-2.10%
Alliance Data Systems Corp.(a) 19,127 1,194,864
- ------------------------------------------------------------------------
Fidelity National Information Services, Inc. 33,329 1,336,159
========================================================================
2,531,023
========================================================================
DEPARTMENT STORES-1.08%
Nordstrom, Inc. 26,540 1,309,484
========================================================================
DIVERSIFIED COMMERCIAL & PROFESSIONAL
SERVICES-2.33%
Corrections Corp. of America(a) 34,267 1,549,896
- ------------------------------------------------------------------------
IHS Inc.-Class A(a) 31,878 1,258,544
========================================================================
2,808,440
========================================================================
DIVERSIFIED METALS & MINING-0.51%
Freeport-McMoRan Copper & Gold, Inc.-Class B 10,955 610,522
========================================================================
DRUG RETAIL-0.97%
Shoppers Drug Mart Corp. (Canada) 27,336 1,173,972
========================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-2.41%
Acuity Brands, Inc. 26,602 1,384,368
- ------------------------------------------------------------------------
Cooper Industries, Ltd.-Class A 16,886 1,527,001
========================================================================
2,911,369
========================================================================
</Table>
AIM V.I. Dynamics Fund
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
ELECTRONIC EQUIPMENT MANUFACTURERS-1.37%
Agilent Technologies, Inc.(a) 14,179 $ 494,138
- ------------------------------------------------------------------------
Amphenol Corp.-Class A 18,682 1,159,779
========================================================================
1,653,917
========================================================================
ELECTRONIC MANUFACTURING SERVICES-0.81%
Molex Inc.-Class A 35,173 974,292
========================================================================
FERTILIZERS & AGRICULTURAL CHEMICALS-0.61%
Potash Corp. of Saskatchewan Inc. (Canada) 5,146 738,348
========================================================================
HEALTH CARE DISTRIBUTORS-1.00%
Schein (Henry), Inc.(a) 24,755 1,212,500
========================================================================
HEALTH CARE EQUIPMENT-0.99%
Hologic, Inc.(a) 25,182 1,190,605
========================================================================
HEALTH CARE FACILITIES-1.01%
Psychiatric Solutions, Inc.(a)(b) 32,372 1,214,598
========================================================================
HEALTH CARE SERVICES-1.64%
HealthExtras, Inc.(a) 38,000 915,800
- ------------------------------------------------------------------------
Healthways, Inc.(a) 22,300 1,063,933
========================================================================
1,979,733
========================================================================
HEALTH CARE TECHNOLOGY-0.98%
Cerner Corp.(a) 25,974 1,181,817
========================================================================
HOTELS, RESORTS & CRUISE LINES-2.51%
Hilton Hotels Corp. 45,657 1,593,429
- ------------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc. 23,088 1,443,000
========================================================================
3,036,429
========================================================================
HOUSEWARES & SPECIALTIES-1.05%
Jarden Corp.(a)(b) 36,286 1,262,390
========================================================================
INDUSTRIAL CONGLOMERATES-1.21%
McDermott International, Inc.(a) 28,700 1,459,682
========================================================================
INDUSTRIAL MACHINERY-1.03%
Kaydon Corp. 31,298 1,243,783
========================================================================
INTERNET SOFTWARE & SERVICES-1.12%
aQuantive, Inc.(a)(b) 28,923 713,241
- ------------------------------------------------------------------------
WebEx Communications, Inc.(a) 18,485 644,942
========================================================================
1,358,183
========================================================================
INVESTMENT BANKING & BROKERAGE-2.83%
E*TRADE Financial Corp.(a) 27,678 620,541
- ------------------------------------------------------------------------
FBR Capital Markets Corp. (Acquired 07/14/06;
Cost $690,000)(a)(e)(f) 46,000 690,000
- ------------------------------------------------------------------------
Lazard Ltd.-Class A (Bermuda) 18,058 854,866
- ------------------------------------------------------------------------
Schwab (Charles) Corp. (The) 64,972 1,256,558
========================================================================
3,421,965
========================================================================
IT CONSULTING & OTHER SERVICES-1.04%
Cognizant Technology Solutions Corp.-Class
A(a) 16,302 1,257,862
========================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
LIFE SCIENCES TOOLS & SERVICES-1.00%
Pharmaceutical Product Development, Inc. 37,646 $ 1,212,954
========================================================================
MANAGED HEALTH CARE-2.28%
Aveta, Inc. (Acquired 12/21/05-05/22/06; Cost
$1,300,095)(a)(e)(f) 90,000 1,530,000
- ------------------------------------------------------------------------
Humana Inc.(a) 22,127 1,223,844
========================================================================
2,753,844
========================================================================
MARINE-0.52%
American Commercial Lines Inc.(a) 9,649 632,106
========================================================================
OFFICE REIT'S-0.41%
Douglas Emmett, Inc. 18,698 497,180
========================================================================
OIL & GAS DRILLING-1.88%
ENSCO International Inc.(b) 22,436 1,123,146
- ------------------------------------------------------------------------
GlobalSantaFe Corp. 19,555 1,149,443
========================================================================
2,272,589
========================================================================
OIL & GAS EQUIPMENT & SERVICES-2.74%
Cameron International Corp.(a) 21,442 1,137,498
- ------------------------------------------------------------------------
National-Oilwell Varco Inc.(a) 18,037 1,103,504
- ------------------------------------------------------------------------
Weatherford International Ltd.(a) 25,651 1,071,955
========================================================================
3,312,957
========================================================================
OIL & GAS EXPLORATION & PRODUCTION-2.00%
Rosetta Resources, Inc.(a)(g) 68,200 1,273,294
- ------------------------------------------------------------------------
Southwestern Energy Co.(a) 32,577 1,141,824
========================================================================
2,415,118
========================================================================
OIL & GAS STORAGE & TRANSPORTATION-0.96%
Williams Cos., Inc. (The) 44,563 1,163,986
========================================================================
PERSONAL PRODUCTS-1.13%
Bare Escentuals, Inc.(a) 43,800 1,360,866
========================================================================
PHARMACEUTICALS-4.03%
Adams Respiratory Therapeutics, Inc.(a) 22,366 912,756
- ------------------------------------------------------------------------
Allergan, Inc. 7,582 907,869
- ------------------------------------------------------------------------
Barr Pharmaceuticals Inc.(a) 19,118 958,194
- ------------------------------------------------------------------------
New River Pharmaceuticals Inc.(a)(b) 15,300 837,063
- ------------------------------------------------------------------------
Warner Chilcott Ltd.-Class A(a) 90,634 1,252,562
========================================================================
4,868,444
========================================================================
PROPERTY & CASUALTY INSURANCE-1.87%
First American Corp. 29,982 1,219,668
- ------------------------------------------------------------------------
OneBeacon Insurance Group Ltd.(a) 37,212 1,041,936
========================================================================
2,261,604
========================================================================
REAL ESTATE MANAGEMENT & DEVELOPMENT-1.45%
CB Richard Ellis Group, Inc.-Class A(a) 52,591 1,746,021
========================================================================
</Table>
AIM V.I. Dynamics Fund
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
REGIONAL BANKS-1.26%
Centennial Bank Holdings Inc.(a)(g) 63,979 $ 605,241
- ------------------------------------------------------------------------
Signature Bank(a) 29,606 917,194
========================================================================
1,522,435
========================================================================
RESTAURANTS-1.35%
Burger King Holdings Inc.(a) 77,065 1,626,072
========================================================================
SEMICONDUCTOR EQUIPMENT-1.76%
Lam Research Corp.(a) 19,522 988,204
- ------------------------------------------------------------------------
MEMC Electronic Materials, Inc.(a) 29,114 1,139,522
========================================================================
2,127,726
========================================================================
SEMICONDUCTORS-1.60%
Advanced Micro Devices, Inc.(a) 30,404 618,721
- ------------------------------------------------------------------------
Intersil Corp.-Class A 54,679 1,307,922
========================================================================
1,926,643
========================================================================
SPECIALIZED FINANCE-1.16%
Chicago Mercantile Exchange Holdings
Inc.-Class A 2,749 1,401,303
========================================================================
SPECIALTY STORES-2.52%
Office Depot, Inc.(a) 30,726 1,172,811
- ------------------------------------------------------------------------
PetSmart, Inc. 22,861 659,769
- ------------------------------------------------------------------------
Staples, Inc. 45,384 1,211,753
========================================================================
3,044,333
========================================================================
STEEL-0.99%
Allegheny Technologies, Inc.(b) 13,183 1,195,434
========================================================================
TECHNOLOGY DISTRIBUTORS-0.57%
Arrow Electronics, Inc.(a)(b) 21,911 691,292
========================================================================
THRIFTS & MORTGAGE FINANCE-0.24%
People's Choice Financial Corp. (Acquired
12/21/04-06/09/06; Cost $1,188,822)(e)(f) 146,576 293,152
========================================================================
TRADING COMPANIES & DISTRIBUTORS-1.07%
WESCO International, Inc.(a) 21,948 1,290,762
========================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES-4.24%
American Tower Corp.-Class A(a) 31,251 $ 1,165,037
- ------------------------------------------------------------------------
Crown Castle International Corp.(a) 35,559 1,148,556
- ------------------------------------------------------------------------
Leap Wireless International, Inc.(a) 17,242 1,025,382
- ------------------------------------------------------------------------
NII Holdings Inc.(a) 27,736 1,787,308
========================================================================
5,126,283
========================================================================
Total Common Stocks & Other Equity
Interests (Cost $101,908,130) 115,059,589
________________________________________________________________________
========================================================================
</Table>
<Table>
<Caption>
NUMBER
OF EXERCISE EXPIRATION
CONTRACTS PRICE DATE
PUT OPTIONS
PURCHASED-0.04%
CASINOS &
GAMING-0.04%
Harrah's
Entertainment,
Inc.(f)(Cost
$33,969) 169 $ 80 Jan-07 50,793
=======================================================================
</Table>
<Table>
<Caption>
SHARES
MONEY MARKET FUNDS-4.91%
Liquid Assets Portfolio-Institutional
Class(h) 2,966,101 2,966,101
=======================================================================
Premier Portfolio-Institutional Class(h) 2,966,101 2,966,101
=======================================================================
Total Money Market Funds (Cost
$5,932,202) 5,932,202
=======================================================================
Total Investments (excluding investments
purchased with cash collateral from
securities loaned)-100.20% (Cost
$107,874,301) 121,042,584
_______________________________________________________________________
=======================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-2.09%
Premier Portfolio-Institutional Class (Cost
$2,528,752)(h)(i) 2,528,752 2,528,752
=======================================================================
TOTAL INVESTMENTS-102.29% (Cost $110,403,053) 123,571,336
=======================================================================
OTHER ASSETS LESS LIABILITIES-(2.29)% (2,765,350)
=======================================================================
NET ASSETS-100.00% $120,805,986
_______________________________________________________________________
=======================================================================
</Table>
Investment Abbreviations:
<Table>
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 December 31, 2006.
(c) A portion of this security is subject to call options written. See Note 1K
and Note 9.
(d) In accordance with the procedures established by the Board of Trustees, the
foreign security is fair valued using adjusted closing market prices. The
value of this security at December 31, 2006 represented 1.04% of the Fund's
Net Assets. See Note 1A.
(e) 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 December 31, 2006 was $2,513,152,
which represented 2.08% of the Fund's Net Assets. Unless otherwise
indicated, these securities are not considered to be illiquid.
(f) Security considered to be illiquid. The Fund is limited to investing 15% of
net assets in illiquid securities at the time of purchase. The aggregate
value of these securities considered illiquid at December 31, 2006 was
$2,563,945, which represented 2.12% of the Fund's Net Assets.
(g) Security fair valued in good faith in accordance with the procedures
established by the Board of Trustees. The aggregate value of these
securities at December 31, 2006 was $1,878,535, which represented 1.56% of
the Fund's Net Assets. See Note 1A.
(h) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
(i) 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.
AIM V.I. Dynamics Fund
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2006
<Table>
ASSETS:
Investments, at value (cost $101,942,099)* $115,110,382
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $8,460,954) 8,460,954
=============================================================
Total investments (cost $110,403,053) 123,571,336
=============================================================
Receivables for:
Investments sold 111,090
- -------------------------------------------------------------
Fund shares sold 27,896
- -------------------------------------------------------------
Dividends 62,686
- -------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 14,524
=============================================================
Total assets 123,787,532
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Fund shares reacquired 265,277
- -------------------------------------------------------------
Options written, at value (premiums received
$36,370) 38,388
- -------------------------------------------------------------
Trustee deferred compensation and retirement
plans 20,765
- -------------------------------------------------------------
Collateral upon return of securities loaned 2,528,752
- -------------------------------------------------------------
Accrued administrative services fees 81,166
- -------------------------------------------------------------
Accrued distribution fees -- Series II 9
- -------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 3,617
- -------------------------------------------------------------
Accrued transfer agent fees 2,403
- -------------------------------------------------------------
Accrued operating expenses 41,169
=============================================================
Total liabilities 2,981,546
=============================================================
Net assets applicable to shares outstanding $120,805,986
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $180,211,885
- -------------------------------------------------------------
Undistributed net investment income (loss) (15,897)
- -------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies and
option contracts (72,556,257)
- -------------------------------------------------------------
Unrealized appreciation of investment
securities, foreign currencies and option
contracts 13,166,255
_____________________________________________________________
=============================================================
$120,805,986
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $120,791,716
_____________________________________________________________
=============================================================
Series II $ 14,270
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 7,042,385
_____________________________________________________________
=============================================================
Series II 837.5
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 17.15
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 17.04
_____________________________________________________________
=============================================================
</Table>
* At December 31, 2006, securities with an aggregate value of $2,458,519 were on
loan to brokers.
STATEMENT OF OPERATIONS
For the year ended December 31, 2006
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of
$2,829) $ 559,499
- ------------------------------------------------------------
Dividends from affiliated money market funds
(includes securities lending income of
$10,707) 237,245
============================================================
Total investment income 796,744
============================================================
EXPENSES:
Advisory fees 981,967
- ------------------------------------------------------------
Administrative services fees 376,725
- ------------------------------------------------------------
Custodian fees 27,294
- ------------------------------------------------------------
Distribution fees-Series II 33
- ------------------------------------------------------------
Transfer agent fees 13,759
- ------------------------------------------------------------
Trustees' and officer's fees and benefits 18,319
- ------------------------------------------------------------
Other 55,453
============================================================
Total expenses 1,473,550
============================================================
Less: Fees waived and expense offset
arrangements (10,549)
============================================================
Net expenses 1,463,001
============================================================
Net investment income (loss) (666,257)
============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES AND
OPTION CONTRACTS:
Net realized gain from:
Investment securities (includes net gains
from securities sold to affiliates of
$219,553) 20,057,531
- ------------------------------------------------------------
Foreign currencies 9,089
- ------------------------------------------------------------
Option contracts written 24,085
============================================================
20,090,705
============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (3,352,641)
- ------------------------------------------------------------
Foreign currencies (35)
- ------------------------------------------------------------
Option contracts written (2,018)
============================================================
(3,354,694)
============================================================
Net gain from investment securities, foreign
currencies and option contracts 16,736,011
============================================================
Net increase in net assets resulting from
operations $16,069,754
____________________________________________________________
============================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. Dynamics Fund
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31, 2006 and 2005
<Table>
<Caption>
2006 2005
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (666,257) $ (336,942)
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies and option contracts 20,090,705 13,541,961
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies and option
contracts (3,354,694) (2,315,631)
==========================================================================================
Net increase in net assets resulting from operations 16,069,754 10,889,388
==========================================================================================
Share transactions-net:
Series I (6,931,540) (22,841,394)
- ------------------------------------------------------------------------------------------
Series II -- --
==========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (6,931,540) (22,841,394)
==========================================================================================
Net increase (decrease) in net assets 9,138,214 (11,952,006)
==========================================================================================
NET ASSETS:
Beginning of year 111,667,772 123,619,778
==========================================================================================
End of year (including undistributed net investment income
(loss) of $(15,897) and $(12,078), respectively) $120,805,986 $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
December 31, 2006
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-one 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 capital growth.
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 or official closing price as of the close of
the customary trading session on the exchange where the security is
principally traded, or lacking any sales or official closing price on a
particular day, the security may be valued at the closing bid price on that
day. Securities traded in the over-the-counter market 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. 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 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 open-end and closed-end registered
investment companies that trade on an exchange are valued at the last sales
price or official closing price as of the close of the customary trading
session on the exchange where the security is principally traded.
Debt obligations (including convertible bonds) and unlisted equities 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.
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. If market quotations are available and reliable for
foreign exchange traded equity securities, the securities will be valued at
the market quotations. Because trading hours for certain foreign securities
end before the close of the NYSE, closing market quotations may become
unreliable. If between the time trading ends on a particular security and
the close of the customary trading session on the NYSE, events occur that
are significant and may make the closing price unreliable, the Fund may
fair value the security. 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 prices are not provided by any of the above
methods may be valued based upon quotes furnished by independent sources
and are valued at the last bid price in the case of equity securities and
in the case of debt obligations, the mean between the last bid and asked
prices.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
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
AIM V.I. Dynamics Fund
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 the 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 to distribute substantially all of the
Fund's taxable earnings to shareholders. As such, the Fund will not be
subject to federal income taxes on otherwise taxable income (including net
realized capital gain) that 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. ACCOUNTING ESTIMATES -- 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.
H. INDEMNIFICATIONS -- 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.
I. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in
foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from (i) sales
of foreign currencies, (ii) currency gains or losses realized between the
trade and settlement dates on securities transactions, and (iii) the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
The Fund may invest in foreign securities which may be subject to foreign
taxes on income, gains on investments or currency repatriation, a portion
of which may be recoverable. Taxes are accrued based on the Fund's current
interpretation of tax regulations and rates that exist in the foreign
markets in which the Fund invests.
J. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security.
Fluctuations in the value of these contracts are recorded as unrealized
appreciation (depreciation) until the contracts are closed. When these
contracts are closed, realized gains (losses) are recorded. Realized and
unrealized gains and losses on these contracts are included in the
Statement of Operations. The Fund could be exposed to risk, which may be in
excess of the amount reflected in the Statement of Assets and Liabilities,
if counterparties to the contracts are unable to meet the terms of their
contracts or if the value of the foreign currency changes unfavorably.
K. COVERED CALL OPTIONS -- The Fund may write call options. A call option
gives the purchaser of such option the right to buy, and the writer (the
Fund) the obligation to sell, the underlying security at the stated
exercise price during the option period. Written call options are recorded
as a liability in the Statement of Assets and Liabilities. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. 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. Realized gains and losses on these contracts
are included in the Statement of Operations. 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
L. PUT OPTIONS PURCHASED -- The Fund may purchase put options including
options on securities indexes and/or futures contracts. By purchasing a put
option, the Fund obtains the right (but not the obligation) to sell the
option's underlying instrument at a fixed strike price. In return for this
right, the Fund pays an option premium. The option's underlying instrument
may be a security, securities index, or a futures contract. Put options may
be used by the Fund to hedge securities it owns by locking in a minimum
price at which the Fund can sell. If security prices fall, the put option
could be exercised to offset all or a portion of the Fund's resulting
losses. At the same time, because the maximum the Fund has at risk is the
cost of the option, purchasing put options does not eliminate the potential
for the Fund to profit from an increase in the value of the securities
hedged. 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.
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.
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 has contractually agreed to waive advisory fees
to the extent necessary so that the advisory fees payable by the Fund (based on
the Fund's average daily net assets) do not exceed the annual rate of:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- --------------------------------------------------------------------
First $250 million 0.745%
- --------------------------------------------------------------------
Next $250 million 0.73%
- --------------------------------------------------------------------
Next $500 million 0.715%
- --------------------------------------------------------------------
Next $1.5 billion 0.70%
- --------------------------------------------------------------------
Next $2.5 billion 0.685%
- --------------------------------------------------------------------
Next $2.5 billion 0.67%
- --------------------------------------------------------------------
Next $2.5 billion 0.655%
- --------------------------------------------------------------------
Over $10 billion 0.64%
___________________________________________________________________
====================================================================
</Table>
AIM has contractually agreed to waive advisory fees and/or reimburse
expenses to the extent necessary to limit total annual operating expenses
(excluding certain items discussed below) of Series I shares to 1.30% and Series
II shares to 1.45% of average daily net assets, through at least 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. In addition, the Fund may also benefit from a one time credit to be used
to offset future custodian expenses. These credits are used to pay certain
expenses incurred by the Fund. AIM did not waive fees and/or reimburse expenses
during the period under this expense limitation.
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in
the amount of 25% of the advisory fee AIM receives from the affiliated money
market funds on investments by the Fund in such affiliated money market funds
(excluding investments made in affiliated money market funds with cash
collateral from securities loaned by the fund). Voluntary fee waivers or
reimbursements may be modified or discontinued at any time upon consultation
with the Board of Trustees without further notice to investors.
For the year ended December 31, 2006, AIM waived advisory fees of $7,647.
At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the year ended December 31, 2006, AMVESCAP did not
reimburse any such expenses.
The Trust has entered into a master administrative services agreement with
AIM pursuant to which the Fund 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. The
Fund may reimburse AIM for up to 0.25% of average daily assets invested by each
insurance company providing administrative services to the Fund. Pursuant
AIM V.I. Dynamics Fund
to such agreement, for the year ended December 31, 2006, AIM was paid $50,000
for accounting and fund administrative services and reimbursed $326,725 for
services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with AIM
Investment Services, Inc. ("AIS") pursuant to which the Fund has agreed to pay
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 year ended December 31, 2006, expenses incurred under the
agreement are shown in the Statement of Operations as transfer agent fees.
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 Plan payments, 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. For the year ended December 31, 2006, expenses
incurred under the Plan are shown in the Statement of Operations as distribution
fees.
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 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 year ended
December 31, 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) 12/31/06 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ -- $ 24,157,223 $ (21,191,122) $ -- $2,966,101 $ 48,517 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
Premier
Portfolio-
Institutional
Class 958,574 90,810,772 (88,803,245) -- 2,966,101 178,021 --
==================================================================================================================================
Subtotal $ 958,574 $114,967,995 $(109,994,367) $ -- $5,932,202 $226,538 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</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) 12/31/06 INCOME* GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Premier
Portfolio-
Institutional
Class $ 307,262 $ 63,257,577 $ (61,036,087) $ -- $2,528,752 $ 10,707 $ --
==================================================================================================================================
Total $1,265,836 $178,225,572 $(171,030,454) $ -- $8,460,954 $237,245 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</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 year ended December 31, 2006, the Fund
engaged in securities sales of $4,342,727, which resulted in net realized gains
of $219,553, and securities purchases of $6,485,763.
NOTE 5--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) custodian credits which
result from periodic overnight cash balances at the custodian and (ii) a one
time custodian fee credit to be used to offset future custodian fees. For the
year ended December 31, 2006, the Fund received credits from these arrangements,
which resulted in the reduction of the Fund's total expenses of $2,902.
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
AIM V.I. Dynamics Fund
for benefits to be paid upon retirement to Trustees over a period of time based
on the number of years of service. The Fund may have certain former Trustees who
also participate in a retirement plan and receive benefits under such plan.
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to fund such retirement benefits. Obligations under the deferred compensation
and retirement plans represent unsecured claims against the general assets of
the Fund.
During the year ended December 31, 2006, the Fund paid legal fees of $4,233
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 Securities and Exchange Commission, the
Fund may participate in an interfund lending facility that AIM has established
for temporary borrowings by the AIM Funds. An interfund loan will be made under
this facility only if the loan rate (an average of the rate available on bank
loans and the rate available on investments in overnight repurchase agreements)
is favorable to both the lending fund and the borrowing fund. A loan will be
secured by collateral if the Fund's aggregate borrowings from all sources
exceeds 10% of the Fund's total assets. To the extent that the loan is required
to be secured by collateral, the collateral is marked to market daily to ensure
that the market value is at least 102% of the outstanding principal value of the
loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended December 31, 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 bank 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 contractually agreed upon rate.
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 December 31, 2006, securities with an aggregate value of $2,458,519 were
on loan to brokers. The loans were secured by cash collateral of $2,528,752
received by the Fund and subsequently invested in affiliated money market funds.
For the year ended December 31, 2006, the Fund received dividends on cash
collateral investments of $10,707 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 662 83,137
- -----------------------------------------------------------------------------------
Exercised (134) (22,682)
- -----------------------------------------------------------------------------------
Expired (318) (24,085)
===================================================================================
End of period 210 $ 36,370
___________________________________________________________________________________
===================================================================================
</Table>
<Table>
<Caption>
OPEN OPTIONS WRITTEN AT PERIOD END
- -------------------------------------------------------------------------------------------------------------------------------
UNREALIZED
CONTRACT STRIKE NUMBER OF PREMIUMS VALUE APPRECIATION
MONTH PRICE CONTRACTS RECEIVED 12/31/06 (DEPRECIATION)
- -------------------------------------------------------------------------------------------------------------------------------
CALLS
Celgene Corp. Jan-07 $58 210 $36,370 $38,388 $(2,018)
_______________________________________________________________________________________________________________________________
===============================================================================================================================
</Table>
NOTE 10--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
There were no ordinary income or long-term capital gain distributions paid
during the years ended December 31, 2006 and 2005.
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2006, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2006
- --------------------------------------------------------------------------
Unrealized appreciation -- investments $ 13,119,480
- --------------------------------------------------------------------------
Temporary book/tax differences (15,897)
- --------------------------------------------------------------------------
Capital loss carryover (72,509,482)
- --------------------------------------------------------------------------
Shares of beneficial interest 180,211,885
==========================================================================
Total net assets $120,805,986
__________________________________________________________________________
==========================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales and the deferral of losses on certain straddles. The tax-basis net
unrealized appreciation on investments amount includes appreciation
(depreciation) on foreign currencies of $(10) and option contracts written of
$(2,018).
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions.
The Fund utilized $19,836,540 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of December 31, 2006 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
December 31, 2009 $ 1,883,553
- -----------------------------------------------------------------------------
December 31, 2010 70,625,929
=============================================================================
Total capital loss carryforward $72,509,482
_____________________________________________________________________________
=============================================================================
</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. Dynamics Fund
NOTE 11--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities,
U.S. Treasury obligations and money market funds, if any) purchased and sold by
the Fund during the year ended December 31, 2006 was $178,324,981 and
$189,525,161, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 15,417,244
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (2,295,736)
===============================================================================
Net unrealized appreciation of investment securities $ 13,121,508
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $110,449,828.
</Table>
NOTE 12--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions and net operating losses, on December 31, 2006, undistributed net
investment income (loss) was increased by $662,438, undistributed net realized
gain (loss) was decreased by $9,088 and shares of beneficial interest decreased
by $653,350. This reclassification had no effect on the net assets of the Fund.
NOTE 13--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- -----------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
2006(a) 2005
--------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------------------
Sold:
Series I 4,310,698 $ 69,372,528 1,388,856 $ 19,000,517
- -----------------------------------------------------------------------------------------------------------------------
Series II -- -- -- --
=======================================================================================================================
Reacquired:
Series I (4,826,869) (76,304,068) (3,095,326) (41,841,911)
- -----------------------------------------------------------------------------------------------------------------------
Series II -- -- -- --
=======================================================================================================================
(516,171) $ (6,931,540) (1,706,470) $(22,841,394)
_______________________________________________________________________________________________________________________
=======================================================================================================================
</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 75% of
the outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with
these entities whereby these entities sell units of interest in separate
accounts funding variable products that are invested in the Fund. The
Fund, AIM and/or AIM affiliates may make payments to these entities,
which are considered to be related to the Fund, for providing services
to the Fund, AIM and/or AIM affiliates including but not limited to
services such as, securities brokerage, third party record keeping and
account servicing and administrative services. The Trust has no
knowledge as to whether all or any portion of the shares owned of record
by these entities are also owned beneficially.
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 for 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 FIN 48 provisions during the fiscal year ending
December 31, 2007.
AIM V.I. Dynamics Fund
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
-----------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
2006 2005 2004 2003 2002
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 14.77 $ 13.34 $ 11.77 $ 8.54 $ 12.54
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.09) (0.04) (0.09) (0.07) (0.00)(a)
- -------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.47 1.47 1.66 3.30 (4.00)
=========================================================================================================================
Total from investment operations 2.38 1.43 1.57 3.23 (4.00)
=========================================================================================================================
Net asset value, end of period $ 17.15 $ 14.77 $ 13.34 $ 11.77 $ 8.54
=========================================================================================================================
Total return(b) 16.11% 10.72% 13.34% 37.82% (31.90)%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $120,792 $111,655 $123,609 $169,269 $116,135
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.12%(c) 1.16% 1.14% 1.14% 1.12%
- -------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.13%(c) 1.17% 1.14% 1.15% 1.12%
=========================================================================================================================
Ratio of net investment income (loss) to average net assets (0.51)%(c) (0.29)% (0.62)% (0.70)% (0.75)%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Portfolio turnover rate 142% 110% 64% 129% 110%
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
(a) The net investment income (loss) per share was calculated after
permanent book tax differences, such as net operating losses, which were
reclassified from accumulated net investment income (loss) to paid in
capital. Had net investment income (loss) per share been calculated
using the current method, which is before reclassification of net
operating losses, net investment income (loss) per share would have been
(b)$(0.08) for the year ended December 31, 2002.
Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns do not reflect charges assessed
in connection with a variable product, which if included would reduce
(c)total returns.
Ratios are based on average daily net assets of $130,915,612.
<Table>
<Caption>
SERIES II
----------------------------------------------
APRIL 30,
2004
(DATE SALES
YEAR ENDED DECEMBER 31, COMMENCED) TO
----------------------------- 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) (0.12) (0.07) (0.07)
- ------------------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 2.45 1.46 1.45
============================================================================================================
Total from investment operations 2.33 1.39 1.38
============================================================================================================
Net asset value, end of period $17.04 $14.71 $13.32
============================================================================================================
Total return(a) 15.84% 10.44% 11.56%
____________________________________________________________________________________________________________
============================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 14 $ 12 $ 11
____________________________________________________________________________________________________________
============================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.37%(b) 1.41% 1.40%(c)
- ------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.38%(b) 1.42% 1.40%(c)
============================================================================================================
Ratio of net investment income (loss) to average net assets (0.76)%(b) (0.54)% (0.88)%(c)
____________________________________________________________________________________________________________
============================================================================================================
Portfolio turnover rate(d) 142% 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
(b)with a variable product, which if included would reduce total returns.
(c)Ratios are based on average daily net assets of $13,333.
(d)Annualized.
Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
AIM V.I. Dynamics Fund
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. 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 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; 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. On September 15, 2006, the
MDL Court granted the AMVESCAP defendants' motion to dismiss the Amended Class
Action Complaint for Violations of ERISA and dismissed such Complaint. The
plaintiff has commenced an appeal from that decision.
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.
AIM V.I. Dynamics Fund
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V.I. Dynamics Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM V.I. Dynamics Fund (one of the
funds constituting AIM Variable Insurance Funds, hereafter referred to as the
"Fund") at December 31, 2006, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the periods indicated, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements and financial highlights (hereafter referred
to as "financial statements") are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2006 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PRICEWATERHOUSECOOPERS LLP
February 14, 2007
Houston, Texas
AIM V.I. Dynamics Fund
TRUSTEES AND OFFICERS
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management None
Trustee and Vice Chair Group Inc. (financial services holding
company); Director and Vice Chairman,
AMVESCAP PLC; Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm) and
Trustee and Vice Chair of The AIM Family
of Funds--Registered Trademark--
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer);
Chief Executive Officer, AMVESCAP
PLC -- Managed Products; and President
and Principal Executive Officer of The
AIM Family of Funds--Registered
Trademark--
- -------------------------------------------------------------------------------------------------------------------------------
Philip A. Taylor(2) -- 1954 2006 Director, Chief Executive Officer and None
Trustee, President and President, A I M Management Group Inc.,
Principal AIM Mutual Fund Dealer Inc. (registered
Executive Officer broker dealer), AIM Funds Management
Inc. (registered investment advisor) and
1371 Preferred Inc. (holding company);
Director and President, A I M Advisors,
Inc., INVESCO Funds Group, Inc.
(registered investment advisor and
register transfer agent) and AIM GP
Canada Inc. (general partner for a
limited partnership); Director, A I M
Capital Management, Inc. and A I M
Distributors, Inc.; Director and
Chairman, AIM Investment Services, Inc.,
Fund Management Company and INVESCO
Distributors, Inc. (registered broker
dealer); Director, President and
Chairman, AVZ Callco Inc. (holding
company); AMVESCAP Inc. (holding
company) and AIM Canada Holdings Inc.
(holding company); Director and Chief
Executive Officer, AIM Trimark Corporate
Class Inc. (formerly AIM Trimark Global
Fund Inc.) (corporate mutual fund
company) and AIM Trimark Canada Fund
Inc. (corporate mutual fund company);
Trustee, President and Principal
Executive Officer of The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); Trustee and
Executive Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); and Manager,
Powershares Capital Management LLC
Formerly: President and Principal
Executive Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); Chairman, AIM
Canada Holdings, Inc.; Executive Vice
President and Chief Operations Officer,
AIM Funds Management Inc.; President,
AIM Trimark Global Fund Inc. and AIM
Trimark Canada Fund Inc.; and Director,
Trimark Trust (federally regulated
Canadian Trust Company)
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company
Formerly: Partner, law firm of Baker & (2 portfolios))
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Founder, Green, Manning & Bunch Ltd., None
Trustee (investment banking firm); and Director,
Policy Studies, Inc. and Van Gilder
Insurance Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and None
Trustee private business corporations, including
the Boss Group Ltd. (private investment
and management); Cortland Trust, Inc.
(Chairman) (registered investment
company (3 portfolios)); Annuity and
Life Re (Holdings), Ltd. (insurance
company); CompuDyne Corporation
(provider of products and services to
the public security market); and
Homeowners of America Holding
Corporation (property casualty company)
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and Director of various
affiliated Volvo companies; and
Director, Magellan Insurance Company
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund
company); and Owner, Dos Angelos Ranch, (non-profit)
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- -------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company
(3 portfolios))
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired Director, Mainstay VP Series
Trustee Formerly: Partner, Deloitte & Touche Funds, Inc. (21 portfolios)
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
(2) Mr. Taylor is considered an interested person of the Trust because he is an
officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
TRUSTEES AND OFFICERS--(CONTINUED)
AIM V.I. Dynamics Fund
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Senior Vice President and Senior Officer N/A
Senior Vice President and of The AIM Family of Funds--Registered
Senior Officer Trademark--
Formerly: Director of Compliance and
Assistant General Counsel, ICON
Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
John M. Zerr -- 1962 2006 Director, Senior Vice President, N/A
Senior Vice President, Chief Secretary and General Counsel, A I M
Legal Officer and Secretary Management Group Inc. and A I M
Advisors, Inc.; Director, Vice President
and Secretary, INVESCO Distributors,
Inc.; Vice President and Secretary,
A I M Capital Management, Inc., AIM
Investment Services, Inc., and Fund
Management Company; Senior Vice
President and Secretary, A I M
Distributors, Inc.; Director and Vice
President, INVESCO Funds Group Inc.;
Senior Vice President, Chief Legal
Officer and Secretary of The AIM Family
of Funds--Registered Trademark--; and
Manager, Powershares Capital Management
LLC
Formerly: Chief Operating Officer,
Senior Vice President, General Counsel,
and Secretary, Liberty Ridge Capital,
Inc. (an investment adviser); Vice
President and Secretary, PBHG Funds (an
investment company); Vice President and
Secretary, PBHG Insurance Series Fund
(an investment company); General Counsel
and Secretary, Pilgrim Baxter Value
Investors (an investment adviser); Chief
Operating Officer, General Counsel and
Secretary, Old Mutual Investment
Partners (a broker-dealer); General
Counsel and Secretary, Old Mutual Fund
Services (an administrator); General
Counsel and Secretary, Old Mutual
Shareholder Services (a shareholder
servicing center); Executive Vice
President, General Counsel and
Secretary, Old Mutual Capital, Inc. (an
investment adviser); and Vice President
and Secretary, Old Mutual Advisors Funds
(an investment company)
- ------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Global Compliance Director, AMVESCAP N/A
Vice President PLC; and Vice President of The AIM
Family of Funds--Registered Trademark--
Formerly: Senior Vice President, A I M
Management Group Inc. (financial
services holding company); Senior Vice
President and Chief Compliance Officer,
A I M Advisors, Inc. and The AIM Family
of Funds--Registered Trademark--; Vice
President and Chief Compliance Officer,
A I M Capital Management, Inc. and A I M
Distributors, Inc.; Vice President, AIM
Investment Services, Inc. and Fund
Management Company; Senior Vice
President and Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; and Senior Vice President
and Compliance Director, Delaware
Investments Family of Funds
- ------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Senior Vice President and General
Vice President Counsel, AMVESCAP PLC; Director, INVESCO
Funds Group, Inc.; and Vice President of
The AIM Family of Funds--Registered
Trademark--
Formerly: Director, Vice President and N/A
General Counsel, Fund Management
Company; Director, Senior Vice
President, Secretary and General
Counsel, A I M Management Group Inc. and
A I M Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Senior Vice President, A I M
Distributors, Inc.; Vice President,
A I M Capital Management, Inc. and AIM
Investment Services, Inc.; Senior Vice
President, Chief Legal Officer and
Secretary of The AIM Family of
Funds--Registered Trademark--; Chief
Executive Officer and President, INVESCO
Funds Group, Inc.; and Senior Vice
President, and General Counsel, Liberty
Financial Companies, Inc. and Senior
Vice President and General Counsel
Liberty Funds Group, LLC
- ------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President, Principal Advisors, Inc.; and Vice President,
Financial Officer and Treasurer and Principal Officer of The
Treasurer AIM Family of Funds--Registered
Trademark--
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
J. Philip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment Officer, A I M Advisors Inc.;
Director, Chairman, Chief Executive
Officer, President and Chief Investment
Officer, A I M Capital Management, Inc.;
Executive Vice President, A I M
Management Group Inc. and Vice President
of The AIM Family of Funds--Registered
Trademark--
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; and
Chief Equity Officer, Senior Vice
President and Senior Investment Officer,
A I M Capital Management, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc. and The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); and
President and Principal Executive
Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust Only)
Formerly: Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only)
- ------------------------------------------------------------------------------------------------------------------------------
Lance A. Rejsek -- 1967 2005 Anti-Money Laundering Compliance N/A
Anti-Money Laundering Officer, A I M Advisors, Inc., A I M
Compliance Officer Capital Management, Inc., A I M
Distributors, Inc., AIM Investment
Services, Inc., AIM Private Asset
Management, Inc., Fund Management
Company and The AIM Family of
Funds--Registered Trademark--
Formerly: Manager of the Fraud
Prevention Department, AIM Investment
Services, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
Todd L. Spillane -- 1958 2006 Senior Vice President, A I M Management N/A
Chief Compliance Officer Group Inc.; Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc.; and Vice President,
A I M Distributors, Inc., AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Global Head of Product
Development, AIG-Global Investment
Group, Inc.; Chief Compliance Officer
and Deputy General Counsel,
AIG-SunAmerica Asset Management; and
Chief Compliance Officer, Chief
Operating Officer and Deputy General
Counsel, American General Investment
Management
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers
Suite 100 11 Greenway Plaza Inc. LLP
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Ballard Spahr INDEPENDENT TRUSTEES AIM Investment State Street Bank and
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis Services, Inc. Trust Company
1735 Market Street, 51st & Frankel LLP P.O. Box 4739 225 Franklin Street
Floor 1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Philadelphia, PA 19103-7599 Americas
New York, NY 10036-2714
</Table>
SECTOR EQUITY
AIM V.I. FINANCIAL SERVICES FUND
Sectors
The Fund provides a complete list of its Annual Report to Shareholders - December 31, 2006
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 in [COVER GLOBE IMAGE]
Washington, D.C. 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 AIM V.I. FINANCIAL SERVICES FUND
Client Services department at seeks capital growth.
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 UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT
the About Us tab, click on Required IS AS OF DECEMBER 31, 2006, AND IS BASED ON TOTAL NET ASSETS.
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
[AIM INVESTMENTS LOGO] SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ EACH CAREFULLY BEFORE INVESTING.
--Registered Trademark-- ====================================================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE AIM V.I. FINANCIAL SERVICES FUND
========================================================================================== returning excess capital to shareholders
PERFORMANCE SUMMARY in the form of dividends and share
repurchases.
For the year ended December 31, 2006, AIM V.I. Financial Services Fund, excluding
variable product issuer charges, produced positive returns and slightly outperformed the We maintain a proprietary database of
S&P 500 --REGISTERED TRADEMARK-- Index, its broad market index, and the Lipper Financial intrinsic value estimates and screen
Services Funds Index, its peer group index. The Fund underperformed its style-specific financial companies for those of
index, the S&P 500 Financials Index. acceptable quality. Purchase candidates
are subject to exhaustive fundamental
Given the mandate of the Fund--to invest in the financials sector--the Fund's analysis. We focus on the drivers of
performance relative to its broad market index was heavily influenced by the performance estimated intrinsic value such as
of the financials sector versus the overall market. For the year, the financials sector normalized earnings power, marginal
was strong relative to the broad market. The Fund underperformed its style-specific index returns on economic equity (which
primarily because it did not own any real estate investment trusts (REITs), which were adjusts for distortions present in
strong performers during the year. accounting numbers) and sustainable
growth. Additionally, we strive to
Your Fund's long-term performance appears on pages 4-5. understand a company's ability and
willingness to grow capital returned to
FUND VS. INDEXES shareholders in the future. Finally, we
focus on quality, including competitive
TOTAL RETURNS, 12/31/05-12/31/06, EXCLUDING VARIABLE PRODUCT ISSUER CHARGES. IF VARIABLE position, management and financial
PRODUCT ISSUER CHARGES WERE INCLUDED, RETURNS WOULD BE LOWER. strength.
Series I Shares 16.44% The result is normally a 35- to 50-
Series II Shares 16.22 stock portfolio, with investments that
S&P 500 Index (Broad Market Index) 15.78 we believe are attractive from both a
S&P 500 Financials Index (Style-Specific Index) 19.19 valuation and capital discipline
Lipper Financial Services Funds Index (Peer Group Index) 15.90 perspective representing top holdings.
In constructing a portfolio, we attempt
SOURCE: LIPPER INC. to mitigate risk in multiple ways,
========================================================================================== including by diversifying holdings
across industries and businesses that
HOW WE INVEST react in different ways to changes in
interest rates and economic cycles.
Our goal is to create wealth for discount to our estimate of intrinsic value
shareholders. We maintain a long-term because of excessive short-term investor We believe a portfolio of undervalued
investment horizon and invest in two primary pessimism. Estimated intrinsic value is a and capital-disciplined quality
opportunities we believe have historically measure based primarily on the estimated financial companies that profitably grow
resulted in superior investment returns future cash flows generated by the cash flows over time provides the best
within the financials sector: businesses. opportunity for superior long-term
investment results.
- - Financial companies trading at a - Reasonably valued financial companies that
significant demonstrate superior capital discipline by MARKET CONDITIONS AND YOUR FUND
========================================================================================== The investment backdrop for the
PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS* financials sector is heavily affected by
- ------------------------------------------------------------------------------------------ several factors, including U.S. Federal
1. JPMorgan Chase & Co. 7.0% Reserve Board (the Fed) policy, capital
By industry 2. Merrill Lynch & Co., Inc. 6.7 markets activity and the health of the
Other Diversified Financial Services 16.8% 3. Citigroup Inc. 6.4 economy--which drives credit losses.
Investment Banking & Brokerage 11.3 4. Fannie Mae 5.9 For the year as a whole, the economy
Thrifts & Mortgage Finance 10.6 5. Capital One Financial Corp. 5.1 grew at a moderate pace. The Fed, having
Property & Casualty Insurance 9.3 6. Bank of New York Co., Inc. (The) 4.6 methodically raised interest rates since
Asset Management & Custody Banks 8.7 7. Morgan Stanley 4.6 June 2004, decided to hold rates steady
Diversified Banks 7.8 8. Hartford Financial Services beginning mid year. Investor
Insurance Brokers 7.0 Group, Inc. (The) 4.2 expectations regarding the end of
Multi-Line Insurance 6.5 9. ACE Ltd. 4.0 interest rate increases by the Fed was
Regional Banks 6.3 10. Marsh & McLennan Cos., Inc. 4.0 an important consideration for the
Consumer Finance 5.1 performance of financial stocks. The
Three Other Industries, Each With Total Net Assets $ 147.76 million Fed's pause in interest rate hikes,
Less Than 3% of Total Net Assets 4.0 coupled with minimal credit losses and
Money Market Funds Total Number of Holdings* 32 robust capital markets activity, allowed
Plus Other Assets Less Liabilities 6.6 financial stocks to post strong gains,
especially during the second half of the
*Excluding money market fund holdings. year.
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. Financial Services Fund
The largest contributors to Fund We initiated positions in SECURITY Michael J. Simon Chartered
performance during the year were MERRILL CAPITAL ASSURANCE and NATIONAL FINANCIAL [SIMON Financial Analyst, senior
LYNCH, MORGAN STANLEY and JP MORGAN. All PARTNERS (NFP) during the year. The PHOTO] portfolio manager, is lead
benefited from robust capital markets opportunity for us to buy established manager of AIM V.I.
and a rotation to large-cap financials bond insurer Security Capital at an Financial Services Fund. He
as investors anticipated an end to Fed attractive price arose from the need of began his investment career
tightening. More important, Morgan former parent, XL Capital (not a Fund in 1989 and joined AIM in
Stanley and JP Morgan, under the holding), to sell part of the company in 2001. Mr. Simon earned his B.B.A. in
leadership of new CEOs, showed signs of an initial public offering as part of a finance from Texas Christian University
improved operating and financial plan to fortify its balance sheet after and his M.B.A. from the University of
performance. THE BANK OF NEW YORK was last year's devastating hurricanes. NFP Chicago.
also a strong contributor as a result of was down about 40% from its high when we
announcing a favorable merger with purchased the stock amid what we Meggan M. Walsh Chartered
Mellon Financial, creating a global considered to be investor overreaction [WALSH Financial Analyst, senior
giant in trust banking. FANNIE MAE also to margin pressure that we believed PHOTO] portfolio manager, is
contributed to Fund performance as could prove transitory. At the close of manager of AIM V.I.
concerns over past accounting issues the year, we believed NFP, a distributor Financial Services Fund.
dissipated and investors focused on the of insurance products to high net worth She began her investment
company's compelling valuation. individuals, was trading at a career in 1987 and joined
substantial discount to its estimated AIM in 1991. Ms. Walsh earned her
The Fund did not have any intrinsic value. bachelor's degree in finance from the
investments in REITs during the year. University of Maryland and her M.B.A.
REITs performed strongly for a fourth At the close of the year, the from Loyola College.
straight year, so the absence of REIT portfolio continued to have significant
investments hurt the Fund's performance holdings in the largest diversified U.S. Assisted by the Basic Value Team and the
relative to the S&P 500 Financials financial companies which we believed to Diversified Dividend Team
Index. We did not believe REITs, with be among the most attractive investment
dividend yields at historic lows opportunities in the sector. Given
relative to interest rates, represented recent strong performance by financial
attractive values. stocks and rising risks in the
financials sector (an inverted yield
In this strong year for financial curve, the sharp slowdown in residential
stocks, CAPITAL ONE FINANCIAL and housing activity and, more recently, a
FEDERATED INVESTORS were the only Fund step up in corporate leveraging) we
holdings that declined more than 5% believe valuation levels demand
during the year. We believe that Capital heightened selectivity when investing
One, a well-run credit card company that within the sector.
has expanded further into regional
banking with its recent acquisition of IN CLOSING
North Fork Bancorporation, is
attractively valued. Federated has an Regardless of the macro economic
enviable position in the money market environment, we remain focused on
fund business, which has been under identifying financial companies that we
pressure as the interest rate cycle has believe are undervalued and that exhibit
negatively affected money market fund capital discipline. Thank you for your
assets under management. During the investment in AIM V.I. Financial
year, the company raised its dividend Services Fund.
20% and continued to aggressively
repurchase shares. We continued to hold THE VIEWS AND OPINIONS EXPRESSED IN
both stocks at the end of the year. MANAGEMENT'S DISCUSSION OF FUND
PERFORMANCE ARE THOSE OF A I M ADVISORS,
Consistent with our relatively low INC. THESE VIEWS AND OPINIONS ARE
turnover approach, the composition of SUBJECT TO CHANGE AT ANY TIME BASED ON
the portfolio changed only modestly FACTORS SUCH AS MARKET AND ECONOMIC
during the year. Based mostly on CONDITIONS. THESE VIEWS AND OPINIONS MAY
valuation and other portfolio NOT BE RELIED UPON AS INVESTMENT ADVICE
considerations, we eliminated our or recommendations, or as an offer for a
positions in LEHMAN BROTHERS, PARTICULAR SECURITY. THE INFORMATION IS
CULLEN/FROST BANKERS and PMI GROUP, and NOT A COMPLETE ANALYSIS OF EVERY ASPECT
we meaningfully reduced our holdings in OF ANY MARKET, COUNTRY, INDUSTRY,
PRUDENTIAL, WELLS FARGO and BANK OF SECURITY OR THE FUND. STATEMENTS OF FACT
AMERICA. ARE FROM SOURCES CONSIDERED RELIABLE,
BUT A I M ADVISORS, INC. MAKES NO
REPRESENTATION OR WARRANTY AS TO THEIR
COMPLETENESS OR ACCURACY. ALTHOUGH
HISTORICAL PERFORMANCE IS NO GUARANTEE FOR A DISCUSSION OF THE RISKS OF
OF FUTURE RESULTS, THESE INSIGHTS MAY INVESTING IN YOUR FUND, INDEXES USED IN
HELP YOU UNDERSTAND OUR INVESTMENT THIS REPORT AND YOUR FUND'S LONG-TERM
MANAGEMENT PHILOSOPHY. PERFORMANCE, PLEASE SEE PAGES 4-5.
3
YOUR FUND'S LONG-TERM PERFORMANCE AIM V.I. FINANCIAL SERVICES FUND
========================================
AVERAGE ANNUAL TOTAL RETURNS RESTATED HISTORICAL PERFORMANCE OF SERIES PORTFOLIO OF AIM VARIABLE
- ---------------------------------------- SERIES I SHARES (FOR PERIODS PRIOR TO INSURANCE FUNDS, IS CURRENTLY OFFERED
As of 12/31/06 INCEPTION OF SERIES II SHARES) ADJUSTED THROUGH INSURANCE COMPANIES ISSUING
TO REFLECT THE RULE 12b-1 FEES VARIABLE PRODUCTS. YOU CANNOT PURCHASE
SERIES I SHARES APPLICABLE TO SERIES II SHARES. THE SHARES OF THE FUND DIRECTLY. PERFORMANCE
Inception (9/20/99) 8.78% INCEPTION DATE OF SERIES I SHARES IS FIGURES GIVEN REPRESENT THE FUND AND ARE
5 Years 8.13 SEPTEMBER 20, 1999. THE PERFORMANCE OF NOT INTENDED TO REFLECT ACTUAL VARIABLE
1 Year 16.44 THE FUND'S SERIES I AND SERIES II SHARE PRODUCT VALUES. THEY DO NOT REFLECT
CLASSES WILL DIFFER PRIMARILY DUE TO SALES CHARGES, EXPENSES AND FEES
SERIES II SHARES DIFFERENT CLASS EXPENSES. ASSESSED IN CONNECTION WITH A VARIABLE
Inception 8.52% PRODUCT. SALES CHARGES, EXPENSES AND
5 Years 7.87 THE PERFORMANCE DATA QUOTED FEES, WHICH ARE DETERMINED BY THE
1 Year 16.22 REPRESENT PAST PERFORMANCE AND CANNOT VARIABLE PRODUCT ISSUERS, WILL VARY AND
======================================== GUARANTEE COMPARABLE FUTURE RESULTS; WILL LOWER THE TOTAL RETURN.
CURRENT PERFORMANCE MAY BE LOWER OR
======================================== HIGHER. PLEASE CONTACT YOUR VARIABLE PER NASD REQUIREMENTS, THE MOST
PRODUCT ISSUER OR FINANCIAL ADVISOR FOR RECENT MONTH-END PERFORMANCE DATA AT THE
CUMULATIVE TOTAL RETURNS THE MOST RECENT MONTH-END VARIABLE FUND LEVEL, EXCLUDING VARIABLE PRODUCT
PRODUCT PERFORMANCE. PERFORMANCE FIGURES CHARGES, IS AVAILABLE ON THIS AIM
6 months ended 12/31/06 REFLECT FUND EXPENSES, REINVESTED AUTOMATED INFORMATION LINE,
DISTRIBUTIONS AND CHANGES IN NET ASSET 866-702-4402. AS MENTIONED ABOVE, FOR
Series I Shares 15.16% VALUE. INVESTMENT RETURN AND PRINCIPAL THE MOST RECENT MONTH-END PERFORMANCE
Series II Shares 15.01 VALUE WILL FLUCTUATE SO THAT YOU MAY INCLUDING VARIABLE PRODUCT CHARGES,
======================================== HAVE A GAIN OR LOSS WHEN YOU SELL PLEASE CONTACT YOUR VARIABLE PRODUCT
SHARES. ISSUER OR FINANCIAL ADVISOR.
SERIES II SHARES' INCEPTION DATE IS
APRIL 30, 2004. RETURNS SINCE THAT DATE AIM V.I. FINANCIAL SERVICES FUND,
ARE HISTORICAL. ALL OTHER RETURNS ARE A
THE BLENDED RETURNS OF THE HISTORICAL
PERFORMANCE OF SERIES II SHARES SINCE
THEIR INCEPTION AND THE
==================================================================================================================================
PRINCIPAL RISKS OF INVESTING IN THE FUND investing in more established companies, The S&P 500 FINANCIALS INDEX is a
such as business risk, stock price market capitalization weighted index of
Foreign securities have additional fluctuations and illiquidity. companies involved in activities such as
risks, including exchange rate changes, banking, consumer finance, investment
political and economic upheaval, the The Fund may use enhanced banking and brokerage, asset management,
relative lack of information about these investment techniques such as insurance and investment and real
companies, relatively low market derivatives. The principal risk of estate, including real estate investment
liquidity and the potential lack of investments in derivatives is that the trusts (REITs).
strict financial and accounting controls fluctuations in their values may not
and standards. correlate perfectly with the overall In conjunction with the annual
securities markets. Derivatives are prospectus update on or about May 1,
Investing in emerging markets subject to counter party risk--the 2007, the AIM V.I. Financial Services
involves greater risk than investing in risk that the other party will not Fund prospectus will be amended to
more established markets. The risks complete the transaction with the Fund. reflect that the Fund has elected to use
include the relatively smaller size and the Lipper Variable Underlying Funds
lesser liquidity of these markets, high The prices of securities held by (VUF) Financial Services Funds Category
inflation rates, adverse political the Fund may decline in response to Average as its peer group index rather
developments and lack of timely market risks. than the Lipper Financial Services Funds
information. Index. The Lipper VUF Financial Services
ABOUT INDEXES USED IN THIS REPORT Funds Category Average, recently
If the seller of a repurchase published by Lipper Inc., comprises the
agreement in which the Fund invests The unmanaged LIPPER FINANCIAL SERVICES largest underlying funds in each
defaults on its obligation or declares FUNDS INDEX represents an average of the variable insurance category and does not
bankruptcy, the Fund may experience 10 largest financial services funds include mortality and expense fees.
delays in selling the securities tracked by Lipper Inc., an independent
underlying the repurchase agreement. mutual fund performance monitor. The Fund is not managed to track
the performance of any particular index,
There is no guarantee that the The unmanaged STANDARD & POOR'S including the indexes defined here, and
investment techniques and risk analyses COMPOSITE INDEX OF 500 STOCKS (the S&P consequently, the performance of the
used by the Fund's portfolio managers 500 Index) is an index of common stocks Fund may deviate significantly from the
will produce the desired results. frequently used as a general measure of performance of the indexes.
U.S. stock market performance.
Investing in a fund that invests
in smaller companies involves risks not
associated with
Continued on page 5
4
AIM V.I. FINANCIAL SERVICES FUND
Past performance cannot guarantee value of an investment, is constructed
comparable future results. with each segment representing a percent
change in the value of the investment.
This chart, which is a logarithmic In this chart, each segment represents a
chart, presents the fluctuations in the doubling, or 100% change, in the value
value of the Fund and its indexes. We of the investment. In other words, the
believe that a logarithmic chart is more space between $5,000 and $10,000 is the
effective than other types of charts in same size as the space between $10,000
illustrating changes in value during the and $20,000.
early years shown in the chart. The
vertical axis, the one that indicates
the dollar
=================================================================================================================================
Continued from page 4
A direct investment cannot be made reported in the Financial Highlights.
in an index. Unless otherwise indicated, Additionally, the returns and net asset
index results include reinvested values shown throughout this report are
dividends, and they do not reflect sales at the Fund level only and do not
charges. Performance of an index of include variable product issuer charges.
funds reflects fund expenses; If such charges were included, the total
performance of a market index does not. returns would be lower.
OTHER INFORMATION Industry classifications used in
this report are generally according to
The returns shown in the management's the Global Industry Classification
discussion of Fund performance Standard, which was developed by and is
are based on net asset values the exclusive property and a service
calculated for shareholder transactions. mark of Morgan Stanley Capital
Generally accepted accounting International Inc. and Standard &
principles require adjustments Poor's.
to be made to the net assets
of the Fund at period end for financial The Chartered Financial Analyst
reporting purposes, and as such, the net --Registered Trademark-- (CFA )
asset values for shareholder designation is a globally recognized
transactions and the returns based on standard for measuring the competence
those net asset values may differ from and integrity of investment
the net asset values and returns professionals.
5
RESULTS OF A $10,000 INVESTMENT
Fund data from 9/20/99, Index data from 9/30/99
==============================================================================================================================
[MOUNTAIN CHART]
AIM V.I. FINANCIAL SERVICES FUND
DATE -SERIES I SHARES S&P 500 INDEX S&P 500 FINANCIALS INDEX LIPPER FINANCIAL SERVICES FUNDS INDEX
- ------------------------------------------------------------------------------------------------------------------------------
9/20/99 $ 10000
9/99 9950 $ 10000 $ 10000 $ 10000
10/99 11150 10633 11669 11240
11/99 11009 10849 11097 10763
12/99 11100 11487 10877 10478
1/00 10640 10910 10533 9999
2/00 9560 10703 9392 9030
3/00 10990 11750 11135 10498
4/00 10781 11396 10785 10113
5/00 11391 11163 11508 10709
6/00 11081 11438 10810 10317
7/00 12062 11259 11927 11118
8/00 13012 11958 13073 12135
9/00 13532 11327 13383 12526
10/00 13523 11279 13325 12596
11/00 12583 10390 12539 12070
12/00 13855 10441 13672 13279
1/01 13505 10811 13635 13138
2/01 12815 9826 12739 12529
3/01 12414 9204 12355 12104
4/01 12764 9919 12815 12490
5/01 13365 9985 13332 12989
6/01 13275 9742 13327 12985
7/01 13015 9646 13111 12832
8/01 12275 9043 12312 12204
9/01 11603 8313 11585 11571
10/01 11333 8472 11370 11248
11/01 12235 9121 12182 12022
12/01 12487 9201 12449 12378
1/02 12356 9067 12254 12351
2/02 12205 8892 12076 12307
3/02 12950 9227 12879 12959
4/02 12538 8667 12535 12841
5/02 12558 8604 12514 12873
6/02 12015 7991 11920 12268
7/02 11100 7368 10975 11388
8/02 11271 7417 11199 11684
9/02 10145 6611 9890 10431
10/02 10869 7193 10784 10983
11/02 11151 7616 11228 11390
12/02 10628 7168 10626 10892
1/03 10455 6981 10449 10692
2/03 10122 6876 10122 10412
3/03 10122 6943 10083 10350
4/03 11164 7514 11318 11344
5/03 11772 7910 11916 12070
6/03 11812 8011 11946 12163
7/03 12399 8152 12494 12659
8/03 12267 8311 12368 12725
9/03 12318 8223 12451 12788
10/03 13168 8688 13308 13730
11/03 13107 8764 13271 13861
12/03 13770 9223 13923 14376
1/04 14269 9393 14367 14826
2/04 14646 9523 14748 15239
3/04 14442 9380 14602 15084
4/04 13730 9233 13928 14280
5/04 13893 9359 14184 14550
6/04 13985 9541 14255 14669
7/04 13588 9225 13963 14343
8/04 13974 9262 14432 14713
9/04 13933 9362 14309 14872
10/04 13883 9506 14381 15093
11/04 14330 9890 14807 15736
12/04 14965 10226 15440 16383
1/05 14544 9977 15106 15963
2/05 14524 10187 15026 15947
3/05 13991 10007 14455 15469
4/05 13908 9817 14471 15226
5/05 14329 10129 14867 15706
6/05 14533 10144 15080 16095
7/05 14799 10521 15318 16582
8/05 14462 10425 15050 16257
9/05 14502 10509 15190 16310
==============================================================================================================================
Source: Lipper Inc.
==============================================================================================================================
[MOUNTAIN CHART]
10/05 15107 10334 15669 16518
11/05 15804 10724 16404 17282
12/05 15848 10728 16439 17354
1/06 16190 11012 16587 17772
2/06 16388 11042 16923 17981
3/06 16357 11179 16973 18186
4/06 16958 11329 17708 18722
5/06 16222 11004 17056 17999
6/06 16026 11018 16951 17903
7/06 16337 11086 17371 18065
8/06 16607 11350 17573 18237
9/06 17178 11642 18305 18856
10/06 17645 12021 18750 19276
11/06 17696 12249 18866 19512
12/06 18449 12421 19595 20113
==============================================================================================================================
CALCULATING YOUR ONGOING FUND EXPENSES AIM V.I. FINANCIAL SERVICES FUND
EXAMPLE You may use the information in this The hypothetical account values
table, together with the amount you and expenses may not be used to estimate
As a shareholder of the Fund, you incur invested, to estimate the expenses that the 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 your account value by $1,000 (for may use this information to compare the
(12b-1) fees; and other Fund expenses. example, an $8,600 account value divided ongoing costs of investing in the Fund
This 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
$1,000 invested at the beginning of the shown in the table are meant to
period and held for the entire period HYPOTHETICAL EXAMPLE FOR COMPARISON highlight your ongoing costs. Therefore,
July 1, 2006, through December 31, 2006. PURPOSES the hypothetical information is useful
in comparing ongoing costs, and will not
The actual and hypothetical The table below also provides help you determine the relative total
expenses in the examples below do not information about hypothetical account costs of owning different funds.
represent the effect of any fees or values and hypothetical expenses based
other expenses assessed in connection on the Fund's actual expense ratio and
with a variable product; if they did, an assumed rate of return of 5% per year
the expenses shown would be higher while before expenses, which is not the Fund's
the ending account values shown would be actual return. The Fund's actual
lower. cumulative total returns at net asset
value after expenses for the six months
ACTUAL EXPENSES ended December 31, 2006, appear in the
table "Cumulative Total Returns" on page
The table below provides information 4.
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 (7/1/06) (12/31/06)(1) PERIOD(2) (12/31/06) PERIOD(2) RATIO
- ------------------------------------------------------------------------------------------------------------------------------------
SERIES I $ 1,000.00 $ 1,151.60 $ 6.13 $ 1,019.51 $ 5.75 1.13%
SERIES II 1,000.00 1,150.10 7.48 1,018.25 7.02 1.38
====================================================================================================================================
(1) The actual ending account value is based on the actual total return of the
Fund for the period July 1, 2006, through December 31, 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 December 31, 2006,
appear in the table "Cumulative Total Returns" on page 4.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated
above multiplied by the average account value over the period, multiplied
by 184/365 to reflect the most recent fiscal half year.
6
AIM V.I. FINANCIAL SERVICES FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
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 - 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 - Meetings with the Fund's portfolio
different weights to the various - 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 - 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 - 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 - 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
- - 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)
7
AIM V.I. FINANCIAL SERVICES FUND
- - 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 - 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 - 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
- - 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 - 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 - 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 - 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
- - 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 - 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 - 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.
8
AIM V.I. Financial Services Fund
SCHEDULE OF INVESTMENTS
December 31, 2006
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
COMMON STOCKS-93.41%
ASSET MANAGEMENT & CUSTODY BANKS-8.67%
Bank of New York Co., Inc. (The) 174,088 $ 6,853,845
- -----------------------------------------------------------------------
Federated Investors, Inc.-Class B 109,411 3,695,904
- -----------------------------------------------------------------------
State Street Corp. 33,512 2,260,049
=======================================================================
12,809,798
=======================================================================
CONSUMER FINANCE-5.09%
Capital One Financial Corp. 97,897 7,520,448
=======================================================================
DIVERSIFIED BANKS-7.82%
Anglo Irish Bank Corp. PLC (Ireland)(a) 95,513 1,980,663
- -----------------------------------------------------------------------
U.S. Bancorp 107,657 3,896,107
- -----------------------------------------------------------------------
Wachovia Corp. 83,999 4,783,743
- -----------------------------------------------------------------------
Wells Fargo & Co. 25,000 889,000
=======================================================================
11,549,513
=======================================================================
DIVERSIFIED CAPITAL MARKETS-2.03%
UBS A.G.-Reg (Switzerland) 49,734 3,000,452
=======================================================================
INSURANCE BROKERS-7.03%
Aon Corp. 76,915 2,718,176
- -----------------------------------------------------------------------
Marsh & McLennan Cos., Inc. 193,722 5,939,517
- -----------------------------------------------------------------------
National Financial Partners Corp. 39,300 1,728,021
=======================================================================
10,385,714
=======================================================================
INVESTMENT BANKING & BROKERAGE-11.26%
Merrill Lynch & Co., Inc. 106,257 9,892,527
- -----------------------------------------------------------------------
Morgan Stanley 82,810 6,743,218
=======================================================================
16,635,745
=======================================================================
LIFE & HEALTH INSURANCE-0.59%
Prudential Financial, Inc. 10,120 868,903
=======================================================================
MULTI-LINE INSURANCE-6.50%
American International Group, Inc. 23,147 1,658,714
- -----------------------------------------------------------------------
Genworth Financial Inc.-Class A 50,277 1,719,976
- -----------------------------------------------------------------------
Hartford Financial Services Group, Inc. (The) 66,674 6,221,351
=======================================================================
9,600,041
=======================================================================
</Table>
<Table>
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
OTHER DIVERSIFIED FINANCIAL SERVICES-16.74%
Bank of America Corp. 93,466 $ 4,990,150
- -----------------------------------------------------------------------
Citigroup Inc. 169,249 9,427,169
- -----------------------------------------------------------------------
JPMorgan Chase & Co. 213,761 10,324,656
=======================================================================
24,741,975
=======================================================================
PROPERTY & CASUALTY INSURANCE-9.34%
ACE Ltd. 98,527 5,967,780
- -----------------------------------------------------------------------
MBIA Inc. 54,293 3,966,647
- -----------------------------------------------------------------------
Security Capital Assurance Ltd. 79,087 2,200,991
- -----------------------------------------------------------------------
St. Paul Travelers Cos., Inc. (The) 30,974 1,662,994
=======================================================================
13,798,412
=======================================================================
REGIONAL BANKS-6.28%
Fifth Third Bancorp 141,625 5,796,711
- -----------------------------------------------------------------------
SunTrust Banks, Inc. 25,399 2,144,945
- -----------------------------------------------------------------------
Zions Bancorp 16,249 1,339,568
=======================================================================
9,281,224
=======================================================================
SPECIALIZED CONSUMER SERVICES-1.42%
H&R Block, Inc. 91,420 2,106,317
=======================================================================
THRIFTS & MORTGAGE FINANCE-10.64%
Fannie Mae 145,728 8,654,786
- -----------------------------------------------------------------------
Freddie Mac 76,093 5,166,715
- -----------------------------------------------------------------------
Hudson City Bancorp, Inc. 136,946 1,900,810
=======================================================================
15,722,311
=======================================================================
Total Common Stocks (Cost $106,866,515) 138,020,853
=======================================================================
MONEY MARKET FUNDS-7.89%
Liquid Assets Portfolio-Institutional
Class(b) 5,826,336 5,826,336
- -----------------------------------------------------------------------
Premier Portfolio-Institutional Class(b) 5,826,337 5,826,337
=======================================================================
Total Money Market Funds (Cost
$11,652,673) 11,652,673
=======================================================================
TOTAL INVESTMENTS-101.30% (Cost $118,519,188) 149,673,526
=======================================================================
OTHER ASSETS LESS LIABILITIES-(1.30)% (1,917,347)
=======================================================================
NET ASSETS-100.00% $147,756,179
_______________________________________________________________________
=======================================================================
</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 December 31, 2006 represented 1.34% of the Fund's
Net Assets. See Note 1A.
(b) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. Financial Services Fund
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2006
<Table>
ASSETS:
Investments, at value (cost $106,866,515) $138,020,853
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $11,652,673) 11,652,673
=============================================================
Total investments (cost $118,519,188) 149,673,526
=============================================================
Receivables for:
Fund shares sold 103,673
- -------------------------------------------------------------
Dividends 261,953
- -------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 15,712
=============================================================
Total assets 150,054,864
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 1,919,559
- -------------------------------------------------------------
Fund shares reacquired 216,227
- -------------------------------------------------------------
Trustee deferred compensation and retirement
plans 24,360
- -------------------------------------------------------------
Accrued administrative services fees 89,125
- -------------------------------------------------------------
Accrued distribution fees-Series II 672
- -------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 3,513
- -------------------------------------------------------------
Accrued transfer agent fees 4,209
- -------------------------------------------------------------
Accrued operating expenses 41,020
=============================================================
Total liabilities 2,298,685
=============================================================
Net assets applicable to shares outstanding $147,756,179
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $108,481,993
- -------------------------------------------------------------
Undistributed net investment income 1,895,827
- -------------------------------------------------------------
Undistributed net realized gain from investment
securities and foreign currencies 6,224,104
- -------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 31,154,255
=============================================================
$147,756,179
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $146,091,680
_____________________________________________________________
=============================================================
Series II $ 1,664,499
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 8,389,542
_____________________________________________________________
=============================================================
Series II 96,069
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 17.41
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 17.33
_____________________________________________________________
=============================================================
</Table>
STATEMENT OF OPERATIONS
For the year ended December 31, 2006
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of
$8,520) $ 3,144,682
- ------------------------------------------------------------
Dividends from affiliated money market funds 273,398
============================================================
Total investment income 3,418,080
============================================================
EXPENSES:
Advisory fees 1,003,239
- ------------------------------------------------------------
Administrative services fees 384,973
- ------------------------------------------------------------
Custodian fees 17,309
- ------------------------------------------------------------
Distribution fees-Series II 831
- ------------------------------------------------------------
Transfer agent fees 17,064
- ------------------------------------------------------------
Trustees' and officer's fees and benefits 18,237
- ------------------------------------------------------------
Other 60,367
============================================================
Total expenses 1,502,020
============================================================
Less: Fees waived and expense offset
arrangements (3,204)
============================================================
Net expenses 1,498,816
============================================================
Net investment income 1,919,264
============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND FOREIGN CURRENCIES:
Net realized gain from investment securities 7,599,322
============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities 10,902,715
- ------------------------------------------------------------
Foreign currencies (118)
============================================================
10,902,597
============================================================
Net gain from investment securities and foreign
currencies 18,501,919
============================================================
Net increase in net assets resulting from
operations $20,421,183
____________________________________________________________
============================================================
</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 years ended December 31, 2006 and 2005
<Table>
<Caption>
2006 2005
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 1,919,264 $ 2,173,979
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 7,599,322 12,719,470
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and foreign currencies 10,902,597 (10,553,270)
==========================================================================================
Net increase in net assets resulting from operations 20,421,183 4,340,179
==========================================================================================
Distributions to shareholders from net investment income:
Series I (2,166,144) (1,893,397)
- ------------------------------------------------------------------------------------------
Series II (20,378) (135)
==========================================================================================
Total distributions from net investment income (2,186,522) (1,893,532)
==========================================================================================
Distributions to shareholders from net realized gains:
Series I (834,392) --
- ------------------------------------------------------------------------------------------
Series II (7,888) --
==========================================================================================
Total distributions from net realized gains (842,280) --
==========================================================================================
Decrease in net assets resulting from distributions (3,028,802) (1,893,532)
==========================================================================================
Share transactions-net:
Series I (12,475,511) (65,084,200)
- ------------------------------------------------------------------------------------------
Series II 1,586,646 135
==========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (10,888,865) (65,084,065)
==========================================================================================
Net increase (decrease) in net assets 6,503,516 (62,637,418)
==========================================================================================
NET ASSETS:
Beginning of year 141,252,663 203,890,081
==========================================================================================
End of year (including undistributed net investment income
of $1,895,827 and $2,163,085, respectively) $147,756,179 $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
December 31, 2006
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-one 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.
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 or official closing price as of the close of
the customary trading session on the exchange where the security is
principally traded, or lacking any sales or official closing price on a
particular day, the security may be valued at the closing bid price on that
day. Securities traded in the over-the-counter market 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. 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 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 open-end and closed-end registered
investment companies that trade on an exchange are valued at the last sales
price or official closing price as of the close of the customary trading
session on the exchange where the security is principally traded.
Debt obligations (including convertible bonds) and unlisted equities 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.
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. If market quotations are available and reliable for
foreign exchange traded equity securities, the securities will be valued at
the market quotations. Because trading hours for certain foreign securities
end before the close of the NYSE, closing market quotations may become
unreliable. If between the time trading ends on a particular security and
the close of the customary trading session on the NYSE, events occur that
are significant and may make the closing price unreliable, the Fund may
fair value the security. 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 prices are not provided by any of the above
methods may be valued based upon quotes furnished by independent sources
and are valued at the last bid price in the case of equity securities and
in the case of debt obligations, the mean between the last bid and asked
prices.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
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
AIM V.I. Financial Services Fund
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 the 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 to distribute substantially all of the
Fund's taxable earnings to shareholders. As such, the Fund will not be
subject to federal income taxes on otherwise taxable income (including net
realized capital gain) that 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. ACCOUNTING ESTIMATES -- 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.
H. INDEMNIFICATIONS -- 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.
I. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in
foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from (i) sales
of foreign currencies, (ii) currency gains or losses realized between the
trade and settlement dates on securities transactions, and (iii) the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
The Fund may invest in foreign securities which may be subject to foreign
taxes on income, gains on investments or currency repatriation, a portion
of which may be recoverable. Taxes are accrued based on the Fund's current
interpretation of tax regulations and rates that exist in the foreign
markets in which the Fund invests.
J. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security.
Fluctuations in the value of these contracts are recorded as unrealized
appreciation (depreciation) until the contracts are closed. When these
contracts are closed, realized gains (losses) are recorded. Realized and
unrealized gains and losses on these contracts are included in the
Statement of Operations. The Fund could be exposed to risk, which may be in
excess of the amount reflected in the Statement of Assets and Liabilities,
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 V.I. Financial Services Fund
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>
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 at least 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. In addition, the Fund may also benefit from a one time credit to be used
to offset future custodian expenses. These credits are used to pay certain
expenses incurred by the Fund. AIM did not waive fees and/or reimburse expenses
during the period under this expense limitation.
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in
the amount of 25% of the advisory fee AIM receives from the affiliated money
market funds on investments by the Fund in such affiliated money market funds.
Voluntary fee waivers or reimbursements may be modified or discontinued at any
time upon consultation with the Board of Trustees without further notice to
investors.
For the year ended December 31, 2006, AIM waived advisory fees of $1,374.
At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the year ended December 31, 2006, AMVESCAP did not
reimburse any such expenses.
The Trust has entered into a master administrative services agreement with
AIM pursuant to which the Fund 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. The
Fund may reimburse AIM for up to 0.25% of average daily assets invested by each
insurance company providing administrative services to the Fund. Pursuant to
such agreement, for the year ended December 31, 2006, AIM was paid $50,000 for
accounting and fund administrative services and reimbursed $334,973 for services
provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with AIM
Investment Services, Inc. ("AIS") pursuant to which the Fund has agreed to pay
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 year ended December 31, 2006, expenses incurred under the
agreement are shown in the Statement of Operations as transfer agent fees.
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 Plan payments, 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. For the year ended December 31, 2006, expenses
incurred under the Plan are shown in the Statement of Operations as distribution
fees.
Certain officers and trustees of the Trust are officers and directors of
AIM, AIS and/or ADI.
AIM V.I. Financial Services Fund
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to procedures approved by the Board of Trustees,
to invest daily available cash balances 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 table below shows the
transactions in and earnings from investments in an affiliated money market fund
for the year ended December 31, 2006.
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/05 AT COST FROM SALES (DEPRECIATION) 12/31/06 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ -- $13,335,822 $ (7,509,486) $ -- $ 5,826,336 $103,450 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
Premier
Portfolio-
Institutional
Class 5,064,797 31,630,823 (30,869,283) -- 5,826,337 169,948 --
==================================================================================================================================
Total
Investments
in
Affiliates $5,064,797 $44,966,645 $(38,378,769) $ -- $11,652,673 $273,398 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</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 year ended December 31, 2006, the Fund
engaged in securities purchases of $193,600.
NOTE 5-- EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) custodian credits which
result from periodic overnight cash balances at the custodian and (ii) a one
time custodian fee credit to be used to offset future custodian fee. For the
year ended December 31, 2006, the Fund received credits from these arrangements,
which resulted in the reduction of the Fund's total expenses of $1,830.
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 year ended December 31, 2006, the Fund paid legal fees of $4,248
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 Securities and Exchange Commission, the
Fund may participate in an interfund lending facility that AIM has established
for temporary borrowings by the AIM Funds. An interfund loan will be made under
this facility only if the loan rate (an average of the rate available on bank
loans and the rate available on investments in overnight repurchase agreements)
is favorable to both the lending fund and the borrowing fund. A loan will be
secured by collateral if the Fund's aggregate borrowings from all sources
exceeds 10% of the Fund's total assets. To the extent that the loan is required
to be secured by collateral, the collateral is marked to market daily to ensure
that the market value is at least 102% of the outstanding principal value of the
loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended December 31, 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 bank 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 contractually agreed upon rate.
AIM V.I. Financial Services Fund
NOTE 8--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years December 31, 2006 and
2005 was as follows:
<Table>
<Caption>
2006 2005
- --------------------------------------------------------------------------------------
Distributions paid from:
Ordinary income $2,186,522 $1,893,532
- --------------------------------------------------------------------------------------
Long-term capital gain 842,280 --
======================================================================================
Total distributions $3,028,802 $1,893,532
______________________________________________________________________________________
======================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2006, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2006
- ----------------------------------------------------------------------------
Undistributed ordinary income $ 2,157,654
- ----------------------------------------------------------------------------
Undistributed long-term gain 6,993,719
- ----------------------------------------------------------------------------
Unrealized appreciation -- investments 30,141,984
- ----------------------------------------------------------------------------
Temporary book/tax differences (19,027)
- ----------------------------------------------------------------------------
Post October Currency loss deferral (144)
- ----------------------------------------------------------------------------
Shares of beneficial interest 108,481,993
============================================================================
Total net assets $147,756,179
____________________________________________________________________________
============================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales. The tax-basis net unrealized appreciation on investments amount
includes appreciation (depreciation) on foreign currencies of $(83).
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the currency losses deferred, trustee
deferral of compensation and retirement plan benefits.
The Fund does not have a capital loss carryforward as of December 31, 2006.
NOTE 9--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities,
U.S. Treasury obligations and money market funds, if any) purchased and sold by
the Fund during the year ended December 31, 2006 was $17,747,719 and
$34,789,845, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $32,670,067
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (2,528,000)
===============================================================================
Net unrealized appreciation of investment securities $30,142,067
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $119,531,459.
</Table>
AIM V.I. Financial Services Fund
NOTE 10--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
2006(A) 2005
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Series I 1,717,516 $ 28,153,085 1,679,434 $ 24,855,189
- ----------------------------------------------------------------------------------------------------------------------
Series II 94,755 1,577,115 -- --
======================================================================================================================
Issued as reinvestment of dividends:
Series I 175,406 3,000,536 123,028 1,893,397
- ----------------------------------------------------------------------------------------------------------------------
Series II 1,660 28,266 9 135
======================================================================================================================
Reacquired:
Series I (2,756,103) (43,629,132) (6,506,406) (91,832,786)
- ----------------------------------------------------------------------------------------------------------------------
Series II (1,101) (18,735) -- --
======================================================================================================================
(767,867) $(10,888,865) (4,703,935) $(65,084,065)
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
(a) There are three entities that are each record owners of more than 5% of
the outstanding shares of the Fund and in the aggregate they own 79% of
the outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with
these entities whereby these entities sell units of interest in separate
accounts funding variable products that are invested in the Fund. The
Fund, AIM and/or AIM affiliates may make payments to these entities,
which are considered to be related to the Fund, for providing services
to the Fund, AIM and/or AIM affiliates including but not limited to
services such as, securities brokerage, 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 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 for 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 FIN 48 provisions during the fiscal year ending
December 31, 2007.
AIM V.I. Financial Services Fund
NOTE 12--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
-----------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
2006 2005 2004 2003 2002
- -------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 15.26 $ 14.61 $ 13.54 $ 10.50 $ 12.42
- -------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.23(a) 0.19(a) 0.15 0.08 0.08
- -------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.28 0.66 1.02 3.02 (1.93)
===============================================================================================================================
Total from investment operations 2.51 0.85 1.17 3.10 (1.85)
===============================================================================================================================
Less distributions:
Dividends from net investment income (0.26) (0.20) (0.10) (0.06) (0.07)
- -------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.10) -- -- -- --
===============================================================================================================================
Total distributions (0.36) (0.20) (0.10) (0.06) (0.07)
===============================================================================================================================
Net asset value, end of period $ 17.41 $ 15.26 $ 14.61 $ 13.54 $ 10.50
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Total return(b) 16.52% 5.84% 8.68% 29.58% (14.90)%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $146,092 $141,241 $203,879 $210,352 $142,403
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Ratio of expenses to average net assets 1.12%(c) 1.12% 1.12% 1.09% 1.09%
===============================================================================================================================
Ratio of net investment income to average net assets 1.44%(c) 1.30% 0.89% 0.87% 0.57%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
Portfolio turnover rate 14% 22% 67% 65% 72%
_______________________________________________________________________________________________________________________________
===============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns do not reflect charges assessed
in connection with a variable product, which if included would reduce
total returns.
(c) Ratios are based on average daily net assets of $133,432,989.
<Table>
<Caption>
SERIES II
-------------------------------------------
APRIL 30, 2004
YEAR ENDED (DATE SALES
DECEMBER 31, COMMENCED) TO
--------------------- DECEMBER 31,
2006 2005 2004
- ---------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $15.23 $14.59 $13.50
- ---------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.20(a) 0.15(a) 0.12
- ---------------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 2.26 0.67 1.07
=========================================================================================================
Total from investment operations 2.46 0.82 1.19
=========================================================================================================
Less distributions:
Dividends from net investment income (0.26) (0.18) (0.10)
- ---------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.10) -- --
=========================================================================================================
Total distributions (0.36) (0.18) (0.10)
=========================================================================================================
Net asset value, end of period $17.33 $15.23 $14.59
_________________________________________________________________________________________________________
=========================================================================================================
Total return(b) 16.22% 5.61% 8.85%
_________________________________________________________________________________________________________
=========================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,664 $ 11 $ 11
_________________________________________________________________________________________________________
=========================================================================================================
Ratio of expenses to average net assets 1.37%(c) 1.37% 1.38%(d)
=========================================================================================================
Ratio of net investment income to average net assets 1.19%(c) 1.05% 0.63%(d)
_________________________________________________________________________________________________________
=========================================================================================================
Portfolio turnover rate(e) 14% 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 based on average daily net assets of $332,268.
(d) Annualized.
(e) 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 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. 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 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; 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. On September 15, 2006, the
MDL Court granted the AMVESCAP defendants' motion to dismiss the Amended Class
Action Complaint for Violations of ERISA and dismissed such Complaint. The
plaintiff has commenced an appeal from that decision.
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.
AIM V.I. Financial Services Fund
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V.I. Financial Services Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM V.I. Financial Services Fund
(one of the funds constituting AIM Variable Insurance Funds, hereafter referred
to as the "Fund") at December 31, 2006, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the periods
indicated, in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 2006 by correspondence with the custodian and brokers, provide a
reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
February 14, 2007
Houston, Texas
AIM V.I. Financial Services Fund
TAX INFORMATION
Form 1099-DIV, Form 1042-S and other year-end tax information provide
shareholders with actual calendar year amounts that should be included in their
tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the
Internal Revenue Code or to meet a specific state's requirement.
The Fund designates the following amounts or, if subsequently determined to
be different, the maximum amount allowable for its fiscal year ended December
31, 2006:
<Table>
FEDERAL AND STATE INCOME TAX
Long-Term Capital Gain Dividends $842,280
Corporate Dividends Received
Deduction* 100%
</Table>
* The above percentages are based on ordinary income dividends paid to
shareholders during the Fund's fiscal year.
AIM V.I. Financial Services Fund
TRUSTEES AND OFFICERS
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management None
Trustee and Vice Chair Group Inc. (financial services holding
company); Director and Vice Chairman,
AMVESCAP PLC; Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm) and
Trustee and Vice Chair of The AIM Family
of Funds--Registered Trademark--
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer);
Chief Executive Officer, AMVESCAP
PLC -- Managed Products; and President
and Principal Executive Officer of The
AIM Family of Funds--Registered
Trademark--
- -------------------------------------------------------------------------------------------------------------------------------
Philip A. Taylor(2) -- 1954 2006 Director, Chief Executive Officer and None
Trustee, President and President, A I M Management Group Inc.,
Principal AIM Mutual Fund Dealer Inc. (registered
Executive Officer broker dealer), AIM Funds Management
Inc. (registered investment advisor) and
1371 Preferred Inc. (holding company);
Director and President, A I M Advisors,
Inc., INVESCO Funds Group, Inc.
(registered investment advisor and
register transfer agent) and AIM GP
Canada Inc. (general partner for a
limited partnership); Director, A I M
Capital Management, Inc. and A I M
Distributors, Inc.; Director and
Chairman, AIM Investment Services, Inc.,
Fund Management Company and INVESCO
Distributors, Inc. (registered broker
dealer); Director, President and
Chairman, AVZ Callco Inc. (holding
company); AMVESCAP Inc. (holding
company) and AIM Canada Holdings Inc.
(holding company); Director and Chief
Executive Officer, AIM Trimark Corporate
Class Inc. (formerly AIM Trimark Global
Fund Inc.) (corporate mutual fund
company) and AIM Trimark Canada Fund
Inc. (corporate mutual fund company);
Trustee, President and Principal
Executive Officer of The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); Trustee and
Executive Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); and Manager,
Powershares Capital Management LLC
Formerly: President and Principal
Executive Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); Chairman, AIM
Canada Holdings, Inc.; Executive Vice
President and Chief Operations Officer,
AIM Funds Management Inc.; President,
AIM Trimark Global Fund Inc. and AIM
Trimark Canada Fund Inc.; and Director,
Trimark Trust (federally regulated
Canadian Trust Company)
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company
Formerly: Partner, law firm of Baker & (2 portfolios))
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Founder, Green, Manning & Bunch Ltd., None
Trustee (investment banking firm); and Director,
Policy Studies, Inc. and Van Gilder
Insurance Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and None
Trustee private business corporations, including
the Boss Group Ltd. (private investment
and management); Cortland Trust, Inc.
(Chairman) (registered investment
company (3 portfolios)); Annuity and
Life Re (Holdings), Ltd. (insurance
company); CompuDyne Corporation
(provider of products and services to
the public security market); and
Homeowners of America Holding
Corporation (property casualty company)
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and Director of various
affiliated Volvo companies; and
Director, Magellan Insurance Company
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund
company); and Owner, Dos Angelos Ranch, (non-profit)
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- -------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company
(3 portfolios))
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired Director, Mainstay VP Series
Trustee Formerly: Partner, Deloitte & Touche Funds, Inc. (21 portfolios)
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
(2) Mr. Taylor is considered an interested person of the Trust because he is an
officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
TRUSTEES AND OFFICERS--(CONTINUED)
AIM V.I. Financial Services Fund
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Senior Vice President and Senior Officer N/A
Senior Vice President and of The AIM Family of Funds--Registered
Senior Officer Trademark--
Formerly: Director of Compliance and
Assistant General Counsel, ICON
Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
John M. Zerr -- 1962 2006 Director, Senior Vice President, N/A
Senior Vice President, Chief Secretary and General Counsel, A I M
Legal Officer and Secretary Management Group Inc. and A I M
Advisors, Inc.; Director, Vice President
and Secretary, INVESCO Distributors,
Inc.; Vice President and Secretary,
A I M Capital Management, Inc., AIM
Investment Services, Inc., and Fund
Management Company; Senior Vice
President and Secretary, A I M
Distributors, Inc.; Director and Vice
President, INVESCO Funds Group Inc.;
Senior Vice President, Chief Legal
Officer and Secretary of The AIM Family
of Funds--Registered Trademark--; and
Manager, Powershares Capital Management
LLC
Formerly: Chief Operating Officer,
Senior Vice President, General Counsel,
and Secretary, Liberty Ridge Capital,
Inc. (an investment adviser); Vice
President and Secretary, PBHG Funds (an
investment company); Vice President and
Secretary, PBHG Insurance Series Fund
(an investment company); General Counsel
and Secretary, Pilgrim Baxter Value
Investors (an investment adviser); Chief
Operating Officer, General Counsel and
Secretary, Old Mutual Investment
Partners (a broker-dealer); General
Counsel and Secretary, Old Mutual Fund
Services (an administrator); General
Counsel and Secretary, Old Mutual
Shareholder Services (a shareholder
servicing center); Executive Vice
President, General Counsel and
Secretary, Old Mutual Capital, Inc. (an
investment adviser); and Vice President
and Secretary, Old Mutual Advisors Funds
(an investment company)
- ------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Global Compliance Director, AMVESCAP N/A
Vice President PLC; and Vice President of The AIM
Family of Funds--Registered Trademark--
Formerly: Senior Vice President, A I M
Management Group Inc. (financial
services holding company); Senior Vice
President and Chief Compliance Officer,
A I M Advisors, Inc. and The AIM Family
of Funds--Registered Trademark--; Vice
President and Chief Compliance Officer,
A I M Capital Management, Inc. and A I M
Distributors, Inc.; Vice President, AIM
Investment Services, Inc. and Fund
Management Company; Senior Vice
President and Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; and Senior Vice President
and Compliance Director, Delaware
Investments Family of Funds
- ------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Senior Vice President and General
Vice President Counsel, AMVESCAP PLC; Director, INVESCO
Funds Group, Inc.; and Vice President of
The AIM Family of Funds--Registered
Trademark--
Formerly: Director, Vice President and N/A
General Counsel, Fund Management
Company; Director, Senior Vice
President, Secretary and General
Counsel, A I M Management Group Inc. and
A I M Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Senior Vice President, A I M
Distributors, Inc.; Vice President,
A I M Capital Management, Inc. and AIM
Investment Services, Inc.; Senior Vice
President, Chief Legal Officer and
Secretary of The AIM Family of
Funds--Registered Trademark--; Chief
Executive Officer and President, INVESCO
Funds Group, Inc.; and Senior Vice
President, and General Counsel, Liberty
Financial Companies, Inc. and Senior
Vice President and General Counsel
Liberty Funds Group, LLC
- ------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President, Principal Advisors, Inc.; and Vice President,
Financial Officer and Treasurer and Principal Officer of The
Treasurer AIM Family of Funds--Registered
Trademark--
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
J. Philip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment Officer, A I M Advisors Inc.;
Director, Chairman, Chief Executive
Officer, President and Chief Investment
Officer, A I M Capital Management, Inc.;
Executive Vice President, A I M
Management Group Inc. and Vice President
of The AIM Family of Funds--Registered
Trademark--
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; and
Chief Equity Officer, Senior Vice
President and Senior Investment Officer,
A I M Capital Management, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc. and The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); and
President and Principal Executive
Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust Only)
Formerly: Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only)
- ------------------------------------------------------------------------------------------------------------------------------
Lance A. Rejsek -- 1967 2005 Anti-Money Laundering Compliance N/A
Anti-Money Laundering Officer, A I M Advisors, Inc., A I M
Compliance Officer Capital Management, Inc., A I M
Distributors, Inc., AIM Investment
Services, Inc., AIM Private Asset
Management, Inc., Fund Management
Company and The AIM Family of
Funds--Registered Trademark--
Formerly: Manager of the Fraud
Prevention Department, AIM Investment
Services, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
Todd L. Spillane -- 1958 2006 Senior Vice President, A I M Management N/A
Chief Compliance Officer Group Inc.; Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc.; and Vice President,
A I M Distributors, Inc., AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Global Head of Product
Development, AIG-Global Investment
Group, Inc.; Chief Compliance Officer
and Deputy General Counsel,
AIG-SunAmerica Asset Management; and
Chief Compliance Officer, Chief
Operating Officer and Deputy General
Counsel, American General Investment
Management
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers
Suite 100 11 Greenway Plaza Inc. LLP
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Ballard Spahr INDEPENDENT TRUSTEES AIM Investment State Street Bank and
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis Services, Inc. Trust Company
1735 Market Street, 51st & Frankel LLP P.O. Box 4739 225 Franklin Street
Floor 1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Philadelphia, PA 19103-7599 Americas
New York, NY 10036-2714
</Table>
SECTOR EQUITY AIM V.I. GLOBAL HEALTH CARE FUND
Sectors Annual Report to Shareholders - December 31, 2006
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 in [COVER GLOBE IMAGE]
Washington, D.C. 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 AIM V.I. GLOBAL HEALTH CARE FUND
without charge, upon request, from our seeks capital growth.
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 UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT
site. Go to AIMinvestments.com, access IS AS OF DECEMBER 31, 2006, AND IS BASED ON TOTAL NET ASSETS.
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
[AIM INVESTMENTS LOGO] INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ
--Registered Trademark-- EACH CAREFULLY BEFORE INVESTING.
=========================================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE AIM V.I. GLOBAL HEALTH CARE FUND
PERFORMANCE SUMMARY term commercial potential of each
company's current and prospective
The year ended December 31, 2006, was a difficult one for the health care sector. For products, especially products that fill
the year, AIM V.I. Global Health Care Fund fared better than its peer group index but otherwise unfilled market segments.
trailed its broad market and style-specific indexes. The Fund underperformed the MSCI
World Index --SERVICE MARK-- because the health care sector was one of the weakest We seek to manage risk by generally:
performing sectors of the market. The Fund underperformed the MSCI World Health Care
Index due primarily to an overweight position in biotechnology stocks and an - Limiting investments in a single stock.
underweight position in pharmaceutical stocks relative to the index.
- Diversifying across industries.
Your Fund's long-term performance appears on pages 4-5.
- Monitoring political trends that could
FUND VS. INDEXES negatively affect a specific industry.
TOTAL RETURNS, 12/31/05 - 12/31/06, EXCLUDING VARIABLE PRODUCT ISSUER CHARGES. IF We may sell a holding when:
VARIABLE PRODUCT ISSUER CHARGES WERE INCLUDED, RETURNS WOULD BE LOWER.
- We identify a more attractive investment
Series I Shares 5.24% opportunity.
Series II Shares 4.96
MSCI World Index (Broad Market Index)(1) 20.07 - We see a deterioration of a company's
S&P 500 --REGISTERED TRADEMARK-- Index (Former Broad Market Index) 15.78 fundamentals.
MSCI World Health Care Index (Style-Specific Index)(2) 10.47
Goldman Sachs Health Care Index (Former Style-Specific Index) 5.42 - A company fails to capitalize on a
Lipper Health/Biotechnology Funds Index (Peer Group Index) 4.80 market opportunity.
SOURCE: A I M MANAGEMENT GROUP, INC., LIPPER INC., FACTSET RESEARCH SYSTEMS INC. - A change in management occurs.
(1) The Fund has elected to use the MSCI World Index as its broad-based index instead - A stock's price target has been met.
of the S&P 500 Index as it better represents the global investments of the Fund.
MARKET CONDITIONS AND YOUR FUND
(2) The Fund has elected to use the MSCI World Health Care Index as its
style-specific index instead of the Goldman Sachs Health Care Index as it better The year started off on a positive note
represents the global investments of the Fund. the markets were encouraged by strong
economic data. Ben Bernanke took the helm
======================================================================================= as the new chairman of the U.S. Federal
Reserve Board (the Fed). However, tensions
HOW WE INVEST in the Middle East escalated with the
Israel-Lebanon conflict, residential
We seek health care stocks of all market We typically invest in four broad segments housing markets showed signs of cooling
capitalizations from around the world that of the health care sector: and rising energy prices heightened
we believe are attractively priced and pharmaceuticals, biotechnology, medical inflation concerns. These factors led to a
have the potential to benefit from technology and health services. We look slight sell-off in the markets mid way
long-term earnings and cash flow growth. for companies that are financially healthy through the year, as investors became
and, in our opinion, likely to sustain concerned about an economic downturn. This
their profitability. We assess the long- affected small-cap stocks more than
large-cap stocks, as they are generally
more sensitive to signs of economic
weakness. However, the markets staged a
rally
====================================================================================================================================
PORTFOLIO COMPOSITION TOP FIVE INDUSTRIES* TOP 10 EQUITY HOLDINGS*
- ------------------------------------------------------------------------------------------------------------------------------------
By country 1. Pharmaceuticals 34.4% 1. Roche Holding A.G. (Switzerland) 5.5%
United States 72.7% 2. Biotechnology 21.5 2. Novartis A.G.-ADR (Switzerland) 3.7
Switzerland 9.2 3. Health Care Equipment 12.1 3. Johnson & Johnson 3.7
France 3.6 4. Managed Health Care 6.8 4. Pfizer Inc. 3.2
Countries Each With Less 5. Life Sciences Tools & Services 6.2 5. Amgen Inc. 2.8
Than 2.0% of Portfolio 6.5 6. Gilead Sciences, Inc. 2.7
Money Market Funds Plus Total Net Assets $333.16 million 7. Genzyme Corp. 2.6
Other Assets Less Liabilities 8.0 8. Wyeth 2.4
Total Number of Holdings* 95 9. UnitedHealth Group Inc. 2.1
10.Cytyc Corp. 1.8
* Excluding money market fund holdings.
The Fund's holdings are subject to change, and there is no assurance that the
Fund will continue to hold any particular security.
===================================================================================================================================
2
AIM V.I. GLOBAL HEALTH CARE FUND
beginning in August after the Fed held software maker dropped throughout the year Derek M. Taner Chartered
interest rates steady after 17 consecutive due to accounting restatements, Securities [TANER Financial Analyst, portfolio
increases. Also contributing to the rally Exchange Commission audits, management PHOTO] manager, is manager of AIM
was a series of solid economic reports turnover and possible delisting of the V.I. Global Health Care Fund.
that indicated the economy, while slowing, security. We sold the position due to Mr. Taner began his investment career in
continued to expand, and inflation these developments. 1993 and joined AIM in 2005. He earned a
remained within manageable levels. B.S. in accounting and an M.B.A. from the
MEDIMMUNE, a biotech firm focused on Haas School of Business at the University
Against this backdrop, utilities and treatments related to infectious and of California at Berkeley.
telecommunication services were the inflammatory diseases and cancer, also
best-performing sectors of the MSCI World detracted from performance over the year. Assisted by the Global Health Care Team
Index. The health care sector was one of Shares declined during the third quarter
the weakest sectors of the broad market, of 2006 after the company reported a
as managed health care and health care decrease in year-over-year revenues, which
information technology stocks struggled. were mostly due to increased competition.
Pharmaceutical stocks, which comprise We continued to own the stock as the long
approximately 60% of the MSCI World Health term fundamentals had not changed.
Care Index, were one of the best
performing industries in the sector for We maintained our foreign exposure
the year, significantly outperforming with moderate weight in Japan, France and
biotechnology stocks. Switzerland. During the year, we reduced
our Japanese holdings to take profits, and
Relative to the style-specific index, we increased our position in the United
our overweight position in biotechnology States as we identified attractive buying
stocks and underweight position in opportunities domestically.
pharmaceutical stocks detracted from
performance. On the other hand, the Fund's During the year, we positioned the
stock selection in pharmaceuticals and an Fund in anticipation of the impact of the
overweight position in life science tools Medicare Modernization Act, as we believed
and services stocks were positive this law could have a positive influence
contributors to absolute performance. on a number of health care industries.
Stocks that enhanced Fund performance IN CLOSING
included Shire, a specialty pharmaceutical
company focusing on central nervous As always, we thank you for your continued
system, gastrointestinal and human genetic investment and welcome any new
therapies. In an effort to expand its investors to AIM V.I. Global Health Care
product pipeline through in-licensing, Fund.
Shire is actively seeking collaborative
partnerships for products in its strategic THE VIEWS AND OPINIONS EXPRESSED IN
areas of focus in various phases of the MANAGEMENT'S DISCUSSION OF FUND
development process. Shire's stock rose in PERFORMANCE ARE THOSE OF A I M ADVISORS,
anticipation of a patent settlement for INC. THESE VIEWS AND OPINIONS ARE SUBJECT
the company's largest product, attention TO CHANGE AT ANY TIME BASED ON FACTORS
deficit hyperactivity disorder (ADHD) SUCH AS MARKET AND ECONOMIC CONDITIONS.
medication Adderall XR --REGISTERED THESE VIEWS AND OPINIONS MAY NOT BE RELIED
TRADEMARK--, and after the release of UPON AS INVESTMENT ADVICE OR
favorable clinical data regarding a new RECOMMENDATIONS, OR AS AN OFFER FOR A
ADHD drug. PARTICULAR SECURITY. THE INFORMATION IS
NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF
IPSEN, a manufacturer of medical ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR
drugs for targeted disease areas of THE FUND. STATEMENTS OF FACT ARE FROM
oncology, endocrinology and neuromuscular SOURCES CONSIDERED RELIABLE, BUT A I M
disorders, was another strong contributor ADVISORS, INC. MAKES NO REPRESENTATION OR
to performance for the year. Shares of the WARRANTY AS TO THEIR COMPLETENESS OR
stock appreciated following its initial ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE
public offering in December 2005. The IS NO GUARANTEE OF FUTURE RESULTS, THESE
stock also benefited from recent favorable INSIGHTS MAY HELP YOU UNDERSTAND OUR
clinical data released by the company. INVESTMENT MANAGEMENT PHILOSOPHY.
On the other hand, health care FOR A DISCUSSION OF THE RISKS OF INVESTING
technology stock MERGE TECHNOLOGIES IN YOUR FUND, INDEXES USED IN THIS REPORT
detracted from performance. Shares of the AND YOUR FUND'S LONG-TERM PERFORMANCE,
medical imaging PLEASE SEE PAGES 4-5.
3
YOUR FUND'S LONG-TERM PERFORMANCE AIM V.I. GLOBAL HEALTH CARE FUND
========================================== RESTATED HISTORICAL PERFORMANCE OF SERIES INSURANCE FUNDS, IS CURRENTLY OFFERED
AVERAGE ANNUAL TOTAL RETURNS I SHARES (FOR PERIODS PRIOR TO INCEPTION THROUGH INSURANCE COMPANIES ISSUING
- ------------------------------------------ OF SERIES II SHARES) ADJUSTED TO REFLECT VARIABLE PRODUCTS. YOU CANNOT PURCHASE
As of 12/31/06 THE RULE 12b-1 FEES APPLICABLE TO SERIES SHARES OF THE FUND DIRECTLY. PERFORMANCE
SERIES I SHARES II SHARES. THE INCEPTION DATE OF SERIES I FIGURES GIVEN REPRESENT THE FUND AND ARE
Inception (5/21/97) 8.70% SHARES IS MAY 21, 1997. THE PERFORMANCE OF NOT INTENDED TO REFLECT ACTUAL VARIABLE
5 Years 3.40 THE FUND'S SERIES I AND SERIES II SHARE PRODUCT VALUES. THEY DO NOT REFLECT SALES
1 Year 5.24 CLASSES WILL DIFFER PRIMARILY DUE TO CHARGES, EXPENSES AND FEES ASSESSED IN
DIFFERENT CLASS EXPENSES. CONNECTION WITH A VARIABLE PRODUCT. SALES
SERIES II SHARES CHARGES, EXPENSES AND FEES, WHICH ARE
Inception 8.43% THE PERFORMANCE DATA QUOTED REPRESENT DETERMINED BY THE VARIABLE PRODUCT
5 Years 3.13 PAST PERFORMANCE AND CANNOT GUARANTEE ISSUERS, WILL VARY AND WILL LOWER THE
1 Year 4.96 COMPARABLE FUTURE RESULTS; CURRENT TOTAL RETURN.
========================================== PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE
CONTACT YOUR VARIABLE PRODUCT ISSUER OR PER NASD REQUIREMENTS, THE MOST
========================================== FINANCIAL ADVISOR FOR THE MOST RECENT RECENT MONTH-END PERFORMANCE DATA AT THE
CUMULATIVE TOTAL RETURNS MONTH-END VARIABLE PRODUCT PERFORMANCE. FUND LEVEL,EXCLUDING VARIABLE PRODUCT
- ------------------------------------------ PERFORMANCE FIGURES REFLECT FUND EXPENSES, CHARGES, IS AVAILABLE ON THIS AIM
6 months ended 12/31/06 REINVESTED DISTRIBUTIONS AND CHANGES IN AUTOMATED INFORMATION LINE, 866-702-4402.
Series I Shares 7.12% NET ASSET VALUE. INVESTMENT RETURN AND AS MENTIONED ABOVE, FOR THE MOST RECENT
Series II Shares 6.96 PRINCIPAL VALUE WILL FLUCTUATE SO THAT YOU MONTH-END PERFORMANCE INCLUDING VARIABLE
========================================== MAY HAVE A GAIN OR LOSS WHEN YOU SELL PRODUCT CHARGES, PLEASE CONTACT YOUR
SHARES. VARIABLE PRODUCT ISSUER OR FINANCIAL
SERIES II SHARES' INCEPTION DATE IS APRIL ADVISOR.
30, 2004. RETURNS SINCE THAT DATE ARE AIM V.I. GLOBAL HEALTH CARE FUND, A
HISTORICAL. ALL OTHER RETURNS ARE THE SERIES PORTFOLIO OF AIM VARIABLE
BLENDED RETURNS OF THE HISTORICAL
PERFORMANCE OF SERIES II SHARES SINCE
THEIR INCEPTION AND THE
====================================================================================================================================
PRINCIPAL RISKS OF INVESTING IN THE FUND or declares bankruptcy, the Fund may fall more than the value of shares of a
experience delays in selling the fund that invests more broadly.
Prices of equity securities change in securities underlying the repurchase
response to many factors including the agreement. ABOUT INDEXES USED IN THIS REPORT
historical and prospective earnings of the
issuer, the value of its assets, general There is no guarantee that the The unmanaged MSCI WORLD INDEX is a
economic conditions, interest rates, investment techniques and risk analyses group of global securities tracked by
investor perceptions and market liquidity. used by the Fund's portfolio managers will Morgan Stanley Capital International.
produce the desired results.
The value of convertible securities The unmanaged STANDARD & POOR'S
in which the Fund invests may be affected The Fund invests in synthetic COMPOSITE INDEX OF 500 STOCKS (the S&P 500
by market interest rates, the risk that instruments, the value of which may not Index) is an index of common stocks
the issuer may default on interest or correlate perfectly with the overall frequently used as a general measure of
principal payments and the value of the securities markets. Rising interest rates U.S. stock market performance.
underlying common stock into which these and market price fluctuations will affect
securities may be converted. the performance of the Fund's investments The unmanaged MSCI WORLD HEALTH CARE
in synthetic instruments. Also, synthetic INDEX, a subset of the MSCI World Index,
Foreign securities have additional instruments are subject to counter party includes health care securities from
risks, including exchange rate changes, risk--the risk that the other party in developed countries. The unmanaged MSCI
political and economic upheaval, the the transaction will not fulfill its World Index tracks the performance of
relative lack of information about these contractual obligation to complete the approximately 50 countries covered by
companies, relatively low market liquidity transaction with the Fund. Morgan Stanley Capital International that
and the potential lack of strict financial are considered developed markets.
and accounting controls and standards. The value of the Fund's shares is
particularly vulnerable to factors The unmanaged GOLDMAN SACHS HEALTH
Investing in emerging markets affecting the health care industry, such CARE INDEX is a modified
involves greater risk than investing in as substantial government regulation. capitalization-weighted index designed as
more established markets. The risks Government regulation may impact the a benchmark for U.S. traded securities in
include the relatively smaller size and demand for products and services offered the health care sector. The index includes
lesser liquidity of these markets, high by health care companies. Also, the companies in the following categories:
inflation rates, adverse political products and services offered by health providers of health care related services,
developments and lack of timely care companies may be subject to rapid researchers, manufacturers, and
information. obsolescence caused by scientific advances distributors
and technological innovations. These
If the seller of a repurchase factors can cause the Fund's shares to
agreement in which the Fund invests rise and
defaults on its obligation
Continued on page 5
4
AIM V.I. GLOBAL HEALTH CARE FUND
Past performance cannot guarantee of charts in illustrating changes in value each segment represents a doubling, or
comparable future results. during the early years shown in the chart. 100% change, in the value of the
The vertical axis, the one that indicates investment. In other words, the space
This chart, which is a logarithmic the dollar value of an investment, is between $5,000 and $10,000 is the same
chart, presents the fluctuations in the constructed with each segment representing size as the space between $10,000 and
value of the Fund and its indexes. We a percent change in the value of the $20,000, and so on.
believe that a logarithmic chart is more investment. In this chart,
effective than other types
====================================================================================================================================
Continued from page 4
of pharmaceuticals, drugs and related performance of the Fund may deviate product issuer charges. If such charges
sciences, and medical supplies, significantly from the performance of the were included, the total returns would be
instruments and products. indexes. lower.
The unmanaged LIPPER HEALTH/ A direct investment cannot be made in Industry classifications used in this
BIOTECHNOLOGY FUNDS INDEX represents an an index. Unless otherwise indicated, report are generally according to the
average of the 30 largest health and index results include reinvested Global Industry Classification Standard,
biotechnology funds tracked by Lipper dividends, and they do not reflect sales which was developed by and is the
Inc., an independent mutual fund charges. Performance of an index of funds exclusive property and a service mark of
performance monitor. reflects fund expenses; performance of a Morgan Stanley Capital International Inc.
market index does not. and Standard & Poor's.
In conjunction with the annual
prospectus update on or about May 1, 2007, OTHER INFORMATION The Chartered Financial Analyst
the AIM V.I. Global Health Care Fund --Registered Trademark-- (CFA --Registered
prospectus will be amended to reflect that The returns shown in management's Trademark--) designation is a globally
the Fund has elected to use the Lipper discussion of Fund performance are based recognized standard for measuring the
Variable Underlying Funds (VUF) on net asset values calculated for competence and integrity of investment
Health/Biotechnology Funds Category shareholder transactions. Generally professionals.
Average as its peer group index rather accepted accounting principles require
than the Lipper Health/Biotechnology Funds adjustments to be made to the net assets
Index. The Lipper VUF of the Fund at period end for financial
Health/Bio-technology Funds Category reporting purposes, and as such, the net
Average, recently published by Lipper asset values for shareholder transactions
Inc., comprises the largest underlying and the returns based on those net asset
funds in each variable insurance category values may differ from the net asset
and does not include mortality and expense values and returns reported in the
fees. Financial Highlights. Additionally, the
returns and net asset values shown
The Fund is not managed to track the throughout this report are at the Fund
performance of any particular index, level only and do not include variable
including the indexes defined here, and
consequently, the
5
====================================================================================================================================
[MOUNTAIN CHART]
RESULTS OF A $10,000 INVESTMENT
Fund data from 5/21/97, index data from 5/31/97
AIM V.I. LIPPER
GLOBAL HEALTH CARE FUND GOLDMAN SACHS HEALTH/BIOTECHNOLOGY FUNDS
DATE -SERIES I SHARES S&P 500 INDEX MSCI WORLD INDEX HEALTH CARE INDEX INDEX
- --------------------------------------------------------------------------------------------------------------------------
5/21/97 $ 10000
5/97 10000 $ 10000 $ 10000 $ 10000 $ 10000
6/97 10000 10445 10497 10781 10505
7/97 9930 11275 10979 11118 10848
8/97 10250 10644 10243 10491 10556
9/97 10610 11227 10797 11066 11402
10/97 10610 10852 10227 10932 11117
11/97 10910 11354 10407 11344 11199
12/97 11040 11549 10532 11676 11252
1/98 11589 11677 10823 12216 11486
2/98 12049 12518 11554 13007 12130
3/98 12699 13159 12040 13598 12586
4/98 12999 13294 12156 13955 12678
5/98 12909 13066 12002 13730 12309
6/98 13629 13596 12285 14519 12666
7/98 13639 13452 12263 14527 12524
8/98 12289 11509 10626 12614 10696
9/98 13618 12247 10812 14036 12007
10/98 14068 13241 11788 14664 12466
11/98 14798 14043 12487 15447 13110
12/98 15768 14852 13095 16376 14177
1/99 15871 15473 13380 16316 14409
2/99 15623 14992 13022 16114 14036
3/99 15984 15592 13562 16606 14396
4/99 15108 16196 14095 15833 13698
5/99 14531 15813 13578 15567 13625
6/99 15108 16689 14209 16225 14286
7/99 14830 16170 14165 15719 14303
8/99 15367 16090 14138 16024 14695
9/99 14428 15649 13999 14595 13634
10/99 15171 16639 14724 15660 14280
11/99 15514 16977 15137 16123 14881
12/99 16536 17976 16360 15713 15644
1/00 17507 17073 15421 16735 16761
2/00 21068 16750 15461 16680 19085
3/00 17187 18388 16528 16567 17120
4/00 16309 17835 15827 17307 16945
5/00 16433 17469 15424 17984 17252
6/00 19664 17899 15942 19941 20199
7/00 18435 17620 15491 19267 19575
8/00 21056 18713 15993 19964 21330
9/00 22180 17726 15141 20844 22265
10/00 21892 17650 14885 21347 21988
11/00 20386 16260 13980 21648 21314
12/00 21587 16340 14204 22431 22477
1/01 19385 16919 14478 20360 20619
2/01 19301 15377 13252 20264 20411
3/01 16956 14404 12380 18457 18090
4/01 18279 15522 13292 19056 19494
5/01 18941 15626 13119 19687 20230
6/01 18961 15246 12706 19188 20485
7/01 18620 15096 12536 19717 19855
8/01 18454 14152 11933 19212 19585
9/01 17803 13009 10880 19063 18528
10/01 18547 13257 11088 19091 19148
11/01 19415 14274 11742 20111 20111
12/01 18868 14399 11814 19731 20125
1/02 17934 14189 11455 18991 18927
2/02 17571 13916 11355 19106 18315
3/02 17821 14439 11877 19344 18824
4/02 17229 13564 11452 18135 17871
5/02 17064 13464 11471 17781 17350
6/02 16059 12506 10773 16089 15944
7/02 15156 11531 9864 15737 15361
8/02 15062 11607 9881 15850 15164
9/02 15031 10346 8793 15003 14654
10/02 15092 11256 9441 15699 15197
11/02 14553 11918 9948 16137 15459
12/02 14252 11218 9465 15579 14851
1/03 14160 10925 9177 15589 14794
2/03 13932 10761 9016 15320 14469
3/03 14553 10865 8986 15786 14985
4/03 15227 11759 9783 16513 15731
5/03 15807 12378 10339 17282 17074
====================================================================================================================================
SOURCES: A I M MANAGEMENT GROUP INC., LIPPER INC., FACTSET RESEARCH SYSTEMS INC.
====================================================================================================================================
[MOUNTAIN CHART]
6/03 16532 12536 10517 18024 17474
7/03 16605 12758 10729 18094 18068
8/03 16212 13006 10960 17699 17836
9/03 16346 12868 11026 17725 17911
10/03 16855 13596 11679 17900 18151
11/03 17497 13715 11856 18224 18640
12/03 18212 14434 12598 19196 19385
1/04 18886 14699 12801 19760 20219
2/04 19156 14903 13015 20032 20475
3/04 18938 14678 12929 19453 20396
4/04 18855 14448 12664 20147 20726
5/04 18834 14646 12770 20120 20641
6/04 18949 14931 13042 20116 20702
7/04 17715 14437 12616 18857 19225
8/04 17882 14495 12671 19090 19369
9/04 18078 14652 12911 19037 19886
10/04 17975 14875 13227 18593 19533
11/04 18182 15477 13922 19069 20303
12/04 19591 16004 14453 20399 21660
1/05 18896 15614 14128 19780 20923
2/05 18875 15942 14575 20306 20827
3/05 18397 15660 14294 20324 20442
4/05 18728 15363 13981 21129 20995
5/05 19215 15851 14229 21517 21588
6/05 19360 15874 14352 21613 21920
7/05 20345 16464 14854 22361 23162
8/05 20717 16314 14966 22459 23416
9/05 20883 16446 15354 22313 23630
10/05 20376 16172 14982 21862 23080
11/05 20812 16783 15481 22332 23710
12/05 21184 16789 15824 22870 24146
1/06 22065 17233 16531 23145 24914
2/06 22365 17280 16506 23323 25220
3/06 22263 17495 16869 23060 25057
4/06 21619 17730 17381 22333 24193
5/06 20914 17220 16787 21937 23362
6/06 20810 17243 16783 21947 23408
7/06 21049 17349 16887 22865 23704
8/06 21765 17761 17326 23466 24410
9/06 21795 18219 17532 23699 24443
10/06 22107 18812 18176 23849 25091
11/06 22242 19169 18621 23814 25179
12/06 22304 19438 18999 24111 25304
====================================================================================================================================
CALCULATING YOUR ONGOING FUND EXPENSES AIM V.I. GLOBAL HEALTH CARE FUND
EXAMPLE ACTUAL EXPENSES 5% per year before expenses, which is not
the Fund's actual return. The Fund's
As a shareholder of the Fund, you incur The table below provides information about actual cumulative total returns at net
ongoing costs, including management fees; actual account values and actual expenses. asset value after expenses for the six
distribution and/or service (12b-1) fees; You may use the information in this table, months ended December 31, 2006, appear in
and other Fund expenses. This example is together with the amount you invested, to the table "Cumulative Total Returns" on
intended to help you understand your estimate the expenses that you paid over page 4.
ongoing costs (in dollars) of investing in the period. Simply divide your account
the Fund and to compare these costs with value by $1,000 (for example, an $8,600 The hypothetical account values and
ongoing costs of investing in other mutual account value divided by $1,000 = 8.6), expenses may not be used to estimate the
funds. The example is based on an then multiply the result by the number in actual ending account balance or expenses
investment of $1,000 invested at the the table under the heading entitled you paid for the period. You may use this
beginning of the period and held for the "Actual Expenses Paid During Period" to information to compare the ongoing costs
entire period July 1, 2006, through estimate the expenses you paid on your of investing in the Fund and other funds.
December 31, 2006. account during this period. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples
The actual and hypothetical expenses HYPOTHETICAL EXAMPLE FOR COMPARISON that appear in the shareholder reports of
in the examples below do not represent the PURPOSES the other funds.
effect of any fees or other expenses
assessed in connection with a variable The table below also provides information Please note that the expenses shown
product; if they did, the expenses shown about hypothetical account values and in the table are meant to highlight your
would be higher while the ending account hypothetical expenses based on the Fund's ongoing costs. Therefore, the hypothetical
values shown would be lower. actual expense ratio and an assumed rate information is useful in comparing ongoing
of return of costs, and will not help you determine the
relative total costs of owning different
funds.
====================================================================================================================================
HYPOTHETICAL
ACTUAL (5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (7/1/06) (12/31/06)(1) PERIOD (2) (12/31/06) PERIOD (2) RATIO
- ------------------------------------------------------------------------------------------------------------------------------------
Series I $ 1,000.00 $ 1,071.20 $ 5.69 $ 1,019.71 $ 5.55 1.09%
Series II 1,000.00 1,069.60 6.99 1,018.45 6.82 1.34
===================================================================================================================================
(1) The actual ending account value is based on the actual total return of
the Fund for the period July 1, 2006, through December 31, 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 December 31,
2006, appear in the table "Cumulative Total Returns" on page 4.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated
above multiplied by the average account value over the period, multiplied
by 184/365 to reflect the most recent fiscal half year.
6
APPROVAL OF INVESTMENT ADVISORY AGREEMENT AIM V.I. GLOBAL HEALTH CARE FUND
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 the range of services to be provided by and after taking account of all of the
management of AIM V.I. Global Health Care AIM under the Advisory Agreement was other factors that the Board considered in
Fund (the "Fund") and, as required by law, appropriate and that AIM currently is determining whether to continue the
determines annually whether to approve the providing services in accordance with the Advisory Agreement for the Fund, the Board
continuance of the Fund's advisory terms of the Advisory Agreement. concluded that no changes should be made
agreement with A I M Advisors, Inc. to the Fund and that it was not necessary
("AIM"). Based upon the recommendation of - The quality of services to be provided to change the Fund's portfolio management
the Investments Committee of the Board, at by AIM. The Board reviewed the credentials team at this time. Although the
a meeting held on June 27, 2006, the and experience of the officers and independent written evaluation of the
Board, including all of the independent employees of AIM who will provide Fund's Senior Officer (discussed below)
trustees, approved the continuance of the investment advisory services to the Fund. only considered Fund performance through
advisory agreement (the "Advisory In reviewing the qualifications of AIM to the most recent calendar year, the Board
Agreement") between the Fund and AIM for provide investment advisory services, the also reviewed more recent Fund
another year, effective July 1, 2006. Board considered such issues as AIM's performance, which did not change their
portfolio and product review process, conclusions.
The Board considered the factors various back office support functions
discussed below in evaluating the fairness provided by AIM and AIM's equity and fixed - Meetings with the Fund's portfolio
and reasonableness of the Advisory income trading operations. Based on the managers and investment personnel. With
Agreement at the meeting on June 27, 2006 review of these and other factors, the respect to the Fund, the Board is meeting
and as part of the Board's ongoing Board concluded that the quality of periodically with such Fund's portfolio
oversight of the Fund. In their services to be provided by AIM was managers and/or other investment personnel
deliberations, the Board and the appropriate and that AIM currently is and believes that such individuals are
independent trustees did not identify any providing satisfactory services in competent and able to continue to carry
particular factor that was controlling, accordance with the terms of the Advisory out their responsibilities under the
and each trustee attributed different Agreement. Advisory Agreement.
weights to the various factors.
- The performance of the Fund relative to - Overall performance of AIM. The Board
One responsibility of the independent comparable funds. The Board reviewed the considered the overall performance of AIM
Senior Officer of the Fund is to manage performance of the Fund during the past in providing investment advisory and
the process by which the Fund's proposed one and three calendar years against the portfolio administrative services to the
management fees are negotiated to ensure performance of funds advised by other Fund and concluded that such performance
that they are negotiated in a manner which advisors with investment strategies was satisfactory.
is at arms' length and reasonable. To that comparable to those of the Fund. The Board
end, the Senior Officer must either noted that the Fund's performance in such - Fees relative to those of clients of AIM
supervise a competitive bidding process or periods was below the median performance with comparable investment strategies. The
prepare an independent written evaluation. of such comparable funds. The Board also Board reviewed the effective advisory fee
The Senior Officer has recommended an noted that AIM began serving as investment rate (before waivers) for the Fund under
independent written evaluation in lieu of advisor to the Fund in April 2004. The the Advisory Agreement. The Board noted
a competitive bidding process and, upon Board noted that AIM has recently made that this rate was (i) above the effective
the direction of the Board, has prepared changes to the Fund's portfolio management advisory fee rate (before waivers) for one
such an independent written evaluation. team, which need more time to be evaluated mutual fund advised by AIM with investment
Such written evaluation also considered before a conclusion can be made that the strategies comparable to those of the
certain of the factors discussed below. In changes have addressed the Fund's Fund; (ii) the same as the effective
addition, as discussed below, the Senior under-performance. Based on this review advisory fee rates (before waivers) for
Officer made a recommendation to the Board and after taking account of all of the three variable insurance funds advised by
in connection with such written other factors that the Board considered in AIM and offered to insurance company
evaluation. determining whether to continue the separate accounts with investment
Advisory Agreement for the Fund, the Board strategies comparable to those of the
The discussion below serves as a concluded that no changes should be made Fund; and (iii) above the effective
summary of the Senior Officer's to the Fund and that it was not necessary sub-advisory fee rates for two offshore
independent written evaluation and to change the Fund's portfolio management funds advised and sub-advised by AIM
recommendation to the Board in connection team at this time. Although the affiliates with investment strategies
therewith, as well as a discussion of the independent written evaluation of the comparable to those of the Fund, although
material factors and the conclusions with Fund's Senior Officer (discussed below) the total advisory fees for one such
respect thereto that formed the basis for only considered Fund performance through offshore fund were above those for the
the Board's approval of the Advisory the most recent calendar year, the Board Fund and the total advisory fees for the
Agreement. After consideration of all of also reviewed more recent Fund other offshore fund were comparable to
the factors below and based on its performance, which did not change their those for the Fund. The Board noted that
informed business judgment, the Board conclusions. AIM has agreed to waive advisory fees of
determined that the Advisory Agreement is the Fund and to limit the Fund's total
in the best interests of the Fund and its - The performance of the Fund relative to operating expenses, as discussed below.
shareholders and that the compensation to indices. The Board reviewed the Based on this review, the Board concluded
AIM under the Advisory Agreement is fair performance of the Fund during the past that the advisory fee rate for the Fund
and reasonable and would have been one, three and five calendar years against under the Advisory Agreement was fair and
obtained through arm's length the performance of the Lipper reasonable.
negotiations. Health/Biotech Fund Index. The Board noted
that the Fund's performance in such - Fees relative to those of comparable
Unless otherwise stated, information periods was below the performance of such funds with other advisors. The Board
presented below is as of June 27, 2006 and Index. The Board also noted that AIM began reviewed the advisory fee rate for the
does not reflect any changes that may have serving as investment advisor to the Fund Fund under the Advisory Agreement. The
occurred since June 27, 2006, including in April 2004. The Board noted that AIM Board compared effective contractual
but not limited to changes to the Fund's has recently made changes to the Fund's advisory fee rates at a common asset level
performance, advisory fees, expense portfolio management team, which need more at the end of the past calendar year and
limitations and/or fee waivers. time to be evaluated before a conclusion noted that the Fund's rate was comparable
can be made that the changes have to the median rate of the funds advised by
- - The nature and extent of the advisory addressed the Fund's other advisors with investment strategies
services to be provided by AIM. The Board comparable to those of the
reviewed the services to be provided by
AIM under the Advisory Agreement. Based
(continued)
7
AIM V.I. GLOBAL HEALTH CARE FUND
Fund that the Board reviewed. The Board the Fund may be invested in money market - Benefits of soft dollars to AIM. The
noted that AIM has agreed to waive funds advised by AIM pursuant to the terms Board considered the benefits realized by
advisory fees of the Fund and to limit the of an SEC exemptive order. The Board found AIM as a result of brokerage transactions
Fund's total operating expenses, as that the Fund may realize certain benefits executed through "soft dollar"
discussed below. Based on this review, the upon investing cash balances in AIM arrangements. Under these arrangements,
Board concluded that the advisory fee rate advised money market funds, including a brokerage commissions paid by the Fund
for the Fund under the Advisory Agreement higher net return, increased liquidity, and/or other funds advised by AIM are used
was fair and reasonable. increased diversification or decreased to pay for research and execution
transaction costs. The Board also found services. This research may be used by AIM
- - Expense limitations and fee waivers. The that the Fund will not receive reduced in making investment decisions for the
Board noted that AIM has contractually services if it invests its cash balances Fund. The Board concluded that such
agreed to waive advisory fees of the Fund in such money market funds. The Board arrangements were appropriate.
through April 30, 2008 to the extent noted that, to the extent the Fund invests
necessary so that the advisory fees uninvested cash in affiliated money market - AIM's financial soundness in light of
payable by the Fund do not exceed a funds, AIM has voluntarily agreed to waive the Fund's needs. The Board considered
specified maximum advisory fee rate, which a portion of the advisory fees it receives whether AIM is financially sound and has
maximum rate includes breakpoints and is from the Fund attributable to such the resources necessary to perform its
based on net asset levels. The Board investment. The Board further determined obligations under the Advisory Agreement,
considered the contractual nature of this that the proposed securities lending and concluded that AIM has the financial
fee waiver and noted that it remains in program and related procedures with resources necessary to fulfill its
effect until April 30, 2008. The Board respect to the lending Fund is in the best obligations under the Advisory Agreement.
also noted that AIM has contractually interests of the lending Fund and its
agreed to waive fees and/or limit expenses respective shareholders. The Board - Historical relationship between the Fund
of the Fund through April 30, 2008 so that therefore concluded that the investment of and AIM. In determining whether to
total annual operating expenses are cash collateral received in connection continue the Advisory Agreement for the
limited to a specified percentage of with the securities lending program in the Fund, the Board also considered the prior
average daily net assets for each class of money market funds according to the relationship between AIM and the Fund, as
the Fund. The Board considered the procedures is in the best interests of the well as the Board's knowledge of AIM's
contractual nature of this fee lending Fund and its respective operations, and concluded that it was
waiver/expense limitation and noted that shareholders. beneficial to maintain the current
it remains in effect until April 30, 2008. relationship, in part, because of such
The Board considered the effect these fee - Independent written evaluation and knowledge. The Board also reviewed the
waivers/expense limitations would have on recommendations of the Fund's Senior general nature of the non-investment
the Fund's estimated expenses and Officer. The Board noted that, upon their advisory services currently performed by
concluded that the levels of fee direction, the independent Senior Vice AIM and its affiliates, such as
waivers/expense limitations for the Fund President of the Fund had prepared an administrative, transfer agency and
were fair and reasonable. independent written evaluation in order to distribution services, and the fees
assist the Board in determining the received by AIM and its affiliates for
- - Breakpoints and economies of scale. The reasonableness of the proposed management performing such services. In addition to
Board reviewed the structure of the Fund's fees of the AIM Funds, including the Fund. reviewing such services, the trustees also
advisory fee under the Advisory Agreement, The Board noted that the Senior Vice considered the organizational structure
noting that it does not include any President's written evaluation had been employed by AIM and its affiliates to
breakpoints. The Board considered whether relied upon by the Board in this regard in provide those services. Based on the
it would be appropriate to add advisory lieu of a competitive bidding process. In review of these and other factors, the
fee breakpoints for the Fund or whether, determining whether to continue the Board concluded that AIM and its
due to the nature of the Fund and the Advisory Agreement for the Fund, the Board affiliates were qualified to continue to
advisory fee structures of comparable considered the Senior Vice President's provide non-investment advisory services
funds, it was reasonable to structure the written evaluation and the recommendation to the Fund, including administrative,
advisory fee without breakpoints. Based on made by the Senior Vice President to the transfer agency and distribution services,
this review, the Board concluded that it Board that the Board consider whether the and that AIM and its affiliates currently
was not necessary to add advisory fee advisory fee waivers for certain equity are providing satisfactory non-investment
breakpoints to the Fund's advisory fee AIM Funds, including the Fund, should be advisory services.
schedule. The Board reviewed the level of simplified. The Board concluded that it
the Fund's advisory fees, and noted that would be advisable to consider this issue - Other factors and current trends. The
such fees, as a percentage of the Fund's and reach a decision prior to the Board considered the steps that AIM and
net assets, would remain constant under expiration date of such advisory fee its affiliates have taken over the last
the Advisory Agreement because the waivers. several years, and continue to take, in
Advisory Agreement does not include any order to improve the quality and
breakpoints. The Board noted that AIM has - Profitability of AIM and its affiliates. efficiency of the services they provide to
contractually agreed to waive advisory The Board reviewed information concerning the Funds in the areas of investment
fees of the Fund through April 30, 2008 to the profitability of AIM's (and its performance, product line diversification,
the extent necessary so that the advisory affiliates') investment advisory and other distribution, fund operations, shareholder
fees payable by the Fund do not exceed a activities and its financial condition. services and compliance. The Board
specified maximum advisory fee rate, which The Board considered the overall concluded that these steps taken by AIM
maximum rate includes breakpoints and is profitability of AIM, as well as the have improved, and are likely to continue
based on net asset levels. The Board profitability of AIM in connection with to improve, the quality and efficiency of
concluded that the Fund's fee levels under managing the Fund. The Board noted that the services AIM and its affiliates
the Advisory Agreement therefore would not AIM's operations remain profitable, provide to the Fund in each of these
reflect economies of scale, although the although increased expenses in recent areas, and support the Board's approval of
advisory fee waiver reflects economies of years have reduced AIM's profitability. the continuance of the Advisory Agreement
scale. Based on the review of the profitability for the Fund.
of AIM's and its affiliates' investment
- - Investments in affiliated money market advisory and other activities and its
funds. The Board also took into account financial condition, the Board concluded
the fact that uninvested cash and cash that the compensation to be paid by the
collateral from securities lending Fund to AIM under its Advisory Agreement
arrangements, if any (collectively, "cash was not excessive.
balances") of
8
AIM V.I. Global Health Care Fund
SCHEDULE OF INVESTMENTS
December 31, 2006
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
DOMESTIC COMMON STOCKS-72.70%
BIOTECHNOLOGY-21.24%
Affymax Inc.(a)(b) 14,782 $ 503,179
- ------------------------------------------------------------------------
Altus Pharmaceuticals Inc.(b) 33,800 637,130
- ------------------------------------------------------------------------
Amgen Inc.(b) 138,050 9,430,196
- ------------------------------------------------------------------------
Arena Pharmaceuticals, Inc.(a)(b) 52,812 681,803
- ------------------------------------------------------------------------
Array BioPharma Inc.(b) 62,960 813,443
- ------------------------------------------------------------------------
Biogen Idec Inc.(b) 81,693 4,018,479
- ------------------------------------------------------------------------
BioMarin Pharmaceutical Inc.(b) 142,796 2,340,426
- ------------------------------------------------------------------------
Celgene Corp.(b) 34,423 1,980,355
- ------------------------------------------------------------------------
Cubist Pharmaceuticals, Inc.(b) 91,410 1,655,435
- ------------------------------------------------------------------------
Genentech, Inc.(b) 38,820 3,149,467
- ------------------------------------------------------------------------
Genzyme Corp.(b) 142,398 8,768,869
- ------------------------------------------------------------------------
Gilead Sciences, Inc.(b) 136,179 8,842,103
- ------------------------------------------------------------------------
Human Genome Sciences, Inc.(a)(b) 134,542 1,673,703
- ------------------------------------------------------------------------
Incyte Corp.(b) 141,823 828,246
- ------------------------------------------------------------------------
InterMune, Inc.(a)(b) 38,641 1,188,211
- ------------------------------------------------------------------------
Keryx Biopharmaceuticals, Inc.(b) 54,984 731,287
- ------------------------------------------------------------------------
Mannkind Corp.(a)(b) 85,505 1,409,977
- ------------------------------------------------------------------------
Medarex, Inc.(b) 88,233 1,304,966
- ------------------------------------------------------------------------
MedImmune, Inc.(b) 148,066 4,792,896
- ------------------------------------------------------------------------
Myriad Genetics, Inc.(b) 33,198 1,039,097
- ------------------------------------------------------------------------
Nuvelo, Inc.(b) 44,477 177,908
- ------------------------------------------------------------------------
Onyx Pharmaceuticals, Inc.(a)(b) 68,070 720,181
- ------------------------------------------------------------------------
OSI Pharmaceuticals, Inc.(b) 20,342 711,563
- ------------------------------------------------------------------------
Panacos Pharmaceuticals Inc.(b) 127,437 511,022
- ------------------------------------------------------------------------
PDL BioPharma Inc.(b) 131,991 2,658,299
- ------------------------------------------------------------------------
Theravance, Inc.(b) 28,491 880,087
- ------------------------------------------------------------------------
United Therapeutics Corp.(b) 61,733 3,356,423
- ------------------------------------------------------------------------
Vanda Pharmaceuticals Inc.(b) 32,492 800,928
- ------------------------------------------------------------------------
Vertex Pharmaceuticals Inc.(b) 61,133 2,287,597
- ------------------------------------------------------------------------
ZymoGenetics, Inc.(b) 184,386 2,870,890
========================================================================
70,764,166
========================================================================
DRUG RETAIL-0.77%
CVS Corp. 82,593 2,552,950
========================================================================
HEALTH CARE DISTRIBUTORS-0.68%
PSS World Medical, Inc.(b) 116,840 2,281,885
========================================================================
</Table>
<Table>
SHARES VALUE
- ------------------------------------------------------------------------
<Caption>
HEALTH CARE EQUIPMENT-12.12%
Baxter International Inc. 74,939 $ 3,476,420
- ------------------------------------------------------------------------
Cytyc Corp.(b) 216,743 6,133,827
- ------------------------------------------------------------------------
Dexcom Inc.(a)(b) 172,706 1,702,881
- ------------------------------------------------------------------------
Hospira, Inc.(b) 121,433 4,077,720
- ------------------------------------------------------------------------
Mentor Corp.(a) 101,450 4,957,862
- ------------------------------------------------------------------------
NxStage Medical, Inc.(a)(b) 170,216 1,426,410
- ------------------------------------------------------------------------
Respironics, Inc.(b) 138,674 5,234,943
- ------------------------------------------------------------------------
St. Jude Medical, Inc.(b) 122,115 4,464,524
- ------------------------------------------------------------------------
Thoratec Corp.(b) 166,997 2,935,807
- ------------------------------------------------------------------------
Varian Medical Systems, Inc.(b) 50,922 2,422,360
- ------------------------------------------------------------------------
Zimmer Holdings, Inc.(b) 45,033 3,529,687
========================================================================
40,362,441
========================================================================
HEALTH CARE FACILITIES-0.46%
Assisted Living Concepts Inc. - Class A(b) 153,586 1,518,966
========================================================================
HEALTH CARE SERVICES-5.67%
Caremark Rx, Inc. 50,333 2,874,518
- ------------------------------------------------------------------------
DaVita, Inc.(b) 96,752 5,503,254
- ------------------------------------------------------------------------
Express Scripts, Inc.(b) 59,605 4,267,718
- ------------------------------------------------------------------------
HMS Holdings Corp.(b) 149,084 2,258,622
- ------------------------------------------------------------------------
Omnicare, Inc. 35,971 1,389,560
- ------------------------------------------------------------------------
Quest Diagnostics Inc. 49,061 2,600,233
========================================================================
18,893,905
========================================================================
HEALTH CARE SUPPLIES-0.45%
Cooper Cos., Inc. (The) 33,664 1,498,048
========================================================================
HEALTH CARE TECHNOLOGY-1.54%
Eclipsys Corp.(b) 108,137 2,223,297
- ------------------------------------------------------------------------
TriZetto Group, Inc. (The)(b) 65,202 1,197,761
- ------------------------------------------------------------------------
Vital Images, Inc.(b) 49,327 1,716,579
========================================================================
5,137,637
========================================================================
INDUSTRIAL CONGLOMERATES-1.53%
Tyco International Ltd. 167,926 5,104,950
========================================================================
LIFE SCIENCES TOOLS & SERVICES-5.44%
Charles River Laboratories International,
Inc.(b) 73,508 3,179,221
- ------------------------------------------------------------------------
Dionex Corp.(b) 9,199 521,675
- ------------------------------------------------------------------------
Invitrogen Corp.(b) 72,651 4,111,320
- ------------------------------------------------------------------------
Millipore Corp.(b) 3,436 228,838
- ------------------------------------------------------------------------
</Table>
AIM V.I. Global Health Care Fund
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
LIFE SCIENCES TOOLS & SERVICES-(CONTINUED)
Pharmaceutical Product Development, Inc. 157,002 $ 5,058,604
- ------------------------------------------------------------------------
Thermo Fisher Scientific, Inc.(b) 87,364 3,956,716
- ------------------------------------------------------------------------
Varian Inc.(b) 24,138 1,081,141
========================================================================
18,137,515
========================================================================
MANAGED HEALTH CARE-6.78%
Aetna Inc. 60,650 2,618,867
- ------------------------------------------------------------------------
Aveta, Inc. (Acquired 12/21/05; Cost
$1,655,802)(b)(c)(d) 122,652 2,085,084
- ------------------------------------------------------------------------
Coventry Health Care, Inc.(b) 60,466 3,026,323
- ------------------------------------------------------------------------
Health Net Inc.(b) 108,340 5,271,824
- ------------------------------------------------------------------------
UnitedHealth Group Inc. 128,368 6,897,213
- ------------------------------------------------------------------------
WellPoint Inc.(b) 34,069 2,680,890
========================================================================
22,580,201
========================================================================
PHARMACEUTICALS-16.02%
Adolor Corp.(b) 103,443 777,891
- ------------------------------------------------------------------------
Allergan, Inc. 44,771 5,360,880
- ------------------------------------------------------------------------
Cadence Pharmaceuticals, Inc.(a)(b) 81,101 999,164
- ------------------------------------------------------------------------
Cypress Bioscience, Inc.(b) 101,378 785,680
- ------------------------------------------------------------------------
Endo Pharmaceuticals Holdings Inc.(b) 50,185 1,384,102
- ------------------------------------------------------------------------
Forest Laboratories, Inc.(b) 65,462 3,312,377
- ------------------------------------------------------------------------
Johnson & Johnson 184,261 12,164,911
- ------------------------------------------------------------------------
Lilly (Eli) and Co. 53,720 2,798,812
- ------------------------------------------------------------------------
Medicines Co. (The)(b) 45,241 1,435,045
- ------------------------------------------------------------------------
Pfizer Inc. 416,956 10,799,160
- ------------------------------------------------------------------------
POZEN Inc.(b) 48,279 820,260
- ------------------------------------------------------------------------
Sepracor Inc.(b) 31,866 1,962,308
- ------------------------------------------------------------------------
Warner Chilcott Ltd.-Class A(b) 152,941 2,113,645
- ------------------------------------------------------------------------
Wyeth 154,645 7,874,523
- ------------------------------------------------------------------------
Xenoport Inc.(b) 32,143 789,111
========================================================================
53,377,869
========================================================================
Total Domestic Common Stocks (Cost
$226,287,353) 242,210,533
========================================================================
</Table>
<Table>
SHARES VALUE
- ------------------------------------------------------------------------
<Caption>
FOREIGN COMMON STOCKS & OTHER EQUITY
INTERESTS-19.39%
AUSTRALIA-0.27%
CSL Ltd. (Biotechnology)(e) 17,434 $ 896,527
========================================================================
CANADA-1.15%
Cardiome Pharma Corp. (Pharmaceuticals)(b) 113,015 1,260,117
- ------------------------------------------------------------------------
MDS Inc. (Life Sciences Tools & Services) 140,980 2,572,509
========================================================================
3,832,626
========================================================================
FRANCE-3.62%
Ipsen S.A. (Pharmaceuticals)(e) 31,770 1,476,457
- ------------------------------------------------------------------------
Ipsen S.A. (Pharmaceuticals) (Acquired
12/06/05; Cost $2,556,926)(c)(e) 97,682 4,539,605
- ------------------------------------------------------------------------
Sanofi-Aventis-ADR (Pharmaceuticals) 130,629 6,031,141
========================================================================
12,047,203
========================================================================
GERMANY-1.16%
Merck KGaA (Pharmaceuticals)(e) 37,463 3,883,173
========================================================================
JAPAN-1.96%
Eisai Co., Ltd. (Pharmaceuticals)(a)(e) 70,178 3,859,043
- ------------------------------------------------------------------------
Shionogi & Co., Ltd. (Pharmaceuticals)(a)(e) 136,507 2,674,445
========================================================================
6,533,488
========================================================================
SWITZERLAND-9.24%
Novartis A.G.-ADR (Pharmaceuticals) 214,499 12,320,823
- ------------------------------------------------------------------------
Roche Holding A.G. (Pharmaceuticals)(e) 103,174 18,460,006
========================================================================
30,780,829
========================================================================
UNITED KINGDOM-1.99%
AstraZeneca PLC-ADR (Pharmaceuticals) 44,390 2,377,085
- ------------------------------------------------------------------------
Shire PLC-ADR (Pharmaceuticals) 68,907 4,255,696
========================================================================
6,632,781
========================================================================
Total Foreign Common Stocks & Other
Equity Interests (Cost $50,004,218) 64,606,627
========================================================================
</Table>
AIM V.I. Global Health Care Fund
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
MONEY MARKET FUNDS-7.10%
Liquid Assets Portfolio-Institutional
Class(f) 11,818,248 $ 11,818,248
- ------------------------------------------------------------------------
Premier Portfolio-Institutional Class(f) 11,818,249 11,818,249
========================================================================
Total Money Market Funds (Cost
$23,636,497) 23,636,497
========================================================================
TOTAL INVESTMENTS (excluding investments
purchased with cash collateral from
securities loaned)-99.19% (Cost
$299,928,068) 330,453,657
========================================================================
</Table>
<Table>
SHARES VALUE
- ------------------------------------------------------------------------
<Caption>
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-3.01%
Premier Portfolio-Institutional Class(f)(g) 10,037,792 $ 10,037,792
========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $10,037,792) 10,037,792
========================================================================
TOTAL INVESTMENTS-102.20% (Cost $309,965,860) 340,491,449
========================================================================
OTHER ASSETS LESS LIABILITIES-(2.20)% (7,335,990)
========================================================================
NET ASSETS-100.00% $333,155,459
________________________________________________________________________
========================================================================
</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 December 31, 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 December 31, 2006 was $6,624,689,
which represented 1.99% of the Fund's Net Assets. Unless otherwise
indicated, these securities are not considered to be illiquid.
(d) Security considered to be illiquid. The Fund is limited to investing 15% of
net assets in illiquid securities at the time of purchase. The value of this
security considered illiquid at December 31, 2006 represented 0.63% 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 December 31, 2006 was $35,789,256,
which represented 10.74% 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
December 31, 2006
<Table>
ASSETS:
Investments, at value (cost $276,291,571)* $306,817,160
- ----------------------------------------------------------------
Investments in affiliated money market funds (cost
$33,674,289) 33,674,289
- ----------------------------------------------------------------
Total investments (cost $309,965,860) 340,491,449
================================================================
Foreign currencies, at value (cost $132) 134
- ----------------------------------------------------------------
Receivables for:
Investments sold 2,808,983
- ----------------------------------------------------------------
Fund shares sold 345,461
- ----------------------------------------------------------------
Dividends 196,408
- ----------------------------------------------------------------
Investment for trustee deferred compensation and
retirement plans 22,253
================================================================
Total assets 343,864,688
________________________________________________________________
================================================================
LIABILITIES:
Payables for:
Fund shares reacquired 304,298
- ----------------------------------------------------------------
Trustee deferred compensation and retirement
plans 37,850
- ----------------------------------------------------------------
Collateral upon return of securities loaned 10,037,792
- ----------------------------------------------------------------
Accrued administrative services fees 208,841
- ----------------------------------------------------------------
Accrued distribution fees -- Series II 53,186
- ----------------------------------------------------------------
Accrued trustees' and officer's fees and benefits 3,683
- ----------------------------------------------------------------
Accrued transfer agent fees 9,480
- ----------------------------------------------------------------
Accrued operating expenses 54,099
================================================================
Total liabilities 10,709,229
================================================================
Net assets applicable to shares outstanding $333,155,459
________________________________________________________________
================================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $313,506,295
- ----------------------------------------------------------------
Undistributed net investment income (loss) (34,023)
- ----------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign currencies (10,842,863)
- ----------------------------------------------------------------
Unrealized appreciation of investment securities
and foreign currencies 30,526,050
================================================================
$333,155,459
________________________________________________________________
================================================================
NET ASSETS:
Series I $235,509,298
________________________________________________________________
================================================================
Series II $ 97,646,161
________________________________________________________________
================================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 10,949,979
________________________________________________________________
================================================================
Series II 4,572,167
________________________________________________________________
================================================================
Series I:
Net asset value per share $ 21.51
________________________________________________________________
================================================================
Series II:
Net asset value per share $ 21.36
________________________________________________________________
================================================================
</Table>
* At December 31, 2006, securities with an aggregate value of $9,605,328 were on
loan to brokers.
STATEMENT OF OPERATIONS
For the year ended December 31, 2006
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of
$114,582) $ 1,754,371
- ------------------------------------------------------------
Dividends from affiliated money market funds
(includes securities lending income of
$43,282) 828,708
============================================================
Total investment income 2,583,079
============================================================
EXPENSES:
Advisory fees 2,129,997
- ------------------------------------------------------------
Administrative services fees 781,280
- ------------------------------------------------------------
Custodian fees 60,120
- ------------------------------------------------------------
Distribution fees -- Series II 84,977
- ------------------------------------------------------------
Transfer agent fees 42,665
- ------------------------------------------------------------
Trustees' and officer's fees and benefits 21,666
- ------------------------------------------------------------
Other 90,449
============================================================
Total expenses 3,211,154
============================================================
Less: Fees waived and expense offset
arrangements (13,295)
============================================================
Net expenses 3,197,859
============================================================
Net investment income (loss) (614,780)
============================================================
REALIZED AND UNREALIZED GAIN FROM INVESTMENT
SECURITIES AND FOREIGN CURRENCIES:
Net realized gain from:
Investment securities (includes net gains
from securities sold to affiliates of
$606,231) 9,833,287
- ------------------------------------------------------------
Foreign currencies 50,848
============================================================
9,884,135
============================================================
Change in net unrealized appreciation of:
Investment securities 7,631,766
- ------------------------------------------------------------
Foreign currencies 641
============================================================
7,632,407
============================================================
Net gain from investment securities and foreign
currencies 17,516,542
============================================================
Net increase in net assets resulting from
operations $16,901,762
____________________________________________________________
============================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. Global Health Care Fund
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2006 and 2005
<Table>
<Caption>
2006 2005
- -------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (614,780) $ (747,529)
- -------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies, foreign currency contracts and option
contracts 9,884,135 29,418,586
- -------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and foreign currencies 7,632,407 (5,403,259)
===========================================================================================
Net increase in net assets resulting from operations 16,901,762 23,267,798
===========================================================================================
Share transactions-net:
Series l (34,311,775) (120,420,216)
- -------------------------------------------------------------------------------------------
Series ll 92,818,635 --
===========================================================================================
Net increase (decrease) in net assets resulting from
share transactions 58,506,860 (120,420,216)
===========================================================================================
Net increase (decrease) in net assets 75,408,622 (97,152,418)
===========================================================================================
NET ASSETS:
Beginning of year 257,746,837 354,899,255
===========================================================================================
End of year (including undistributed net investment income
(loss) of $(34,023) and $(82,929), respectively) $333,155,459 $ 257,746,837
___________________________________________________________________________________________
===========================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. Global Health Care Fund
NOTES TO FINANCIAL STATEMENTS
December 31, 2006
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-one 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 capital growth.
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 or official closing price as of the close of
the customary trading session on the exchange where the security is
principally traded, or lacking any sales or official closing price on a
particular day, the security may be valued at the closing bid price on that
day. Securities traded in the over-the-counter market 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. 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 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 open-end and closed-end registered
investment companies that trade on an exchange are valued at the last sales
price or official closing price as of the close of the customary trading
session on the exchange where the security is principally traded.
Debt obligations (including convertible bonds) and unlisted equities 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.
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. If market quotations are available and reliable for
foreign exchange traded equity securities, the securities will be valued at
the market quotations. Because trading hours for certain foreign securities
end before the close of the NYSE, closing market quotations may become
unreliable. If between the time trading ends on a particular security and
the close of the customary trading session on the NYSE, events occur that
are significant and may make the closing price unreliable, the Fund may
fair value the security. 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 prices are not provided by any of the above
methods may be valued based upon quotes furnished by independent sources
and are valued at the last bid price in the case of equity securities and
in the case of debt obligations, the mean between the last bid and asked
prices.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
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
AIM V.I. Global Health Care Fund
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 the 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 to distribute substantially all of the
Fund's taxable earnings to shareholders. As such, the Fund will not be
subject to federal income taxes on otherwise taxable income (including net
realized capital gain) that 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. ACCOUNTING ESTIMATES -- 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.
H. INDEMNIFICATIONS -- 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.
I. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in
foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from (i) sales
of foreign currencies, (ii) currency gains or losses realized between the
trade and settlement dates on securities transactions, and (iii) the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
The Fund may invest in foreign securities which may be subject to foreign
taxes on income, gains on investments or currency repatriation, a portion
of which may be recoverable. Taxes are accrued based on the Fund's current
interpretation of tax regulations and rates that exist in the foreign
markets in which the Fund invests.
J. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security.
Fluctuations in the value of these contracts are recorded as unrealized
appreciation (depreciation) until the contracts are closed. When these
contracts are closed, realized gains (losses) are recorded. Realized and
unrealized gains and losses on these contracts are included in the
Statement of Operations. The Fund could be exposed to risk, which may be in
excess of the amount reflected in the Statement of Assets and Liabilities,
if counterparties to the contracts are unable to meet the terms of their
contracts or if the value of the foreign currency changes unfavorably.
K. COVERED CALL OPTIONS -- The Fund may write call options. A call option
gives the purchaser of such option the right to buy, and the writer (the
Fund) the obligation to sell, the underlying security at the stated
exercise price during the option period. Written call options are recorded
as a liability in the Statement of Assets and Liabilities. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. 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. Realized gains and losses on these contracts
are included in the Statement of Operations. 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. Global Health Care Fund
L. COLLATERAL -- To the extent the Fund has pledged or segregated a security
as collateral and that security is subsequently sold, it is the Fund's
practice to replace such collateral no later than the next business day.
This practice does not apply to securities pledged as collateral for
securities lending transactions.
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment 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 0.75%
- -------------------------------------------------------------------
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 at least 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. In addition, the Fund may also benefit from a one time credit to be used
to offset future custodian expenses. These credits are used to pay certain
expenses incurred by the Fund. AIM did not waive fees and/or reimburse expenses
during the period under this expense limitation.
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in
the amount of 25% of the advisory fee AIM receives from the affiliated money
market funds on investments by the Fund in such affiliated money market funds
(excluding investments made in affiliated money market funds with cash
collateral from securities loaned by the fund). Voluntary fee waivers or
reimbursements may be modified or discontinued at any time upon consultation
with the Board of Trustees without further notice to investors.
For the year ended December 31, 2006, AIM waived advisory fees of $7,362.
At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the year ended December 31, 2006, AMVESCAP did not
reimburse any such expenses.
The Trust has entered into a master administrative services agreement with
AIM pursuant to which the Fund 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. The
Fund may reimburse AIM for up to 0.25% of average daily assets invested by each
insurance company providing administrative services to the Fund. Pursuant to
such agreement, for the year ended December 31, 2006, AIM was paid $75,320 for
accounting and fund administrative services and reimbursed $705,960 for services
provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with AIM
Investment Services, Inc. ("AIS") pursuant to which the Fund has agreed to pay
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 year ended December 31, 2006, expenses incurred under the
agreement are shown in the Statement of Operations as transfer agent fees.
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 Plan payments, 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. For the year ended December 31, 2006, expenses
incurred under the Plan are shown in the Statement of Operations as distribution
fees.
Certain officers and trustees of the Trust are officers and directors of
AIM, AIS and/or ADI.
AIM V.I. Global Health Care Fund
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to 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 year ended
December 31, 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) 12/31/06 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ -- $ 59,664,465 $ (47,846,217) $ -- $11,818,248 $284,404 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
Premier
Portfolio-
Institutional
Class 5,568,522 120,245,471 (113,995,744) -- 11,818,249 501,022 --
==================================================================================================================================
Subtotal $ 5,568,522 $179,909,936 $(161,841,961) $ -- $23,636,497 $785,426 $ --
==================================================================================================================================
</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) 12/31/06 INCOME* GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Premier
Portfolio-
Institutional
Class $ 5,595,032 $259,080,340 $(254,637,580) $ -- $10,037,792 $ 43,282 $ --
==================================================================================================================================
Total
Investments
in
Affiliates $11,163,554 $438,990,276 $(416,479,541) $ -- $33,674,289 $828,708 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</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 year ended December 31, 2006, the Fund
engaged in securities sales of $2,173,321, which resulted in net realized gains
of $606,231, and securities purchases of $2,587,056.
NOTE 5-- EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) custodian credits which
result from periodic overnight cash balances at the custodian and (ii) a one
time custodian fee credit to be used to offset future custodian fees. For the
year ended December 31, 2006, the Fund received credits from these arrangements,
which resulted in the reduction of the Fund's total expenses of $5,933.
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 year ended December 31, 2006, the Fund paid legal fees of $4,728
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
AIM V.I. Global Health Care Fund
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended December 31, 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 bank 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 contractually agreed upon rate.
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 December 31, 2006, securities with an aggregate value of $9,605,328 were
on loan to brokers. The loans were secured by cash collateral of $10,037,792
received by the Fund and subsequently invested in an affiliated money market
fund. For the year ended December 31, 2006, the Fund received dividends on cash
collateral investments of $43,282 for securities lending transactions, which are
net of compensation to counterparties.
NOTE 9--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
There were no ordinary income or long-term capital gain distributions during the
years ended December 31, 2006 and 2005.
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2006, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2006
- ----------------------------------------------------------------------------
Net unrealized appreciation -- investments $ 30,381,219
- ----------------------------------------------------------------------------
Temporary book/tax differences (29,523)
- ----------------------------------------------------------------------------
Capital loss carryforward (10,698,032)
- ----------------------------------------------------------------------------
Post-October currency loss deferral (4,500)
- ----------------------------------------------------------------------------
Shares of beneficial interest 313,506,295
============================================================================
Total net assets $333,155,459
____________________________________________________________________________
============================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales. The tax-basis net unrealized appreciation on investments amount
includes appreciation on foreign currencies of $461.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions.
The Fund utilized $12,497,582 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of December 31, 2006 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
December 31, 2010 $10,698,032
_____________________________________________________________________________
=============================================================================
</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. Global Health Care Fund
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities,
U.S. Treasury obligations and money market funds, if any) purchased and sold by
the Fund during the year ended December 31, 2006 was $253,653,379 and
$214,645,041, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $38,543,041
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (8,162,283)
===============================================================================
Net unrealized appreciation of investment securities $30,380,758
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $310,110,691.
</Table>
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions and net operating losses, on December 31, 2006, undistributed net
investment income (loss) was increased by $663,686, undistributed net realized
gain (loss) was decreased by $50,848 and shares of beneficial interest decreased
by $612,838. This reclassification had no effect on the net assets of the Fund.
NOTE 12--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
2006(A) 2005
-------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------------------
Sold:
Series I 2,987,617 $ 61,430,551 1,865,466 $ 35,904,906
- ------------------------------------------------------------------------------------------------------------------------
Series II 4,597,663 93,373,802 -- --
========================================================================================================================
Reacquired:
Series I (4,650,072) (95,742,326) (8,032,556) (156,325,122)
- ------------------------------------------------------------------------------------------------------------------------
Series II (26,046) (555,167) -- --
========================================================================================================================
2,909,162 $ 58,506,860 (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 75% of
the outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with
these entities whereby these entities sell units of interest in separate
accounts funding variable products that are invested in the Fund. The
Fund, AIM, and/or AIM affiliates may make payments to these entities,
which are considered to be related to the Fund, for providing services
to the Fund, AIM and/or AIM affiliates including but not limited to
services such as, securities brokerage, third party record keeping and
account servicing and administrative services. The Trust has no
knowledge as to whether all or any portion of the shares owned of record
by these entities are also owned beneficially.
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 for 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
currently intends for the Fund to adopt FIN 48 provisions during the fiscal year
ending December 31, 2007.
AIM V.I. Global Health Care Fund
NOTE 14--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
-----------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
2006 2005 2004 2003 2002
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 20.44 $ 18.90 $ 17.57 $ 13.75 $ 18.20
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.04)(a) (0.06) (0.03) (0.03) (0.00)(b)
- -------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.11 1.60 1.36 3.85 (4.45)
=========================================================================================================================
Total from investment operations 1.07 1.54 1.33 3.82 (4.45)
=========================================================================================================================
Net asset value, end of period $ 21.51 $ 20.44 $ 18.90 $ 17.57 $ 13.75
_________________________________________________________________________________________________________________________
=========================================================================================================================
Total return(c) 5.24% 8.15% 7.57% 27.78% (24.45)%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $235,509 $257,736 $354,889 $340,711 $232,681
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratio of expenses to average net assets 1.10%(d) 1.08%(e) 1.11% 1.07% 1.07%
=========================================================================================================================
Ratio of net investment income (loss) to average net assets (0.19)%(d) (0.24)% (0.17)% (0.20)% (0.43)%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Portfolio turnover rate 79% 82% 175% 114% 130%
_________________________________________________________________________________________________________________________
=========================================================================================================================
</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
$(0.07) for the year ended December, 31 2002.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns do not reflect charges assessed
in connection with a variable product, which if included would reduce
total returns.
(d) Ratios are based on average daily net assets of $250,008,583.
(e) After fee waivers and/or expense reimbursements. Ratio of expenses to
average net assets prior to fee waivers and/or expense reimbursements
was 1.09% for the year ended December 31, 2005.
AIM V.I. Global Health Care Fund
NOTE 14--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
SERIES II
----------------------------------------
APRIL 30, 2004,
YEAR ENDED (DATE SALES
DECEMBER 31, COMMENCED) TO
--------------------- 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) (0.09)(a) (0.09) (0.05)
- ------------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 1.11 1.57 0.72
======================================================================================================
Total from investment operations 1.02 1.48 0.67
======================================================================================================
Net asset value, end of period $ 21.36 $ 20.34 $ 18.86
______________________________________________________________________________________________________
======================================================================================================
Total return(b) 5.01% 7.85% 3.68%
______________________________________________________________________________________________________
======================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $97,646 $ 11 $ 10
______________________________________________________________________________________________________
======================================================================================================
Ratio of expenses to average net assets 1.35%(c) 1.33%(d) 1.36%(e)
======================================================================================================
Ratio of net investment income (loss) to average net assets (0.44)%(c) (0.49)% (0.42)%(e)
______________________________________________________________________________________________________
======================================================================================================
Portfolio turnover rate(f) 79% 82% 175%
______________________________________________________________________________________________________
======================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(c) Ratios are based on average daily net assets of $33,990,959.
(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% 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.
AIM V.I. Global Health Care Fund
NOTE 15--LEGAL PROCEEDINGS
Terms used in the Legal Proceedings Note are defined terms solely for the
purpose of this note.
SETTLED ENFORCEMENT ACTIONS AND INVESTIGATIONS RELATED TO MARKET TIMING
On October 8, 2004, INVESCO Funds Group, Inc. ("IFG") (the former investment
advisor to certain AIM Funds), AIM and A I M Distributors, Inc. ("ADI") (the
distributor of the retail AIM Funds) reached final settlements with certain
regulators, including the Securities and Exchange Commission ("SEC"), the New
York Attorney General and the Colorado Attorney General, to resolve civil
enforcement actions and/or investigations related to market timing and related
activity in the AIM Funds, including those formerly advised by IFG. As part of
the settlements, a $325 million fair fund ($110 million of which is civil
penalties) has been created to compensate shareholders harmed by market timing
and related activity in funds formerly advised by IFG. Additionally, AIM and ADI
created a $50 million fair fund ($30 million of which is civil penalties) to
compensate shareholders harmed by market timing and related activity in funds
advised by AIM, which was done pursuant to the terms of the settlement. These
two fair funds may increase as a result of contributions from third parties who
reach final settlements with the SEC or other regulators to resolve allegations
of market timing and/or late trading that also may have harmed applicable AIM
Funds. These two fair funds will be distributed in accordance with a methodology
to be determined by AIM's independent distribution consultant, in consultation
with AIM and the independent trustees of the AIM Funds and acceptable to the
staff of the SEC. 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 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; 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. On September 15, 2006, the
MDL Court granted the AMVESCAP defendants' motion to dismiss the Amended Class
Action Complaint for Violations of ERISA and dismissed such Complaint. The
plaintiff has commenced an appeal from that decision.
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.
AIM V.I. Global Health Care Fund
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V.I. Global Health Care Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM V.I. Global Health Care Fund,
(one of the funds constituting AIM Variable Insurance Funds, hereafter referred
to as the "Fund") at December 31, 2006, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the periods
indicated, in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 2006 by correspondence with the custodian and brokers, provide a
reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
February 14, 2007
Houston, Texas
AIM V.I. Global Health Care Fund
TRUSTEES AND OFFICERS
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management None
Trustee and Vice Chair Group Inc. (financial services holding
company); Director and Vice Chairman,
AMVESCAP PLC; Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm) and
Trustee and Vice Chair of The AIM Family
of Funds--Registered Trademark--
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer);
Chief Executive Officer, AMVESCAP
PLC -- Managed Products; and President
and Principal Executive Officer of The
AIM Family of Funds--Registered
Trademark--
- -------------------------------------------------------------------------------------------------------------------------------
Philip A. Taylor(2) -- 1954 2006 Director, Chief Executive Officer and None
Trustee, President and President, A I M Management Group Inc.,
Principal AIM Mutual Fund Dealer Inc. (registered
Executive Officer broker dealer), AIM Funds Management
Inc. (registered investment advisor) and
1371 Preferred Inc. (holding company);
Director and President, A I M Advisors,
Inc., INVESCO Funds Group, Inc.
(registered investment advisor and
register transfer agent) and AIM GP
Canada Inc. (general partner for a
limited partnership); Director, A I M
Capital Management, Inc. and A I M
Distributors, Inc.; Director and
Chairman, AIM Investment Services, Inc.,
Fund Management Company and INVESCO
Distributors, Inc. (registered broker
dealer); Director, President and
Chairman, AVZ Callco Inc. (holding
company); AMVESCAP Inc. (holding
company) and AIM Canada Holdings Inc.
(holding company); Director and Chief
Executive Officer, AIM Trimark Corporate
Class Inc. (formerly AIM Trimark Global
Fund Inc.) (corporate mutual fund
company) and AIM Trimark Canada Fund
Inc. (corporate mutual fund company);
Trustee, President and Principal
Executive Officer of The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); Trustee and
Executive Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); and Manager,
Powershares Capital Management LLC
Formerly: President and Principal
Executive Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); Chairman, AIM
Canada Holdings, Inc.; Executive Vice
President and Chief Operations Officer,
AIM Funds Management Inc.; President,
AIM Trimark Global Fund Inc. and AIM
Trimark Canada Fund Inc.; and Director,
Trimark Trust (federally regulated
Canadian Trust Company)
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company
Formerly: Partner, law firm of Baker & (2 portfolios))
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Founder, Green, Manning & Bunch Ltd., None
Trustee (investment banking firm); and Director,
Policy Studies, Inc. and Van Gilder
Insurance Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and None
Trustee private business corporations, including
the Boss Group Ltd. (private investment
and management); Cortland Trust, Inc.
(Chairman) (registered investment
company (3 portfolios)); Annuity and
Life Re (Holdings), Ltd. (insurance
company); CompuDyne Corporation
(provider of products and services to
the public security market); and
Homeowners of America Holding
Corporation (property casualty company)
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and Director of various
affiliated Volvo companies; and
Director, Magellan Insurance Company
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund
company); and Owner, Dos Angelos Ranch, (non-profit)
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- -------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company
(3 portfolios))
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired Director, Mainstay VP Series
Trustee Formerly: Partner, Deloitte & Touche Funds, Inc. (21 portfolios)
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
(2) Mr. Taylor is considered an interested person of the Trust because he is an
officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
TRUSTEES AND OFFICERS--(CONTINUED)
AIM V.I. Global Health Care Fund
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Senior Vice President and Senior Officer N/A
Senior Vice President and of The AIM Family of Funds--Registered
Senior Officer Trademark--
Formerly: Director of Compliance and
Assistant General Counsel, ICON
Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
John M. Zerr -- 1962 2006 Director, Senior Vice President, N/A
Senior Vice President, Chief Secretary and General Counsel, A I M
Legal Officer and Secretary Management Group Inc. and A I M
Advisors, Inc.; Director, Vice President
and Secretary, INVESCO Distributors,
Inc.; Vice President and Secretary,
A I M Capital Management, Inc., AIM
Investment Services, Inc., and Fund
Management Company; Senior Vice
President and Secretary, A I M
Distributors, Inc.; Director and Vice
President, INVESCO Funds Group Inc.;
Senior Vice President, Chief Legal
Officer and Secretary of The AIM Family
of Funds--Registered Trademark--; and
Manager, Powershares Capital Management
LLC
Formerly: Chief Operating Officer,
Senior Vice President, General Counsel,
and Secretary, Liberty Ridge Capital,
Inc. (an investment adviser); Vice
President and Secretary, PBHG Funds (an
investment company); Vice President and
Secretary, PBHG Insurance Series Fund
(an investment company); General Counsel
and Secretary, Pilgrim Baxter Value
Investors (an investment adviser); Chief
Operating Officer, General Counsel and
Secretary, Old Mutual Investment
Partners (a broker-dealer); General
Counsel and Secretary, Old Mutual Fund
Services (an administrator); General
Counsel and Secretary, Old Mutual
Shareholder Services (a shareholder
servicing center); Executive Vice
President, General Counsel and
Secretary, Old Mutual Capital, Inc. (an
investment adviser); and Vice President
and Secretary, Old Mutual Advisors Funds
(an investment company)
- ------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Global Compliance Director, AMVESCAP N/A
Vice President PLC; and Vice President of The AIM
Family of Funds--Registered Trademark--
Formerly: Senior Vice President, A I M
Management Group Inc. (financial
services holding company); Senior Vice
President and Chief Compliance Officer,
A I M Advisors, Inc. and The AIM Family
of Funds--Registered Trademark--; Vice
President and Chief Compliance Officer,
A I M Capital Management, Inc. and A I M
Distributors, Inc.; Vice President, AIM
Investment Services, Inc. and Fund
Management Company; Senior Vice
President and Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; and Senior Vice President
and Compliance Director, Delaware
Investments Family of Funds
- ------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Senior Vice President and General
Vice President Counsel, AMVESCAP PLC; Director, INVESCO
Funds Group, Inc.; and Vice President of
The AIM Family of Funds--Registered
Trademark--
Formerly: Director, Vice President and N/A
General Counsel, Fund Management
Company; Director, Senior Vice
President, Secretary and General
Counsel, A I M Management Group Inc. and
A I M Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Senior Vice President, A I M
Distributors, Inc.; Vice President,
A I M Capital Management, Inc. and AIM
Investment Services, Inc.; Senior Vice
President, Chief Legal Officer and
Secretary of The AIM Family of
Funds--Registered Trademark--; Chief
Executive Officer and President, INVESCO
Funds Group, Inc.; and Senior Vice
President, and General Counsel, Liberty
Financial Companies, Inc. and Senior
Vice President and General Counsel
Liberty Funds Group, LLC
- ------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President, Principal Advisors, Inc.; and Vice President,
Financial Officer and Treasurer and Principal Officer of The
Treasurer AIM Family of Funds--Registered
Trademark--
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
J. Philip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment Officer, A I M Advisors Inc.;
Director, Chairman, Chief Executive
Officer, President and Chief Investment
Officer, A I M Capital Management, Inc.;
Executive Vice President, A I M
Management Group Inc. and Vice President
of The AIM Family of Funds--Registered
Trademark--
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; and
Chief Equity Officer, Senior Vice
President and Senior Investment Officer,
A I M Capital Management, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc. and The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); and
President and Principal Executive
Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust Only)
Formerly: Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only)
- ------------------------------------------------------------------------------------------------------------------------------
Lance A. Rejsek -- 1967 2005 Anti-Money Laundering Compliance N/A
Anti-Money Laundering Officer, A I M Advisors, Inc., A I M
Compliance Officer Capital Management, Inc., A I M
Distributors, Inc., AIM Investment
Services, Inc., AIM Private Asset
Management, Inc., Fund Management
Company and The AIM Family of
Funds--Registered Trademark--
Formerly: Manager of the Fraud
Prevention Department, AIM Investment
Services, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
Todd L. Spillane -- 1958 2006 Senior Vice President, A I M Management N/A
Chief Compliance Officer Group Inc.; Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc.; and Vice President,
A I M Distributors, Inc., AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Global Head of Product
Development, AIG-Global Investment
Group, Inc.; Chief Compliance Officer
and Deputy General Counsel,
AIG-SunAmerica Asset Management; and
Chief Compliance Officer, Chief
Operating Officer and Deputy General
Counsel, American General Investment
Management
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers
Suite 100 11 Greenway Plaza Inc. LLP
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Ballard Spahr INDEPENDENT TRUSTEES AIM Investment State Street Bank and
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis Services, Inc. Trust Company
1735 Market Street, 51st & Frankel LLP P.O. Box 4739 225 Franklin Street
Floor 1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Philadelphia, PA 19103-7599 Americas
New York, NY 10036-2714
</Table>
SECTOR EQUITY
AIM V.I. GLOBAL REAL ESTATE FUND
REAL ESTATE Formerly AIM V.I. Real Estate Fund
Annual Report to Shareholders - December 31, 2006
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 [COVER GLOBE IMAGE]
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 in Washington,
D.C.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 AIM V.I. GLOBAL REAL ESTATE FUND seeks to achieve
how to vote proxies relating to portfolio high total return through growth of capital
securities is available without charge, and current income.
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 UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT
tab, click on Required Notices and then IS AS OF DECEMBER 31, 2006, AND IS BASED ON TOTAL NET ASSETS.
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
[AIM INVESTMENTS LOGO] SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ EACH CAREFULLY BEFORE INVESTING.
--Registered Trademark-- ====================================================================================
====================================================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
====================================================================================
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE AIM V.I. GLOBAL REAL ESTATE FUND
HOW WE INVEST
PERFORMANCE SUMMARY On July 3, 2006, AIM V.I. Real Estate
Fund's name changed to AIM V.I. Global
We are pleased to report that AIM V.I. Global Real Estate Fund once again provided Real Estate Fund. This change, along with
shareholders with positive returns during the reporting period. On July 3, 2006, the the corresponding investment philosophy
Fund changed its investment strategy and name to reflect its new global mandate. The change, allows for a more flexible
Fund outperformed the broad market, represented by the MSCI World Index(SM), and investment universe. Your Fund holds
performed inline with its new style-specific index, the FTSE EPRA/NAREIT Global Real primarily real estate-oriented securities
Estate Index. from the U.S. and abroad whose value is
driven by tangible assets. Our goal is to
Favorable security selection within the office, diversified and residential property create a global Fund focused on total
types, as well as an overweight position in the real estate management & development return that will perform at or above index
property type, contributed most to the Fund's performance during the first half of the levels with a comparable level of risk.
reporting period. Additionally, overweight positions and strong stock selection in Our investment strategy focuses on
Australia, the United Kingdom and Singapore contributed to strong second half identifying U.S. and non-U.S. property
performance. types we believe will benefit from
long-term sector trends. We use a
Your Fund's long-term performance appears on pages 4-5. fundamentals-driven investment process,
including property market cycle analysis,
FUND VS. INDEXES property evaluation, and management and
structure review to identify securities
TOTAL RETURNS, 12/31/05-12/31/06, EXCLUDING VARIABLE PRODUCT ISSUER CHARGES. IF with:
VARIABLE PRODUCT ISSUER CHARGES WERE INCLUDED, RETURNS WOULD BE LOWER.
- Quality underlying properties.
Series I Shares 42.60%
Series II Shares 42.24 - Solid management teams.
MSCI World Index (Broad Market Index) (1) 20.07
S&P 500 --REGISTERED TRADEMARK-- Index (Former Broad Market Index) 15.78 - Attractive valuations relative to peer
FTSE NAREIT/EPRA Global Real Estate Index (Style Specific Index) (2) 42.35
MSCI U.S. REIT Index (Former Style Specific Index) 35.92 investment alternatives.
Lipper Real Estate Funds Index (Peer Group Index) 31.46
We attempt to control risk by
SOURCES: A I M MANAGEMENT GROUP INC., LIPPER INC., BLOOMBERG L.P. diversifying property types and geographic
locations as well as limiting the size of
(1) The Fund has elected to use the MSCI World Index as its broad-based index instead any one holding. We will consider selling
of the S&P 500 Index because it better represents the global investments of the a holding when:
Fund.
- Relative valuation falls below desired
(2) The Fund has elected to use the FTSE NAREIT/EPRA Global Real Estate Index as its levels.
style-specific index instead of the MSCI U.S. REIT Index because it better
represents the global investments of the Fund. - Risk/return relationships change
====================================================================================== significantly.
====================================================================================== - Company fundamentals change (property
type, geography or management changes).
PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS*
- --------------------------------------------------------------------------------------
- A more attractive investment opportunity
By property type 1. Sun Hung Kai Properties Ltd. is identified.
Retail 26.1% (Hong Kong) 3.9%
Diversified 25.2 2. Westfield Group (Australia) 3.4 MARKET CONDITIONS AND YOUR FUND
Office 22.6 3. Land Securities Group PLC
Residential 15.1 (United Kingdom) 3.1 The year started off on a positive note as
Industrial 4.8 4. Simon Property Group, Inc. 2.9 domestic markets were encouraged by strong
Hotels 3.8 5. ProLogis 2.9 economic data with small caps leading the
Money Market Funds 6. Mitsubishi Estate Co. Ltd. way. There was a slight sell-off mid-way
Plus Other Assets Less (Japan) 2.8 through the year as investors became
Liabilities 2.4 7. Mitsui Fudosan Co. Ltd. (Japan) 2.8 fearful of an economic downturn. However,
8. British Land Co. PLC markets staged a rally as the U.S. Federal
(United Kingdom) 2.7 Reserve Board (the Fed) held interest
9. Host Hotels & Resorts Inc. 2.3 rates steady after 17 consecutive
10. Stockland (Australia) 2.2 increases and a series of solid economic
reports, which indicated the economy's
Total Net Assets $192.93 strength was slowing yet intact and
million inflation was within manageable levels.
Total Number of Holdings* 93 This set the stage for small-cap stocks to
rally along with additional speculation
The Fund's holdings are subject to change, and there is no assurance that the Fund will that the Fed may lower interest rates in
continue to hold any particular security. 2007.
*Excluding money market fund holdings.
====================================================================================================================================
2
AIM V.I. GLOBAL REAL ESTATE FUND
The REIT market, both globally and Joe V. Rodriguez, Jr. Mark D. Blackburn
domestically, was among the top performing Director of Securities Chartered Financial
markets for the reporting period, easily [RODRIGUEZ Management, INVESCO Real [BLACKBURN Analyst, Director of
outpacing the broad domestic and global PHOTO] Estate, is lead manager PHOTO] Investments, INVESCO
markets as measured by the S&P 500 Index of AIM V.I. Global Real Real Estate, is manager
and the MSCI World Index, respectively. Estate Fund. He oversees all phases of of AIM V.I. Global Real
REIT performance was positive during the the unit including securities research and Estate Fund. He joined INVESCO in 1998 and
first quarter of 2006 but retreated in administration. Mr. Rodriguez began his has approximately 20 years of experience
April and May. The sector rebounded in investment career in 1983 and joined in institutional investing and risk
June and continued to perform well for the INVESCO in 1990. He has served on the management. Mr. Blackburn earned a B.S.
remainder of the year ending the reporting editorial boards of the National in accounting from Louisiana State
period with solid performance. The group's Association of Real Estate Investment University and an M.B.A. from Southern
favorable relative performance was driven Trusts (NAREIT) as well as the Methodist University. He is a certified
by a number of recurring themes, including Institutional Real Estate Securities public accountant.
ongoing REIT privatization activity, Newsletter. Mr. Rodriguez earned his
improving real estate operating B.B.A. in economics and finance as well as James Cowen Portfolio
fundamentals, growing demand for stable, his M.B.A. in finance from Baylor manager, INVESCO Real
income-producing assets and real estate University. [COWEN Estate, is manager of
and a movement toward the globalization of PHOTO] AIM V.I. Global Real
real estate mandates. of self-storage facilities in the U.S., Estate Fund. He joined
detracted the most from performance on INVESCO in 2001. He has eight years of
During the first half of the year, the news of a surprise fourth-quarter 2005 real estate experience. Mr. Cowen earned
Fund's stock selection within the office loss. We sold the position. The largest a B.A. in town and country planning from
property type contributed the most to Fund detractor from relative performance was University of Manchester and a master of
performance. Our top contributor was SL not owning Centro Properties, a retail philosophy degree from the University of
GREEN REALTY, which owns and operates a investment organization specializing in Cambridge.
portfolio of commercial office properties the ownership, management and development
in Midtown Manhattan. SL Green Realty of retail shopping centers. Despite the James W. Trowbridge
shares increased after the REIT announced stock's strong performance, we still Portfolio manager,
plans to sell properties in New York City. believe it to be relatively unattractive [TROWBRIDGE INVESCO Real Estate,
Shares of another office REIT, on a valuation basis. PHOTO] is manager of AIM V.I.
Chicago-based TRIZEC PROPERTIES, rose on Global Real Estate
news of its potential acquisition by IN CLOSING Fund. Mr. Trowbridge joined INVESCO Real
Brookfield Properties Corp. Once complete, Estate in 1989. With 32 years of real
the commercial property deal could create Over the past 12 months, the Fund and real estate investment experience for major
one of North America's largest landlords. estate markets in general have experienced institutional investors, Mr. Trowbridge is
We sold our position during the reporting strong double-digit returns. It would be responsible for integrating his knowledge
period. imprudent for us to suggest such a level into INVESCO's publicly traded REIT
of performance is sustainable over the investments. Mr. Trowbridge earned his
Positive returns during the second half long term. B.S. in finance from Indiana University.
of the year -- and outperformance versus
the style-specific index -- resulted from We'd like to thank you for Ping Ying Wang
overweight positions and strong stock continuing to invest in the AIM V.I. Chartered Financial
selection in Australia, the U.K. and Global Real Estate Fund, and we'd like to [WANG Analyst, portfolio
Singapore. Our overweight positions in CFS welcome any new shareholders who invested PHOTO] manager, INVESCO Real
RETAIL PROPERTY TRUST, which invests in with us during the reporting period. Estate, is manager of
high quality regional and sub-regional AIM V.I. Global Real Estate Fund. She has
shopping centers across Australia, THE VIEWS AND OPINIONS EXPRESSED IN 10 years of real estate experience. She
Stockland Trust, a leading Australian MANAGEMENT'S DISCUSSION OF FUND earned a B.S. in international finance
diversified property group, and CAPITAL & PERFORMANCE ARE THOSE OF A I M ADVISORS, from the People's University of China and
REGIONAL, a co-investing real estate asset INC. THESE VIEWS AND OPINIONS ARE SUBJECT a Ph.D. in finance from the University of
manager in the U.K., contributed the most TO CHANGE AT ANY TIME BASED ON FACTORS Texas at Dallas.
to the Fund's relative outperformance for SUCH AS MARKET AND ECONOMIC CONDITIONS.
the period. THESE VIEWS AND OPINIONS MAY NOT BE RELIED Assisted by the Real Estate Team
UPON AS INVESTMENT ADVICE OR
Conversely, despite positive RECOMMENDATIONS, OR AS AN OFFER FOR A Effective January 25, 2007, after the
performance by the REIT market during the PARTICULAR SECURITY. THE INFORMATION IS close of the reporting period, Paul S.
first half of the year, a few holdings NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF Curbo was added to the portfolio team and
detracted from our performance. U-STORE IT ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR James Cowen left the portfolio team.
TRUST, a REIT that engages in the THE FUND. STATEMENTS OF FACT ARE FROM
development and operation SOURCES CONSIDERED RELIABLE, BUT A I M FOR A DISCUSSION OF THE RISKS OF INVESTING
ADVISORS, INC. MAKES NO REPRESENTATION OR IN YOUR FUND, INDEXES USED IN THIS REPORT
WARRANTY AS TO THEIR COMPLETENESS OR AND YOUR FUND'S LONG-TERM PERFORMANCE,
ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE PLEASE SEE PAGES 4-5.
IS NO GUARANTEE OF FUTURE RESULTS, THESE
INSIGHTS MAY HELP YOU UNDERSTAND OUR
INVESTMENT MANAGEMENT PHILOSOPHY.
3
YOUR FUND'S LONG-TERM PERFORMANCE AIM V.I. GLOBAL REAL ESTATE FUND
==========================================
AVERAGE ANNUAL TOTAL RETURNS INCEPTION OF SERIES II SHARES) ADJUSTED TO PURCHASE SHARES OF THE FUND DIRECTLY.
REFLECT THE RULE 12B-1 FEES APPLICABLE TO PERFORMANCE FIGURES GIVEN REPRESENT THE
As of 12/31/06 SERIES II SHARES. THE INCEPTION DATE OF FUND AND ARE NOT INTENDED TO REFLECT
SERIES I SHARES SERIES I SHARES IS MARCH 31, 1998. THE ACTUAL VARIABLE PRODUCT VALUES. THEY DO
Inception (3/31/98) 15.54% PERFORMANCE OF THE FUND'S SERIES I AND NOT REFLECT SALES CHARGES, EXPENSES AND
5 Years 26.86 SERIES II SHARE CLASSES WILL DIFFER FEES ASSESSED IN CONNECTION WITH A
1 Year 42.60 PRIMARILY DUE TO DIFFERENT CLASS EXPENSES. VARIABLE PRODUCT. SALES CHARGES, EXPENSES
SERIES II SHARES AND FEES, WHICH ARE DETERMINED BY THE
Inception 15.26% THE PERFORMANCE DATA QUOTED REPRESENT VARIABLE PRODUCT ISSUERS, WILL VARY AND
5 Years 26.56 PAST PERFORMANCE AND CANNOT GUARANTEE WILL LOWER THE TOTAL RETURN.
1 Year 42.24 COMPARABLE FUTURE RESULTS; CURRENT
========================================== PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE PER NASD REQUIREMENTS, THE MOST RECENT
========================================== CONTACT YOUR VARIABLE PRODUCT ISSUER OR MONTH-END PERFORMANCE DATA AT THE FUND
CUMULATIVE TOTAL RETURNS FINANCIAL ADVISOR FOR THE MOST RECENT LEVEL, EXCLUDING VARIABLE PRODUCT CHARGES,
MONTH-END VARIABLE PRODUCT PERFORMANCE. IS AVAILABLE ON THIS AIM AUTOMATED
6 months ended 12/31/06 PERFORMANCE FIGURES REFLECT FUND EXPENSES, INFORMATION LINE, 866-702-4402. AS
REINVESTED DISTRIBUTIONS AND CHANGES IN MENTIONED ABOVE, FOR THE MOST RECENT
Series I Shares 25.18% NET ASSET VALUE. INVESTMENT RETURN AND MONTH-END PERFORMANCE INCLUDING VARIABLE
Series II Shares 24.97 PRINCIPAL VALUE WILL FLUCTUATE SO THAT YOU PRODUCT CHARGES, PLEASE CONTACT YOUR
MAY HAVE A GAIN OR LOSS WHEN YOU SELL VARIABLE PRODUCT ISSUER OR FINANCIAL
SHARES. ADVISOR.
SERIES II SHARES' INCEPTION DATE IS APRIL
30, 2004. RETURNS SINCE THAT DATE ARE AIM V.I. GLOBAL REAL ESTATE FUND, A HAD THE ADVISOR NOT WAIVED FEES
HISTORICAL. ALL OTHER RETURNS ARE THE SERIES PORTFOLIO OF AIM VARIABLE INSURANCE AND/OR REIMBURSED EXPENSES IN THE PAST,
BLENDED RETURNS OF THE HISTORICAL FUNDS, IS CURRENTLY OFFERED THROUGH PERFORMANCE WOULD HAVE BEEN LOWER.
PERFORMANCE OF SERIES II SHARES SINCE INSURANCE COMPANIES ISSUING VARIABLE
THEIR INCEPTION AND THE RESTATED PRODUCTS. YOU CANNOT
HISTORICAL PERFORMANCE OF SERIES I SHARES
(FOR PERIODS PRIOR TO
====================================================================================================================================
PRINCIPAL RISKS OF INVESTING IN THE FUND ments and lack of timely information. the Fund may have additional risks
relating to direct ownership in real
Prices of equity securities change in If the seller of a repurchase agreement estate, including difficulties in
response to many factors including the in which the Fund invests defaults on its valuating and trading real estate,
historical and prospective earnings of the obligation or declares bankruptcy, the declines in the value of the properties,
issuer, the value of its assets, general Fund may experience delays in selling the risk relating to general and local
economic conditions, interest rates, securities underlying the repurchase economic conditions, changes in the
investor perceptions and market liquidity. agreement. climate for real estate, increases in
taxes, expenses and costs, changes in
The value of convertible securities in There is no guarantee that the laws, casualty and condemnation losses,
which the Fund invests may be affected by investment techniques and risk analyses rent control limitations and increases in
market interest rates, the risk that the used by the Fund's portfolio managers will interest rates.
issuer may default on interest or produce the desired results.
principal payments and the value of the Because the Fund focuses its
underlying common stock into which these The Fund invests in synthetic investments in real estate investment
securities may be converted. instruments, the value of which may not trusts (REITs) -- real estate operating
correlate perfectly with the overall companies and other companies related to
Foreign securities have additional securities markets. Rising interest rates the real estate industry -- the value of
risks, including exchange rate changes, and market price fluctuations will affect your shares may rise and fall more than
political and economic upheaval, the the performance of the Fund's investments the value of shares of a fund that invests
relative lack of information about these in synthetic instruments. Also, synthetic in a broader range of companies.
companies, relatively low market liquidity instruments are subject to counter party
and the potential lack of strict financial risk -- the risk that the other party in About indexes used in this report
and accounting controls and standards. the transaction will not fulfill its
contractual obligation to complete the The unmanaged MSCI WORLD INDEX is a group
Investing in emerging markets involves transaction with the Fund. of global securities tracked by Morgan
greater risk than investing in more Stanley Capital International.
established markets. The risks include the Debt securities are particularly
relatively smaller size and lesser vulnerable to credit risk and interest The FTSE EPRA/NAREIT GLOBAL REAL ESTATE
liquidity of these markets, high inflation rate fluctuations. INDEX is designed to track the performance
rates, adverse political develop- of listed real estate companies and REITs
The Fund could conceivably hold real worldwide. It is compiled by FTSE Group
estate directly if a company defaults on (an independent company, originally a
debt securities the Fund owns. In that joint venture of the Financial Times and
event, an investment in the London Stock Exchange, whose sole
business is the creation and management of
indexes and associated data services);
NAREIT (National Association of
Continued on page 5
4
AIM V.I. GLOBAL REAL ESTATE FUND
Past performance cannot guarantee value of an investment, is constructed
comparable future results. with each segment representing a percent
change in the value of the investment. In
This chart, which is a logarithmic this chart, each segment represents a
chart, presents the fluctuations in the doubling, or 100% change, in the value of
value of the Fund and its indexes. We the investment. In other words, the space
believe that a logarithmic chart is more between $5,000 and $10,000 is the same
effective than other types of charts in size as the space between $10,000 and
illustrating changes in value during the $20,000, and so on.
early years shown in the chart. The
vertical axis, the one that indicates the
dollar
====================================================================================================================================
Continued from page 4
Real Estate Investment Trusts) and EPRA In conjunction with the annual ples require adjustments to be made to the
(European Public Real Estate Association). prospectus update on or about May 1, 2007, net assets of the Fund at period end for
the AIM V.I. Global Real Estate Fund financial reporting purposes, and as such,
FTSE (TM) is a trademark of London prospectus will be amended to reflect that the net asset values for shareholder
Stock Exchange Plc and The Financial Times the Fund has elected to use the Lipper transactions and the returns based on
Limited, NAREIT --Registered Trademark-- Variable Underlying Funds (VUF) Real those net asset values may differ from the
is a trademark of the National Association Estate Funds Category Average as its peer net asset values and returns reported in
of Real Estate Investment Trusts group rather than the Lipper Real Estate the Financial Highlights. Additionally,
- --Registered Trademark--("NAREIT") and Funds Index. The Lipper VUF Real Estate the returns and net asset values shown
both are used by FTSE under license. The Funds Category Average, recently published throughout this report are at the Fund
FTSE EPRA/NAREIT Global Real Estate Index by Lipper Inc., comprises the underlying level only and do not include variable
is calculated by FTSE. All rights in the funds in each variable insurance category product issuer charges. If such charges
Indices vest in FTSE and NAREIT. Neither and does not include mortality and expense were included, the total returns would be
FTSE nor NAREIT accept any liability for fees. lower.
any errors or omissions in the FTSE
Indices or underlying data. The Fund is not managed to track the Property type classifications used in
performance of any particular index, this report are generally according to the
The unmanaged LIPPER REAL ESTATE FUNDS including the indexes defined here, and FTSE EPRA/NAREIT Global Real Estate Index,
INDEX represents an average of the consequently, the performance of the Fund which is exclusively owned by the FTSE
performance of the 30 largest real estate may deviate significantly from the Group, the European Public Real Estate
funds tracked by Lipper Inc., an performance of the indexes. Association (EPRA), the National
independent mutual fund performance Association of Real Estate Investment
monitor. A direct investment cannot be made in Trusts (NAREIT) and Euronext Indices BV.
an index. Unless otherwise indicated,
The unmanaged STANDARD & POOR'S index results include reinvested The Chartered Financial Analyst
COMPOSITE INDEX of 500 Stocks (the S&P 500 dividends, and they do not reflect sales --Registered Trademark-- (CFA --Registered
Index) is an index of common stocks charges. Performance of an index of funds Trademark--) designation is a globally
frequently used as a general measure of reflects fund expenses; performance of a recognized standard for measuring the
U.S. stock market performance. market index does not. competence and integrity of investment
professionals.
The MSCI US REIT Index is a Other information
total-return index composed of the most
actively traded real estate investment The returns shown in management's
trusts and is designed to be a measure of discussion of Fund performance are based
real estate equity performance. The index on net asset values calculated for
was developed with a base value of 200 as shareholder transactions. Generally
of December 31, 1994. It is compiled by accepted accounting princi-
Morgan Stanley Capital International.
5
RESULTS OF A $10,000 INVESTMENT
Fund and index data from 3/31/98
====================================================================================================================================
[MOUNTAIN CHART]
AIM V.I. GLOBAL REAL ESTATE FUND
DATE -SERIES I SHARES S&P 500 INDEX MSCI WORLD INDEX MSCI U.S.REIT INDEX LIPPER REAL ESTATE FUNDS INDEX
3/31/1998 $10000 $10000 $10000 $10000 $10000
4/30/1998 9710 10102 10096 9646 9689
5/31/98 9610 9929 9968 9562 9563
6/30/98 9500 10332 10203 9561 9462
7/31/98 8920 10223 10185 8890 8859
8/31/98 7830 8746 8826 8053 7946
9/30/98 8180 9307 8980 8551 8315
10/31/98 8090 10062 9790 8390 8218
11/30/98 8400 10672 10371 8522 8398
12/31/98 8412 11287 10876 8370 8294
1/31/99 8207 11758 11113 8145 8109
2/28/99 8074 11393 10816 8011 7969
3/31/1999 7972 11849 11264 7967 7898
4/30/1999 8892 12308 11707 8738 8745
5/31/99 9087 12017 11277 8923 8923
6/30/99 8974 12682 11802 8757 8845
7/31/99 8565 12288 11765 8481 8501
8/31/99 8565 12227 11742 8400 8360
9/30/99 8228 11892 11627 8048 8026
10/31/99 8043 12645 12230 7865 7816
11/30/99 7972 12902 12572 7748 7696
12/31/99 8441 13661 13588 7989 8001
1/31/00 8473 12974 12808 8039 7930
2/29/00 8538 12729 12841 7911 7794
3/31/00 9029 13973 13727 8201 8132
4/30/00 9423 13553 13145 8752 8537
5/31/00 9135 13275 12811 8833 8635
6/30/00 9764 13602 13241 9052 9004
7/31/00 10587 13390 12867 9873 9664
8/31/00 10448 14221 13284 9468 9393
9/30/00 10587 13470 12576 9759 9705
10/31/00 10245 13413 12363 9296 9292
11/30/00 10213 12357 11611 9459 9435
12/31/00 10859 12417 11797 10131 10046
1/31/01 10934 12858 12025 10174 10101
2/28/01 10538 11686 11007 10000 9954
3/31/01 10077 10946 10282 10082 9909
4/30/01 10559 11796 11040 10316 10132
5/31/01 10527 11875 10896 10547 10354
6/30/01 10891 11586 10553 11183 10917
7/31/01 10570 11472 10412 10941 10722
8/31/01 10591 10755 9911 11346 11055
9/30/01 10163 9886 9036 10893 10528
10/31/01 9960 10075 9209 10528 10184
11/30/01 10452 10847 9752 11142 10723
12/31/01 10775 10943 9813 11431 11062
1/31/02 10732 10783 9514 11405 11108
2/28/02 10970 10575 9431 11630 11334
3/31/02 11619 10973 9865 12380 11980
4/30/02 11813 10308 9511 12459 12103
5/31/02 12018 10232 9527 12617 12247
6/30/02 12256 9504 8948 12979 12516
7/31/02 11759 8763 8193 12251 11800
8/31/02 11867 8820 8207 12272 11825
9/30/02 11380 7863 7303 11826 11404
10/31/02 11121 8554 7841 11232 10902
11/30/02 11446 9057 8263 11750 11343
12/31/02 11463 8525 7861 11847 11464
1/31/03 11135 8302 7622 11521 11164
2/28/03 11299 8177 7488 11728 11336
3/31/03 11582 8257 7464 11974 11598
4/30/03 12008 8936 8125 12479 12102
5/31/03 12752 9407 8588 13184 12816
6/30/03 13221 9527 8735 13487 13120
7/31/03 13833 9695 8912 14203 13721
8/31/03 13964 9884 9103 14289 13869
9/30/03 14413 9779 9158 14795 14312
10/31/03 14620 10332 9700 15044 14631
11/30/03 15419 10423 9847 15707 15272
12/31/03 15913 10969 10464 16201 15730
1/31/04 16513 11170 10632 16911 16292
2/29/04 16868 11325 10810 17194 16649
3/31/04 17889 11155 10738 18153 17558
4/30/04 15492 10980 10518 15462 15249
====================================================================================================================================
====================================================================================================================================
[MOUNTAIN CHART]
5/31/04 16513 11130 10606 16572 16147
6/30/04 17101 11347 10832 17042 16644
7/31/04 17278 10971 10478 17132 16713
8/31/04 18466 11015 10524 18508 17876
9/30/04 18554 11134 10723 18471 17976
10/31/04 19686 11304 10986 19482 18803
11/30/04 20595 11762 11563 20308 19640
12/31/04 21734 12162 12004 21302 20783
1/31/05 20020 11865 11734 19469 19407
2/28/05 20554 12115 12106 20048 19976
3/31/05 20145 11901 11872 19717 19608
4/30/05 21362 11675 11612 20889 20398
5/31/05 21986 12046 11818 21571 21084
6/30/05 22918 12063 11921 22654 22064
7/31/05 24600 12512 12337 24277 23485
8/31/05 23702 12398 12430 23344 22673
9/30/05 23873 12498 12753 23477 22740
10/31/05 23362 12290 12444 22918 22211
11/30/05 24476 12754 12858 23911 23172
12/31/05 24831 12758 13143 23886 23334
1/31/06 26445 13096 13730 25721 24797
2/28/06 26916 13132 13709 26205 25170
3/31/06 28402 13295 14011 27506 26331
4/30/06 27706 13474 14436 26484 25645
5/31/06 26974 13086 13943 25720 24933
6/30/06 28283 13104 13939 27105 26014
7/31/06 29120 13184 14026 28077 26619
8/31/06 30191 13498 14390 29144 27530
9/30/06 30886 13845 14562 29713 28055
10/31/06 32594 14296 15096 31573 29655
11/30/06 34373 14567 15466 33068 31003
12/31/06 35400 14772 15780 32466 30674
====================================================================================================================================
CALCULATING YOUR ONGOING FUND EXPENSES AIM V.I. GLOBAL REAL ESTATE FUND
EXAMPLE ACTUAL EXPENSES Fund's actual return. The Fund's
actual cumulative total returns at
As a shareholder of the Fund, you The table below provides information net asset value after expenses for
incur ongoing costs, including about actual account values and the six months ended December 31,
management fees; distribution and/or actual expenses. You may use the 2006, appear in the table
service (12b-1) fees; and other Fund information in this table, together "Cumulative Total Returns" on page
expenses. This example is intended with the amount you invested, to 4.
to help you understand your ongoing estimate the expenses that you paid The hypothetical account
costs (in dollars) of investing in over the period. Simply divide your values and expenses may not be used
the Fund and to compare these costs account value by $1,000 (for to estimate the actual ending
with ongoing costs of investing in example, an $8,600 account value account balance or expenses you paid
other mutual funds. The example is divided by $1,000 = 8.6), then for the period. You may use this
based on an investment of $1,000 multiply the result by the number in information to compare the ongoing
invested at the beginning of the the table under the heading entitled costs of investing in the Fund and
period and held for the entire "Actual Expenses Paid During Period" other funds. To do so, compare this
period July 1, 2006, through to estimate the expenses you paid on 5% hypothetical example with the 5%
December 31, 2006. your account during this period. hypothetical examples that appear in
the shareholder reports of the other
The actual and hypothetical HYPOTHETICAL EXAMPLE FOR funds.
expenses in the examples below do COMPARISON PURPOSES Please note that the expenses
not represent the effect of any fees shown in the table are meant to
or other expenses assessed in The table below also provides highlight your ongoing costs.
connection with a variable product; information about hypothetical Therefore, the hypothetical
if they did, the expenses shown account values and hypothetical information is useful in comparing
would be higher while the ending expenses based on the Fund's actual ongoing costs, and will not help you
account values shown would be lower. expense ratio and an assumed rate of determine the relative total costs
return of 5% per year before of owning different funds.
expenses, which is not the
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (7/1/06) (12/31/06)1 PERIOD2 (12/31/06) PERIOD(2) RATIO
Series I $ 1,000.00 $ 1,251.80 $ 6.47 $ 1,019.46 $5.80 1.14%
Series II 1,000.00 1,249.70 7.88 1,018.20 7.07 1.39
====================================================================================================================================
- -------
(1) The actual ending account value is based on the actual total return of the
Fund for the period July 1, 2006, through December 31, 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 December 31, 2006,
appear in the table "Cumulative Total Returns" on page 4.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated
above multiplied by the average account value over the period, multiplied
by 184/365 to reflect the most recent fiscal half year.
APPROVAL OF INVESTMENT ADVISORY AGREEMENT AIM V.I. GLOBAL REAL ESTATE FUND
The Board of Trustees of AIM terms of the Advisory Agreement. advisors. The Board reviewed the
Variable Insurance Funds (the advisory fee rate for the Fund under
"Board") oversees the management of - The performance of the Fund the Advisory Agreement. The Board
AIM V.I. Global Real Estate Fund relative to comparable funds. The compared effective contractual
(formerly named "AIM V.I. Real Board reviewed the performance of advisory fee rates at a common asset
Estate Fund") (the "Fund") and, as the Fund during the past one, three level at the end of the past
required by law, determines annually and five calendar years against the calendar year and noted that the
whether to approve the continuance performance of funds advised by Fund's rate was above the median
of the Fund's advisory agreement other advisors with investment rate of the funds advised by other
with A I M Advisors, Inc. ("AIM"). strategies comparable to those of advisors with investment strategies
Based upon the recommendation of the the Fund. The Board noted that the comparable to those of the Fund that
Investments Committee of the Board, Fund's performance was below the the Board reviewed. The Board noted
at a meeting held on June 27, 2006, median performance of such that AIM has agreed to waive
the Board, including all of the comparable funds for the one and advisory fees of the Fund and to
independent trustees, approved the five year periods and above such limit the Fund's total operating
continuance of the advisory median performance for the three expenses, as discussed below. Based
agreement (the "Advisory Agreement") year period. The Board also noted on this review, the Board concluded
between the Fund and AIM for another that AIM began serving as investment that the advisory fee rate for the
year, effective July 1, 2006. advisor to the Fund in April 2004. Fund under the Advisory Agreement
Based on this review and after was fair and reasonable.
The Board considered the taking account of all of the other
factors discussed below in factors that the Board considered in - Expense limitations and fee
evaluating the fairness and determining whether to continue the waivers. The Board noted that AIM
reasonableness of the Advisory Advisory Agreement for the Fund, the has contractually agreed to waive
Agreement at the meeting on June 27, Board concluded that no changes advisory fees of the Fund through
2006 and as part of the Board's should be made to the Fund and that April 30, 2008 to the extent
ongoing oversight of the Fund. In it was not necessary to change the necessary so that the advisory fees
their deliberations, the Board and Fund's portfolio management team at payable by the Fund do not exceed a
the independent trustees did not this time. Although the independent specified maximum advisory fee rate,
identify any particular factor that written evaluation of the Fund's which maximum rate includes
was controlling, and each trustee Senior Officer (discussed below) breakpoints and is based on net
attributed different weights to the only considered Fund performance asset levels. The Board considered
various factors. through the most recent calendar the contractual nature of this fee
year, the Board also reviewed more waiver and noted that it remains in
One responsibility of the recent Fund performance, which did effect until April 30, 2008. The
independent Senior Officer of the not change their conclusions. Board also noted that AIM has
Fund is to manage the process by contractually agreed to waive fees
which the Fund's proposed management - The performance of the Fund and/or limit expenses of the Fund
fees are negotiated to ensure that relative to indices. The Board through April 30, 2008 so that total
they are negotiated in a manner reviewed the performance of the Fund annual operating expenses are
which is at arms' length and during the past one, three and five limited to a specified percentage of
reasonable. To that end, the Senior calendar years against the average daily net assets for each
Officer must either supervise a performance of the Lipper Variable class of the Fund. The Board
competitive bidding process or Underlying Fund Real Estate Index. considered the contractual nature of
prepare an independent written The Board noted that the Fund's this fee waiver/expense limitation
evaluation. The Senior Officer has performance in such periods was and noted it remains in effect until
recommended an independent written comparable to the performance of April 30, 2008. The Board considered
evaluation in lieu of a competitive such Index. The Board also noted the effect these fee waivers/expense
bidding process and, upon the that AIM began serving as investment reimbursements would have on the
direction of the Board, has prepared advisor to the Fund in April 2004. Fund's estimated expenses and
such an independent written Based on this review and after concluded that the levels of fee
evaluation. Such written evaluation taking account of all of the other waivers/expense reimbursements for
also considered certain of the factors that the Board considered in the Fund were fair and reasonable.
factors discussed below. In determining whether to continue the
addition, as discussed below, the Advisory Agreement for the Fund, the - Breakpoints and economies of
Senior Officer made a recommendation Board concluded that no changes scale. The Board reviewed the
to the Board in connection with such should be made to the Fund and that structure of the Fund's advisory fee
written evaluation. it was not necessary to change the under the Advisory Agreement, noting
Fund's portfolio management team at that it does not include any
The discussion below serves as this time. Although the independent breakpoints. The Board considered
a summary of the Senior Officer's written evaluation of the Fund's whether it would be appropriate to
independent written evaluation and Senior Officer (discussed below) add advisory fee breakpoints for the
recommendation to the Board in only considered Fund performance Fund or whether, due to the nature
connection therewith, as well as a through the most recent calendar of the Fund and the advisory fee
discussion of the material factors year, the Board also reviewed more structures of comparable funds, it
and the conclusions with respect recent Fund performance, which did was reasonable to structure the
thereto that formed the basis for not change their conclusions. advisory fee without breakpoints.
the Board's approval of the Advisory Based on this review, the Board
Agreement. After consideration of - Meetings with the Fund's concluded that it was not necessary
all of the factors below and based portfolio managers and investment , to add advisory fee breakpoints to
on its informed business judgment, personnel. With respect to the Fund the Fund's advisory fee schedule.
the Board determined that the the Board is meeting periodically The Board reviewed the level of the
Advisory Agreement is in the best with such Fund's portfolio managers Fund's advisory fees, and noted that
interests of the Fund and its and/or other investment personnel such fees, as a percentage of the
shareholders and that the and believes that such individuals Fund's net assets, would remain
compensation to AIM under the are competent and able to continue constant under the Advisory
Advisory Agreement is fair and to carry out their responsibilities Agreement because the Advisory
reasonable and would have been under the Advisory Agreement. Agreement does not include any
obtained through arm's length breakpoints. The Board noted that
negotiations. - Overall performance of AIM. The AIM has contractually agreed to
Board considered the overall waive advisory fees of the Fund
Unless otherwise stated, performance of AIM in providing through April 30, 2008 to the extent
information presented below is as of investment advisory and portfolio necessary so that the advisory fees
June 27, 2006 and does not reflect administrative services to the Fund payable by the Fund do not exceed a
any changes that may have occurred and concluded that such performance specified maximum advisory fee rate,
since June 27, 2006, including but was satisfactory. which maximum rate includes
not limited to changes to the Fund's breakpoints and is based on net
performance, advisory fees, expense - Fees relative to those of client asset levels. The Board concluded
limitations and/or fee waivers. of AIM with comparable investment that the Fund's fee levels under the
strategies. The Board reviewed the Advisory Agreement therefore would
- - The nature and extent of the effective advisory fee rate (before not reflect economies of scale,
advisory services to be provided by waivers) for the Fund under the although the advisory fee waiver
AIM. The Board reviewed the services Advisory Agreement. The Board noted reflects economies of scale.
to be provided by AIM under the that this rate was (i) the same as
Advisory Agreement. Based on such the effective advisory fee rate - Investments in affiliated money
review, the Board concluded that the (before waivers) for one mutual fund market funds. The Board also took
range of services to be provided by advised by AIM with investment into account the fact that
AIM under the Advisory Agreement was strategies comparable to those of uninvested cash and cash collateral
appropriate and that AIM currently the Fund and above the effective from securities lending
is providing services in accordance advisory fee rate (before waivers) arrangements, if any (collectively,
with the terms of the Advisory for a second mutual fund advised by "cash balances") of the Fund may be
Agreement. AIM with investment strategies invested in money market funds
comparable to those of the Fund; and advised by AIM pursuant to the terms
- - The quality of services to be (ii) above the effective of an SEC exemptive order. The Board
provided by AIM. The Board reviewed sub-advisory fee rate for one found that the Fund may realize
the credentials and experience of variable insurance fund sub-advised certain benefits upon investing cash
the officers and employees of AIM by an AIM affiliate and offered to balances in AIM advised money market
who will provide investment advisory insurance company separate accounts funds, including a higher net
services to the Fund. In reviewing with investment strategies return, increased liquidity,
the qualifications of AIM to provide comparable to those of the Fund. The increased diversification or
investment advisory services, the Board noted that AIM has agreed to decreased transaction costs. The
Board considered such issues as waive advisory fees of the Fund and Board also found that the Fund will
AIM's portfolio and product review to limit the Fund's total operating not receive reduced services if it
process, various back office support expenses, as discussed below. Based invests its cash balances in such
functions provided by AIM and AIM's on this review, the Board concluded money market funds. The Board noted
equity and fixed income trading that the advisory fee rate for the that, to the extent the Fund invests
operations. Based on the review of Fund under the Advisory Agreement uninvested cash in affiliated money
these and other factors, the Board was fair and reasonable. market funds, AIM has voluntarily
concluded that the quality of agreed to waive a portion of the
services to be provided by AIM was - Fees relative to those of advisory fees it receives from the
appropriate and that AIM currently comparable funds with other Fund attributable to such
is providing satisfactory services investment. The Board further
in accordance with the
(continued)
7
AIM V.I. GLOBAL REAL ESTATE FUND
determined that the proposed Funds in the areas of investment the Board also reviewed more recent
securities lending program and performance, product line Fund performance, which did not
related procedures with respect to diversification, distribution, fund change their conclusions.
the lending Fund is in the best operations, shareholder services and
interests of the lending Fund and compliance. The Board concluded that - The performance of the Fund
its respective shareholders. The these steps taken by AIM have relative to indices. The Board
Board therefore concluded that the improved, and are likely to continue reviewed the performance of the Fund
investment of cash collateral to improve, the quality and during the past one, three and five
received in connection with the efficiency of the services AIM and calendar years against the
securities lending program in the its affiliates provide to the Fund performance of the Lipper Variable
money market funds according to the in each of these areas, and support Underlying Fund Real Estate Index.
procedures is in the best interests the Board's approval of the The Board noted that the Fund's
of the lending Fund and its continuance of the Advisory performance in such periods was
respective shareholders. Agreement for the Fund. comparable to the performance of
such Index. The Board also noted
- - Independent written evaluation APPROVAL OF SUB-ADVISORY AGREEMENT that AIM began serving as investment
and recommendations of the Fund's advisor to the Fund in April 2004.
Senior Officer. The Board noted The Board oversees the management of Based on this review and after
that, upon their direction, the the Fund and, as required by law, taking account of all of the other
Senior Officer of the Fund, who is determines annually whether to factors that the Board considered in
independent of AIM and AIM's approve the continuance of the determining whether to continue the
affiliates, had prepared an Fund's sub-advisory agreement. Based Advisory Agreement for the Fund, the
independent written evaluation in upon the recommendation of the Board concluded that no changes
order to assist the Board in Investments Committee of the Board, should be made to the Fund and that
determining the reasonableness of at a meeting held on June 27, 2006, it was not necessary to change the
the proposed management fees of the the Board, including all of the Fund's portfolio management team at
AIM Funds, including the Fund. The independent trustees, approved the this time. Although the independent
Board noted that the Senior continuance of the sub-advisory written evaluation of the Fund's
Officer's written evaluation had agreement (the "Sub-Advisory Senior Officer (discussed below)
been relied upon by the Board in Agreement") between INVESCO only considered Fund performance
this regard in lieu of a competitive Institutional (N.A.), Inc. (the through the most recent calendar
bidding process. In determining "Sub-Advisor") and AIM with respect year, the Board also reviewed more
whether to continue the Advisory to the Fund for another year, recent Fund performance, which did
Agreement for the Fund, the Board effective July 1, 2006. not change their conclusions.
considered the Senior Officer's
written evaluation and the The Board considered the - Meetings with the Fund's
recommendation made by the Senior factors discussed below in portfolio managers and investment
Officer to the Board that the Board evaluating the fairness and personnel. The Board is meeting
consider whether the advisory fee reasonableness of the Sub-Advisory periodically with the Fund's
waivers for certain equity AIM Agreement at the meeting on June 27, portfolio managers and/or other
Funds, including the Fund, should be 2006 and as part of the Board's investment personnel and believes
simplified. The Board concluded that ongoing oversight of the Fund. In that such individuals are competent
it would be advisable to consider their deliberations, the Board and and able to continue to carry out
this issue and reach a decision the independent trustees did not their responsibilities under the
prior to the expiration date of such identify any particular factor that Sub-Advisory Agreement.
advisory fee waivers. was controlling, and each trustee
attributed different weights to the - Overall performance of the
- - Profitability of AIM and its various factors. Sub-Advisor. The Board considered
affiliates. The Board reviewed the overall performance of the
information concerning the The discussion below serves as Sub-Advisor in providing investment
profitability of AIM's (and its a discussion of the material factors advisory services to the Fund and
affiliates') investment advisory and and the conclusions with respect concluded that such performance was
other activities and its financial thereto that formed the basis for satisfactory.
condition. The Board considered the the Board's approval of the
overall profitability of AIM, as Sub-Advisory Agreement. After - Fees relative to those of
well as the profitability of AIM in consideration of all of the factors clients of the Sub-Advisor with
connection with managing the Fund. below and based on its informed comparable investment strategies.
The Board noted that AIM's business judgment, the Board The Board reviewed the sub-advisory
operations remain profitable, determined that the Sub-Advisory fee rate for the Fund under the
although increased expenses in Agreement is in the best interests Sub-Advisory Agreement and the
recent years have reduced AIM's of the Fund and its shareholders and sub-advisory fees paid thereunder.
profitability. Based on the review that the compensation to the The Board noted that this rate was
of the profitability of AIM's and Sub-Advisor under the Sub-Advisory (i) the same as the sub-advisory fee
its affiliates' investment advisory Agreement is fair and reasonable. rate for one mutual fund sub-advised
and other activities and its by the Sub-Advisor with investment
financial condition, the Board Unless otherwise stated, strategies comparable to those of
concluded that the compensation to information presented below is as of the Fund and comparable to the
be paid by the Fund to AIM under its June 27, 2006 and does not reflect sub-advisory fee rate for a second
Advisory Agreement was not any changes that may have occurred mutual fund sub-advised by the
excessive. since June 27, 2006, including but Sub-Advisor with investment
not limited to changes to the Fund's strategies comparable to those of
- - Benefits of soft dollars to AIM. performance. the Fund; and (ii) below the
The Board considered the benefits sub-advisory fee rate for one
realized by AIM as a result of - The nature and extent of the variable insurance fund sub-advised
brokerage transactions executed advisory services to be provided by by the Sub-Advisor and offered to
through "soft dollar" arrangements. the Sub-Advisor. The Board reviewed insurance company separate accounts
Under these arrangements, brokerage the services to be provided by the with investment strategies
commissions paid by the Fund and/or Sub-Advisor under the Sub-Advisory comparable to those of the Fund. The
other funds advised by AIM are used Agreement. Based on such review, the Board noted that AIM has agreed to
to pay for research and execution Board concluded that the range of waive advisory fees of the Fund. The
services. This research may be used services to be provided by the Board also considered the services
by AIM in making investment Sub-Advisor under the Sub-Advisory to be provided by the Sub-Advisor
decisions for the Fund. The Board Agreement was appropriate and that pursuant to the Sub-Advisory
concluded that such arrangements the Sub-Advisor currently is Agreement and the services to be
were appropriate. providing services in accordance provided by AIM pursuant to the
with the terms of the Sub-Advisory Advisory Agreement, as well as the
- - AIM's financial soundness in Agreement. allocation of fees between AIM and
light of the Fund's needs. The Board the Sub-Advisor pursuant to the
considered whether AIM is - The quality of services to be Sub-Advisory Agreement. The Board
financially sound and has the provided by the Sub-Advisor. The noted that the sub-advisory fees
resources necessary to perform its Board reviewed the credentials and have no direct effect on the Fund or
obligations under the Advisory experience of the officers and its shareholders, as they are paid
Agreement, and concluded that AIM employees of the Sub-Advisor who by AIM to the Sub-Advisor, and that
has the financial resources will provide investment advisory AIM and the Sub-Advisor are
necessary to fulfill its obligations services to the Fund. Based on the affiliates. Based on this review,
under the Advisory Agreement. review of these and other factors, the Board concluded that the
the Board concluded that the quality sub-advisory fee rate under the
- - Historical relationship between of services to be provided by the Sub-Advisory Agreement was fair and
the Fund and AIM. In determining Sub-Advisor was appropriate, and reasonable.
whether to continue the Advisory that the Sub-Advisor currently is
Agreement for the Fund, the Board providing satisfactory services in - Profitability of AIM and its
also considered the prior accordance with the terms of the affiliates. The Board reviewed
relationship between AIM and the Sub-Advisory Agreement. information concerning the
Fund, as well as the Board's profitability of AIM's (and its
knowledge of AIM's operations, and - The performance of the Fund affiliates') investment advisory and
concluded that it was beneficial to relative to comparable funds. The other activities and its financial
maintain the current relationship, Board reviewed the performance of condition. The Board considered the
in part, because of such knowledge. the Fund during the past one, three overall profitability of AIM, as
The Board also reviewed the general and five calendar years against the well as the profitability of AIM in
nature of the non-investment performance of funds advised by connection with managing the Fund.
advisory services currently other advisors with investment The Board noted that AIM's
performed by AIM and its affiliates, strategies comparable to those of operations remain profitable,
such as administrative, transfer the Fund. The Board noted that the although increased expenses in
agency and distribution services, Fund's performance was below the recent years have reduced AIM's
and the fees received by AIM and its median performance of such profitability. Based on the review
affiliates for performing such comparable funds for the one and of the profitability of AIM's and
services. In addition to reviewing five year periods and above such its affiliates' investment advisory
such services, the trustees also median performance for the three and other activities and its
considered the organizational year period. The Board also noted financial condition, the Board
structure employed by AIM and its that AIM began serving as investment concluded that the compensation to
affiliates to provide those advisor to the Fund in April 2004. be paid by the Fund to AIM under its
services. Based on the review of Based on this review and after Advisory Agreement was not
these and other factors, the Board taking account of all of the other excessive.
concluded that AIM and its factors that the Board considered in
affiliates were qualified to determining whether to continue the - The Sub-Advisor's financial
continue to provide non-investment Advisory Agreement for the Fund, the soundness in light of the Fund's
advisory services to the Fund, Board concluded that no changes needs. The Board considered whether
including administrative, transfer should be made to the Fund and that the Sub-Advisor is financially sound
agency and distribution services, it was not necessary to change the and has the resources necessary to
and that AIM and its affiliates Fund's portfolio management team at perform its obligations under the
currently are providing satisfactory this time. Although the independent Sub-Advisory Agreement, and
non-investment advisory services. written evaluation of the Fund's concluded that the Sub-Advisor has
Senior Officer (discussed below) the financial resources necessary to
- - Other factors and current only considered Fund performance fulfill its obligations under the
trends. The Board considered the through the most recent calendar Sub-Advisory Agreement.
steps that AIM and its affiliates year,
have taken over the last several
years, and continue to take, in
order to improve the quality and
efficiency of the services they
provide to the
8
AIM V.I. Global Real Estate Fund
SCHEDULE OF INVESTMENTS
December 31, 2006
<Table>
<Caption>
SHARES VALUE
- -------------------------------------------------------------------------
FOREIGN REAL ESTATE INVESTMENT TRUSTS, COMMON
STOCKS & OTHER EQUITY INTERESTS-56.16%
AUSTRALIA-10.14%
CFS Retail Property Trust (Retail)(a) 1,679,000 $ 3,086,085
- -------------------------------------------------------------------------
GPT Group (Diversified)(a) 719,700 3,174,866
- -------------------------------------------------------------------------
Mirvac Group (Diversified)(a) 229,200 1,007,604
- -------------------------------------------------------------------------
Stockland (Diversified)(a) 664,600 4,332,064
- -------------------------------------------------------------------------
Tishman Speyer Office Fund (Office)(a) 236,400 464,149
- -------------------------------------------------------------------------
Valad Property Group (Diversified)(a) 752,200 941,558
- -------------------------------------------------------------------------
Westfield Group (Retail)(a) 396,900 6,552,979
=========================================================================
19,559,305
=========================================================================
CANADA-2.83%
Boardwalk Real Estate Investment Trust
(Residential) 48,900 1,732,150
- -------------------------------------------------------------------------
Cominar Real Estate Investment Trust
(Diversified) 36,800 710,333
- -------------------------------------------------------------------------
Dundee Real Estate Investment Trust (Office) 30,500 1,011,303
- -------------------------------------------------------------------------
Primaris Retail Real Estate Investment Trust
(Retail) 43,800 709,427
- -------------------------------------------------------------------------
RioCan Real Estate Investment Trust (Retail) 60,500 1,305,345
=========================================================================
5,468,558
=========================================================================
CHINA-0.31%
Guangzhou R&F Properties Co. Ltd.
(Residential) 277,200 598,727
=========================================================================
FINLAND-0.65%
Citycon Oyj (Retail)(a) 114,300 762,092
- -------------------------------------------------------------------------
Sponda Oyj (Office)(a) 30,600 484,025
=========================================================================
1,246,117
=========================================================================
FRANCE-2.85%
Klepierre (Retail)(a) 8,500 1,604,260
- -------------------------------------------------------------------------
Societe Immobiliere de Location pour
I'Industrie et le Commerce (Office)(a) 5,500 827,699
- -------------------------------------------------------------------------
Unibail (Diversified)(a) 12,600 3,072,167
=========================================================================
5,504,126
=========================================================================
HONG KONG-9.64%
China Overseas Land & Investment Ltd.
(Office)(a) 760,000 1,021,058
- -------------------------------------------------------------------------
China Resources Land Ltd. (Residential)(a) 521,800 620,235
- -------------------------------------------------------------------------
Great Eagle Holdings Ltd. (Office)(a) 197,000 564,355
- -------------------------------------------------------------------------
Hang Lung Properties Ltd. (Retail)(a) 1,103,000 2,768,881
- -------------------------------------------------------------------------
Henderson Land Development Co. Ltd.
(Residential)(a) 135,000 750,971
- -------------------------------------------------------------------------
Hongkong Land Holdings Ltd. (Office)(a) 1,066,000 4,231,030
- -------------------------------------------------------------------------
Hysan Development Co. Ltd. (Diversified)(a) 179,000 466,956
- -------------------------------------------------------------------------
</Table>
<Table>
SHARES VALUE
- -------------------------------------------------------------------------
<Caption>
HONG KONG-(CONTINUED)
Kerry Properties Ltd. (Diversified) 137,400 $ 642,122
- -------------------------------------------------------------------------
Sun Hung Kai Properties Ltd. (Residential)(a) 658,000 7,528,273
=========================================================================
18,593,881
=========================================================================
ITALY-0.97%
Beni Stabili S.p.A. (Office)(a) 503,300 802,879
- -------------------------------------------------------------------------
Risanamento S.p.A (Diversified)(a) 99,200 1,074,076
=========================================================================
1,876,955
=========================================================================
JAPAN-11.57%
AEON Mall Co., Ltd. (Retail)(a) 19,300 1,082,028
- -------------------------------------------------------------------------
GOLDCREST Co., Ltd. (Residential) 15,010 774,400
- -------------------------------------------------------------------------
Japan Prime Realty Investment Corp.
(Office)(a) 134 486,378
- -------------------------------------------------------------------------
Japan Retail Fund Investment Corp. (Retail) 93 758,004
- -------------------------------------------------------------------------
JOINT Corp. (Residential)(a) 9,800 378,171
- -------------------------------------------------------------------------
Mitsubishi Estate Co. Ltd. (Office) 209,000 5,408,957
- -------------------------------------------------------------------------
Mitsui Fudosan Co., Ltd. (Diversified) 218,000 5,321,318
- -------------------------------------------------------------------------
Nippon Building Fund Inc. (Office)(a) 148 1,965,453
- -------------------------------------------------------------------------
NTT Urban Development Corp. (Office)(a) 445 860,541
- -------------------------------------------------------------------------
Sumitomo Realty & Development Co., Ltd.
(Diversified) 102,000 3,274,011
- -------------------------------------------------------------------------
Tokyo Tatemono Co., Ltd. (Diversified)(a) 130,000 1,440,017
- -------------------------------------------------------------------------
TOKYU REIT, Inc. (Diversified)(a) 65 567,689
=========================================================================
22,316,967
=========================================================================
NETHERLANDS-1.28%
Rodamco Europe N.V. (Retail)(a) 18,600 2,469,177
=========================================================================
NEW ZEALAND-0.23%
Macquire Goodman Property Trust (Diversified) 428,300 434,687
=========================================================================
SINGAPORE-3.11%
Ascendas Real Estate Investment Trust
(Industrial)(a) 450,000 783,390
- -------------------------------------------------------------------------
Capitacommercial Trust (Office)(a) 419,690 714,730
- -------------------------------------------------------------------------
Capitaland Ltd. (Residential)(a) 489,000 1,963,501
- -------------------------------------------------------------------------
CapitaMall Trust (Retail) 566,000 1,074,053
- -------------------------------------------------------------------------
Keppel Land Ltd. (Office)(a) 194,000 872,557
- -------------------------------------------------------------------------
Suntec Real Estate Investment Trust
(Retail)(a) 493,000 583,792
=========================================================================
5,992,023
=========================================================================
SWEDEN-0.34%
Fabege A.B. (Diversified)(a) 24,700 662,016
=========================================================================
UNITED KINGDOM-12.24%
Big Yellow Group PLC (Industrial)(a) 48,500 668,145
- -------------------------------------------------------------------------
British Land Co. PLC (Diversified)(a) 153,300 5,133,969
- -------------------------------------------------------------------------
Brixton PLC (Industrial)(a) 67,200 756,123
- -------------------------------------------------------------------------
Capital & Regional PLC (Retail) 87,600 2,645,594
- -------------------------------------------------------------------------
</Table>
AIM V.I. Global Real Estate Fund
<Table>
<Caption>
SHARES VALUE
- -------------------------------------------------------------------------
UNITED KINGDOM-(CONTINUED)
Derwent Valley Holdings PLC (Office)(a) 45,900 $ 1,884,852
- -------------------------------------------------------------------------
Hammerson PLC (Retail)(a) 46,700 1,438,484
- -------------------------------------------------------------------------
Land Securities Group PLC (Diversified)(a) 134,000 6,079,263
- -------------------------------------------------------------------------
Liberty International PLC (Retail)(a) 24,800 677,728
- -------------------------------------------------------------------------
Quintain Estates & Development PLC
(Diversified)(a) 50,200 838,217
- -------------------------------------------------------------------------
Shaftesbury PLC (Retail) 109,000 1,673,698
- -------------------------------------------------------------------------
Unite Group PLC (Residential)(a) 119,900 1,282,499
- -------------------------------------------------------------------------
Workspace Group PLC (Office)(a) 55,400 537,321
=========================================================================
23,615,893
=========================================================================
Total Foreign Real Estate Investment
Trusts, Common Stocks & Other Equity
Interests (Cost $86,769,084) 108,338,432
=========================================================================
DOMESTIC REAL ESTATE INVESTMENT TRUSTS,
COMMON STOCKS AND OTHER EQUITY
INTERESTS-41.48%
DIVERSIFIED-4.92%
Colonial Properties Trust 26,100 1,223,568
- -------------------------------------------------------------------------
Digital Realty Trust, Inc. 10,900 373,107
- -------------------------------------------------------------------------
Health Care Property Investors, Inc. 69,700 2,566,354
- -------------------------------------------------------------------------
Public Storage, Inc. 29,900 2,915,250
- -------------------------------------------------------------------------
Ventas, Inc. 57,100 2,416,472
=========================================================================
9,494,751
=========================================================================
HOTELS-3.79%
Hilton Hotels Corp. 56,200 1,961,380
- -------------------------------------------------------------------------
Host Hotels & Resorts Inc. 178,989 4,394,180
- -------------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc. 15,200 950,000
=========================================================================
7,305,560
=========================================================================
INDUSTRIAL-3.66%
AMB Property Corp. 25,600 1,500,416
- -------------------------------------------------------------------------
ProLogis 91,414 5,555,229
=========================================================================
7,055,645
=========================================================================
OFFICE-11.08%
Alexandria Real Estate Equities, Inc. 10,700 1,074,280
- -------------------------------------------------------------------------
Boston Properties, Inc. 30,500 3,412,340
- -------------------------------------------------------------------------
Brandywine Realty Trust 51,721 1,719,723
- -------------------------------------------------------------------------
</Table>
<Table>
SHARES VALUE
- -------------------------------------------------------------------------
<Caption>
OFFICE-(CONTINUED)
Brookfield Properties Corp. 56,600 $ 2,231,176
- -------------------------------------------------------------------------
Douglas Emmett, Inc. 17,400 462,666
- -------------------------------------------------------------------------
Equity Office Properties Trust 84,000 4,046,280
- -------------------------------------------------------------------------
Liberty Property Trust 9,200 452,088
- -------------------------------------------------------------------------
SL Green Realty Corp. 30,000 3,983,400
- -------------------------------------------------------------------------
Vornado Realty Trust 32,900 3,997,350
=========================================================================
21,379,303
=========================================================================
RESIDENTIAL-7.03%
Archstone-Smith Trust 63,800 3,713,798
- -------------------------------------------------------------------------
AvalonBay Communities, Inc. 12,800 1,664,640
- -------------------------------------------------------------------------
Camden Property Trust 26,600 1,964,410
- -------------------------------------------------------------------------
Equity Residential 78,400 3,978,800
- -------------------------------------------------------------------------
Essex Property Trust, Inc. 17,400 2,248,950
=========================================================================
13,570,598
=========================================================================
RETAIL-11.00%
Developers Diversified Realty Corp. 53,700 3,380,415
- -------------------------------------------------------------------------
Federal Realty Investment Trust 19,800 1,683,000
- -------------------------------------------------------------------------
General Growth Properties, Inc. 51,200 2,674,176
- -------------------------------------------------------------------------
Kimco Realty Corp. 55,800 2,508,210
- -------------------------------------------------------------------------
Macerich Co. (The) 31,900 2,761,583
- -------------------------------------------------------------------------
Regency Centers Corp. 32,400 2,532,708
- -------------------------------------------------------------------------
Simon Property Group, Inc. 56,100 5,682,369
=========================================================================
21,222,461
=========================================================================
Total Domestic Real Estate Investment
Trusts, Common Stocks and Other Equity
Interests (Cost $56,469,800) 80,028,318
=========================================================================
MONEY MARKET FUNDS-1.72%
Liquid Assets Portfolio-Institutional
Class(b) 1,658,878 1,658,878
- -------------------------------------------------------------------------
Premier Portfolio-Institutional Class(b) 1,658,879 1,658,879
=========================================================================
Total Money Market Funds (Cost
$3,317,757) 3,317,757
=========================================================================
TOTAL INVESTMENTS-99.36% (Cost $146,556,641) 191,684,507
=========================================================================
OTHER ASSETS LESS LIABILITIES-0.64% 1,243,703
=========================================================================
NET ASSETS-100.00% $192,928,210
_________________________________________________________________________
=========================================================================
</Table>
Investment Abbreviations:
<Table>
REIT - Real Estate Investment Trust
</Table>
Notes to Schedule of Investments:
(a) In accordance with the procedures established by the Board of Trustees, the
foreign security is fair valued using adjusted closing market prices. The
aggregate value of these securities at December 31, 2006 was $80,264,303,
which represented 41.60% of the Fund's Net Assets. See Note 1A.
(b) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. Global Real Estate Fund
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2006
<Table>
ASSETS:
Investments, at value (cost $143,238,884) $188,366,750
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $3,317,757) 3,317,757
=============================================================
Total investments (cost $146,556,641) 191,684,507
=============================================================
Cash 7,413
- -------------------------------------------------------------
Receivables for:
Investments sold 1,891,124
- -------------------------------------------------------------
Fund shares sold 88,268
- -------------------------------------------------------------
Dividends 796,379
- -------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 9,794
=============================================================
Total assets 194,477,485
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 1,153,923
- -------------------------------------------------------------
Fund shares reacquired 214,219
- -------------------------------------------------------------
Trustee deferred compensation and retirement
plans 13,109
- -------------------------------------------------------------
Accrued administrative services fees 102,160
- -------------------------------------------------------------
Accrued distribution fees-Series II 188
- -------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 3,739
- -------------------------------------------------------------
Accrued transfer agent fees 2,919
- -------------------------------------------------------------
Accrued operating expenses 59,018
=============================================================
Total liabilities 1,549,275
=============================================================
Net assets applicable to shares outstanding $192,928,210
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $123,472,726
- -------------------------------------------------------------
Undistributed net investment income 2,317,639
- -------------------------------------------------------------
Undistributed net realized gain from investment
securities and foreign currencies 22,002,591
- -------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 45,135,254
=============================================================
$192,928,210
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $192,617,384
_____________________________________________________________
=============================================================
Series II $ 310,826
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 6,703,139
_____________________________________________________________
=============================================================
Series II 10,880
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 28.74
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 28.57
_____________________________________________________________
=============================================================
</Table>
STATEMENT OF OPERATIONS
For the year ended December 31, 2006
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of
$168,480) $ 3,017,252
- ------------------------------------------------------------
Dividends from affiliated money market funds 248,888
============================================================
Total investment income 3,266,140
============================================================
EXPENSES:
Advisory fees 1,195,348
- ------------------------------------------------------------
Administrative services fees 350,878
- ------------------------------------------------------------
Custodian fees 76,811
- ------------------------------------------------------------
Distribution fees-Series II 453
- ------------------------------------------------------------
Transfer agent fees 17,659
- ------------------------------------------------------------
Trustees' and officer's fees and benefits 18,444
- ------------------------------------------------------------
Other 67,821
============================================================
Total expenses 1,727,414
============================================================
Less: Fees waived and expense offset
arrangements (208,092)
============================================================
Net expenses 1,519,322
============================================================
Net investment income 1,746,818
============================================================
REALIZED AND UNREALIZED GAIN FROM INVESTMENT
SECURITIES AND FOREIGN CURRENCIES:
Net realized gain from:
Investment securities 22,739,211
- ------------------------------------------------------------
Foreign currencies 45,143
============================================================
22,784,354
============================================================
Change in net unrealized appreciation of:
Investment securities 24,874,492
- ------------------------------------------------------------
Foreign currencies 7,419
============================================================
24,881,911
============================================================
Net gain from investment securities and foreign
currencies 47,666,265
============================================================
Net increase in net assets resulting from
operations $49,413,083
____________________________________________________________
============================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. Global Real Estate Fund
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2006 and 2005
<Table>
<Caption>
2006 2005
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 1,746,818 $ 1,645,886
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 22,784,354 6,325,916
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities and foreign currencies 24,881,911 3,518,916
==========================================================================================
Net increase in net assets resulting from operations 49,413,083 11,490,718
==========================================================================================
Distributions to shareholders from net investment income:
Series I (1,802,157) (1,018,056)
- ------------------------------------------------------------------------------------------
Series II (2,803) (468)
==========================================================================================
Total distributions from net investment income (1,804,960) (1,018,524)
==========================================================================================
Distributions to shareholders from net realized gains:
Series I (6,223,841) (2,594,476)
- ------------------------------------------------------------------------------------------
Series II (9,875) (1,222)
==========================================================================================
Total distributions from net realized gains (6,233,716) (2,595,698)
==========================================================================================
Decrease in net assets resulting from distributions (8,038,676) (3,614,222)
==========================================================================================
Share transactions-net:
Series I 51,326,244 12,711,422
- ------------------------------------------------------------------------------------------
Series II 188,721 46,237
==========================================================================================
Net increase in net assets resulting from share
transactions 51,514,965 12,757,659
==========================================================================================
Net increase in net assets 92,889,372 20,634,155
==========================================================================================
NET ASSETS:
Beginning of year 100,038,838 79,404,683
==========================================================================================
End of year (including undistributed net investment income
of $2,317,639 and $1,635,123, respectively) $192,928,210 $100,038,838
__________________________________________________________________________________________
==========================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. Global Real Estate Fund
NOTES TO FINANCIAL STATEMENTS
December 31, 2006
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Global Real Estate Fund, formerly AIM V.I. Real Estate Fund (the
"Fund") is a series portfolio of AIM Variable Insurance Funds (the "Trust"). The
Trust is a Delaware statutory trust registered under the Investment Company Act
of 1940, as amended (the "1940 Act"), as an open-end series management
investment company consisting of twenty-one 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 through
growth of capital and current income.
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 or official closing price as of the close of
the customary trading session on the exchange where the security is
principally traded, or lacking any sales or official closing price on a
particular day, the security may be valued at the closing bid price on that
day. Securities traded in the over-the-counter market 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. 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 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 open-end and closed-end registered
investment companies that trade on an exchange are valued at the last sales
price or official closing price as of the close of the customary trading
session on the exchange where the security is principally traded.
Debt obligations (including convertible bonds) and unlisted equities 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.
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. If market quotations are available and reliable for
foreign exchange traded equity securities, the securities will be valued at
the market quotations. Because trading hours for certain foreign securities
end before the close of the NYSE, closing market quotations may become
unreliable. If between the time trading ends on a particular security and
the close of the customary trading session on the NYSE, events occur that
are significant and may make the closing price unreliable, the Fund may
fair value the security. 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 prices are not provided by any of the above
methods may be valued based upon quotes furnished by independent sources
and are valued at the last bid price in the case of equity securities and
in the case of debt obligations, the mean between the last bid and asked
prices.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
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
AIM V.I. Global Real Estate Fund
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 on a timely basis 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 as a reduction to the cost of
investments in the Statement of Assets and Liabilities. 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 the 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 to distribute substantially all of the
Fund's taxable earnings to shareholders. As such, the Fund will not be
subject to federal income taxes on otherwise taxable income (including net
realized capital gain) that 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. ACCOUNTING ESTIMATES -- 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.
H. INDEMNIFICATIONS -- 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.
I. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in
foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from (i) sales
of foreign currencies, (ii) currency gains or losses realized between the
trade and settlement dates on securities transactions, and (iii) the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
The Fund may invest in foreign securities which may be subject to foreign
taxes on income, gains on investments or currency repatriation, a portion
of which may be recoverable. Taxes are accrued based on the Fund's current
interpretation of tax regulations and rates that exist in the foreign
markets in which the Fund invests.
J. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security.
Fluctuations in the value of these contracts are recorded as unrealized
appreciation (depreciation) until the contracts are closed. When these
contracts are closed, realized gains (losses) are recorded. Realized and
unrealized gains and losses on these contracts are included in the
Statement of Operations. The Fund could be exposed to risk, which may be in
excess of the amount reflected in the Statement of Assets and Liabilities,
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. Global Real Estate Fund
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM at the annual rate of 0.90% of the Fund's
average daily net assets.
Through 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 at least 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. In addition, the Fund may also benefit from a one time credit to be used
to offset future custodian expenses. These credits are used to pay certain
expenses incurred by the Fund. AIM did not waive fees and/or reimburse expenses
during the period under this expense limitation.
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in
the amount of 25% of the advisory fee AIM receives from the affiliated money
market funds on investments by the Fund in such affiliated money market funds.
Voluntary fee waivers or reimbursements may be modified or discontinued at any
time upon consultation with the Board of Trustees without further notice to
investors.
For the year ended December 31, 2006, AIM waived advisory fees of $200,570.
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 year ended December 31, 2006, AMVESCAP did not
reimburse any such expenses.
The Trust has entered into a master administrative services agreement with
AIM pursuant to which the Fund 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. The
Fund may reimburse AIM for up to 0.25% of average daily assets invested by each
insurance company providing administrative services to the Fund. Pursuant to
such agreement, for the year ended December 31, 2006, AIM was paid $50,000 for
accounting and fund administrative services and reimbursed $300,878 for services
provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with AIM
Investment Services, Inc. ("AIS") pursuant to which the Fund has agreed to pay
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 year ended December 31, 2006, expenses incurred under the
agreement are shown in the Statement of Operations as transfer agent fees.
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 Plan payments, 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. For the year ended December 31, 2006, expenses
incurred under the Plan are shown in the Statement of Operations as distribution
fees.
Certain officers and trustees of the Trust are officers and directors of
AIM, AIS and/or ADI.
AIM V.I. Global Real Estate Fund
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to 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 year ended December 31, 2006.
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/05 AT COST FROM SALES (DEPRECIATION) 12/31/06 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-Institutional
Class $ -- $29,881,384 $(28,222,506) $ -- $1,658,878 $ 74,099 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
Premier
Portfolio-Institutional
Class 5,533,127 53,140,833 (57,015,081) -- 1,658,879 174,789 --
==================================================================================================================================
Total
Investments
in
Affiliates $5,533,127 $83,022,217 $(85,237,587) $ -- $3,317,757 $248,888 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</Table>
NOTE 4--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) custodian credits which
result from periodic overnight cash balances at the custodian and (ii) a one
time custodian fee credit to be used to offset future custodian fees. For the
year ended December 31, 2006, the Fund received credits from these arrangements,
which resulted in the reduction of the Fund's total expenses of $7,522.
NOTE 5--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to each Trustee and Officer of the Fund who is not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Fund, and "Trustees' and Officer's Fees and Benefits" also
include amounts accrued by the Fund to fund such deferred compensation amounts.
Those Trustees who defer compensation have the option to select various AIM
Funds in which their deferral accounts shall be deemed to be invested. Finally,
current Trustees are eligible to participate in a retirement plan that provides
for benefits to be paid upon retirement to Trustees over a period of time based
on the number of years of service. The Fund may have certain former Trustees who
also participate in a retirement plan and receive benefits under such plan.
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to fund such retirement benefits. Obligations under the deferred compensation
and retirement plans represent unsecured claims against the general assets of
the Fund.
During the year ended December 31, 2006, the Fund paid legal fees of $4,185
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 exceed 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended December 31, 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 bank 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 contractually agreed upon rate.
AIM V.I. Global Real Estate Fund
NOTE 7--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years December 31, 2006 and
2005 was as follows:
<Table>
<Caption>
2006 2005
- --------------------------------------------------------------------------------------
Distributions paid from:
Ordinary income $2,692,485 $2,067,539
- --------------------------------------------------------------------------------------
Long-term capital gain 5,346,191 1,546,683
======================================================================================
Total distributions $8,038,676 $3,614,222
______________________________________________________________________________________
======================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2006, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2006
- ----------------------------------------------------------------------------
Undistributed ordinary income $ 11,618,646
- ----------------------------------------------------------------------------
Undistributed long-term gain 19,727,411
- ----------------------------------------------------------------------------
Unrealized appreciation-investments 38,137,006
- ----------------------------------------------------------------------------
Temporary book/tax differences (10,423)
- ----------------------------------------------------------------------------
Post-October Currency loss deferral (17,156)
- ----------------------------------------------------------------------------
Shares of beneficial interest 123,472,726
============================================================================
Total net assets $192,928,210
____________________________________________________________________________
============================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales and the recognition of income for tax purposes on certain passive
foreign investment companies. The tax-basis net unrealized appreciation on
investments amount includes appreciation on foreign currencies of $7,388.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan benefits.
The Fund does not have a capital loss carryforward as of December 31, 2006.
NOTE 8--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities,
U.S. Treasury obligations and money market funds, if any) purchased and sold by
the Fund during the year ended December 31, 2006 was $156,136,193 and
$108,211,471, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 38,269,615
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (139,997)
===============================================================================
Net unrealized appreciation of investment securities $ 38,129,618
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $153,554,889.
</Table>
NOTE 9--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions and passive foreign investment companies, on December 31, 2006,
undistributed net investment income was increased by $740,658 and undistributed
net realized gain was decreased by $740,658. This reclassification had no effect
on the net assets of the Fund.
AIM V.I. Global Real Estate Fund
NOTE 10--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
2006(a) 2005
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Series I 3,140,879 $ 79,652,136 2,014,083 $ 39,818,911
- ----------------------------------------------------------------------------------------------------------------------
Series II 9,339 226,643 2,307 48,084
======================================================================================================================
Issued as reinvestment of dividends:
Series I 286,030 8,025,998 171,210 3,612,532
- ----------------------------------------------------------------------------------------------------------------------
Series II 454 12,678 81 1,690
======================================================================================================================
Reacquired:
Series I (1,471,561) (36,351,890) (1,587,102) (30,720,021)
- ----------------------------------------------------------------------------------------------------------------------
Series II (1,862) (50,600) (172) (3,537)
======================================================================================================================
1,963,279 $ 51,514,965 600,407 $ 12,757,659
______________________________________________________________________________________________________________________
======================================================================================================================
</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 66% of
the outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with
these entities whereby these entities sell units of interest in separate
accounts funding variable products that are invested in the Fund. The
Fund, AIM and/or AIM affiliates may make payments to these entities,
which are considered to be related to the Fund, for providing services
to the Fund, AIM and/or AIM affiliates including but not limited to
services such as, securities brokerage, third party record keeping and
account servicing and administrative services. The Trust has no
knowledge as to whether all or any portion of the shares owned of record
by these 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 for 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 FIN 48 provisions during the fiscal year ended
December 31, 2007.
AIM V.I. Global Real Estate Fund
NOTE 12--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
-------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
2006 2005 2004 2003 2002
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 21.06 $ 19.13 $ 14.34 $ 10.49 $ 9.97
- ---------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.33(a) 0.38(a) 0.32(a) 0.20 0.14
- ---------------------------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 8.61 2.34 4.92 3.87 0.50
=====================================================================================================================
Total from investment operations 8.94 2.72 5.24 4.07 0.64
=====================================================================================================================
Less distributions:
Dividends from net investment income (0.28) (0.22) (0.14) (0.22) (0.12)
- ---------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.98) (0.57) (0.31) - -
=====================================================================================================================
Total distributions (1.26) (0.79) (0.45) (0.22) (0.12)
=====================================================================================================================
Net asset value, end of period $ 28.74 $ 21.06 $ 19.13 $ 14.34 $ 10.49
_____________________________________________________________________________________________________________________
=====================================================================================================================
Total return(b) 42.60% 14.24% 36.58% 38.82% 6.37%
_____________________________________________________________________________________________________________________
=====================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $192,617 $99,977 $79,391 $26,087 $12,869
_____________________________________________________________________________________________________________________
=====================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.15%(c) 1.21% 1.31% 1.35% 1.36%
- ---------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.30%(c) 1.36% 1.42% 1.62% 1.89%
=====================================================================================================================
Ratio of net investment income to average net assets 1.32%(c) 1.91% 1.96% 3.02% 4.53%
_____________________________________________________________________________________________________________________
=====================================================================================================================
Portfolio turnover rate 84% 51% 34% 126% 191%
_____________________________________________________________________________________________________________________
=====================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns do not reflect charges assessed
in connection with a variable product, which if included would reduce
total returns.
(c) Ratios are based on average daily net assets of $132,635,257.
AIM V.I. Global Real Estate Fund
NOTE 12--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
SERIES II
--------------------------------------
APRIL 30, 2004
YEAR ENDED (DATE SALES
DECEMBER 31, COMMENCED) TO
-------------------- DECEMBER 31,
2006 2005 2004
- ----------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 20.98 $19.12 $ 13.96
- ----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.27(a) 0.34(a) 0.20(a)
- ----------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 8.58 2.31 5.41
====================================================================================================
Total from investment operations 8.85 2.65 5.61
====================================================================================================
Less distributions:
Dividends from net investment income (0.28) (0.22) (0.14)
- ----------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.98) (0.57) (0.31)
====================================================================================================
Total distributions (1.26) (0.79) (0.45)
====================================================================================================
Net asset value, end of period $ 28.57 $20.98 $ 19.12
____________________________________________________________________________________________________
====================================================================================================
Total return(b) 42.30% 13.85% 40.23%
____________________________________________________________________________________________________
====================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 311 $ 62 $ 14
____________________________________________________________________________________________________
====================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.40%(c) 1.45% 1.45%(d)
- ----------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.55%(c) 1.61% 1.66%(d)
====================================================================================================
Ratio of net investment income to average net assets 1.07%(c) 1.67% 1.82%(d)
____________________________________________________________________________________________________
====================================================================================================
Portfolio turnover rate(e) 84% 51% 34%
____________________________________________________________________________________________________
====================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(c) Ratios are based on average daily net assets of $181,163.
(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. 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 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. Global Real Estate 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; 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. On September 15, 2006, the
MDL Court granted the AMVESCAP defendants' motion to dismiss the Amended Class
Action Complaint for Violations of ERISA and dismissed such Complaint. The
plaintiff has commenced an appeal from that decision.
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.
AIM V.I. Global Real Estate Fund
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V.I. Global Real Estate Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM V.I. Global Real Estate Fund
(one of the funds constituting AIM Variable Insurance Funds, hereafter referred
to as the "Fund") at December 31, 2006, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the periods
indicated, in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 2006 by correspondence with the custodian and brokers, provide a
reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
February 14, 2007
Houston, Texas
AIM V.I. Global Real Estate Fund
TAX INFORMATION
Form 1099-DIV, Form 1042-S and other year-end tax information provide
shareholders with actual calendar year amounts that should be included in their
tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the
Internal Revenue Code or to meet a specific state's requirement.
The Fund designates the following amounts or, if subsequently determined to be
different, the maximum amount allowable for its fiscal year ended December 31,
2006:
FEDERAL AND STATE INCOME TAX
<Table>
Long-Term Capital Gain Dividends $5,346,191
Corporate Dividends Received Deduction* 0%
</Table>
* The above percentage is based on ordinary income dividends paid to
shareholders during the Fund's fiscal year.
AIM V.I. Global Real Estate Fund
TRUSTEES AND OFFICERS
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management None
Trustee and Vice Chair Group Inc. (financial services holding
company); Director and Vice Chairman,
AMVESCAP PLC; Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm) and
Trustee and Vice Chair of The AIM Family
of Funds--Registered Trademark--
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer);
Chief Executive Officer, AMVESCAP
PLC -- Managed Products; and President
and Principal Executive Officer of The
AIM Family of Funds--Registered
Trademark--
- -------------------------------------------------------------------------------------------------------------------------------
Philip A. Taylor(2) -- 1954 2006 Director, Chief Executive Officer and None
Trustee, President and President, A I M Management Group Inc.,
Principal AIM Mutual Fund Dealer Inc. (registered
Executive Officer broker dealer), AIM Funds Management
Inc. (registered investment advisor) and
1371 Preferred Inc. (holding company);
Director and President, A I M Advisors,
Inc., INVESCO Funds Group, Inc.
(registered investment advisor and
register transfer agent) and AIM GP
Canada Inc. (general partner for a
limited partnership); Director, A I M
Capital Management, Inc. and A I M
Distributors, Inc.; Director and
Chairman, AIM Investment Services, Inc.,
Fund Management Company and INVESCO
Distributors, Inc. (registered broker
dealer); Director, President and
Chairman, AVZ Callco Inc. (holding
company); AMVESCAP Inc. (holding
company) and AIM Canada Holdings Inc.
(holding company); Director and Chief
Executive Officer, AIM Trimark Corporate
Class Inc. (formerly AIM Trimark Global
Fund Inc.) (corporate mutual fund
company) and AIM Trimark Canada Fund
Inc. (corporate mutual fund company);
Trustee, President and Principal
Executive Officer of The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); Trustee and
Executive Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); and Manager,
Powershares Capital Management LLC
Formerly: President and Principal
Executive Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); Chairman, AIM
Canada Holdings, Inc.; Executive Vice
President and Chief Operations Officer,
AIM Funds Management Inc.; President,
AIM Trimark Global Fund Inc. and AIM
Trimark Canada Fund Inc.; and Director,
Trimark Trust (federally regulated
Canadian Trust Company)
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company
Formerly: Partner, law firm of Baker & (2 portfolios))
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Founder, Green, Manning & Bunch Ltd., None
Trustee (investment banking firm); and Director,
Policy Studies, Inc. and Van Gilder
Insurance Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and None
Trustee private business corporations, including
the Boss Group Ltd. (private investment
and management); Cortland Trust, Inc.
(Chairman) (registered investment
company (3 portfolios)); Annuity and
Life Re (Holdings), Ltd. (insurance
company); CompuDyne Corporation
(provider of products and services to
the public security market); and
Homeowners of America Holding
Corporation (property casualty company)
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and Director of various
affiliated Volvo companies; and
Director, Magellan Insurance Company
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund
company); and Owner, Dos Angelos Ranch, (non-profit)
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- -------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company
(3 portfolios))
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired Director, Mainstay VP Series
Trustee Formerly: Partner, Deloitte & Touche Funds, Inc. (21 portfolios)
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
(2) Mr. Taylor is considered an interested person of the Trust because he is an
officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
TRUSTEES AND OFFICERS--(CONTINUED)
AIM V.I. Global Real Estate Fund
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Senior Vice President and Senior Officer N/A
Senior Vice President and of The AIM Family of Funds--Registered
Senior Officer Trademark--
Formerly: Director of Compliance and
Assistant General Counsel, ICON
Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
John M. Zerr -- 1962 2006 Director, Senior Vice President, N/A
Senior Vice President, Chief Secretary and General Counsel, A I M
Legal Officer and Secretary Management Group Inc. and A I M
Advisors, Inc.; Director, Vice President
and Secretary, INVESCO Distributors,
Inc.; Vice President and Secretary,
A I M Capital Management, Inc., AIM
Investment Services, Inc., and Fund
Management Company; Senior Vice
President and Secretary, A I M
Distributors, Inc.; Director and Vice
President, INVESCO Funds Group Inc.;
Senior Vice President, Chief Legal
Officer and Secretary of The AIM Family
of Funds--Registered Trademark--; and
Manager, Powershares Capital Management
LLC
Formerly: Chief Operating Officer,
Senior Vice President, General Counsel,
and Secretary, Liberty Ridge Capital,
Inc. (an investment adviser); Vice
President and Secretary, PBHG Funds (an
investment company); Vice President and
Secretary, PBHG Insurance Series Fund
(an investment company); General Counsel
and Secretary, Pilgrim Baxter Value
Investors (an investment adviser); Chief
Operating Officer, General Counsel and
Secretary, Old Mutual Investment
Partners (a broker-dealer); General
Counsel and Secretary, Old Mutual Fund
Services (an administrator); General
Counsel and Secretary, Old Mutual
Shareholder Services (a shareholder
servicing center); Executive Vice
President, General Counsel and
Secretary, Old Mutual Capital, Inc. (an
investment adviser); and Vice President
and Secretary, Old Mutual Advisors Funds
(an investment company)
- ------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Global Compliance Director, AMVESCAP N/A
Vice President PLC; and Vice President of The AIM
Family of Funds--Registered Trademark--
Formerly: Senior Vice President, A I M
Management Group Inc. (financial
services holding company); Senior Vice
President and Chief Compliance Officer,
A I M Advisors, Inc. and The AIM Family
of Funds--Registered Trademark--; Vice
President and Chief Compliance Officer,
A I M Capital Management, Inc. and A I M
Distributors, Inc.; Vice President, AIM
Investment Services, Inc. and Fund
Management Company; Senior Vice
President and Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; and Senior Vice President
and Compliance Director, Delaware
Investments Family of Funds
- ------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Senior Vice President and General
Vice President Counsel, AMVESCAP PLC; Director, INVESCO
Funds Group, Inc.; and Vice President of
The AIM Family of Funds--Registered
Trademark--
Formerly: Director, Vice President and N/A
General Counsel, Fund Management
Company; Director, Senior Vice
President, Secretary and General
Counsel, A I M Management Group Inc. and
A I M Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Senior Vice President, A I M
Distributors, Inc.; Vice President,
A I M Capital Management, Inc. and AIM
Investment Services, Inc.; Senior Vice
President, Chief Legal Officer and
Secretary of The AIM Family of
Funds--Registered Trademark--; Chief
Executive Officer and President, INVESCO
Funds Group, Inc.; and Senior Vice
President, and General Counsel, Liberty
Financial Companies, Inc. and Senior
Vice President and General Counsel
Liberty Funds Group, LLC
- ------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President, Principal Advisors, Inc.; and Vice President,
Financial Officer and Treasurer and Principal Officer of The
Treasurer AIM Family of Funds--Registered
Trademark--
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
J. Philip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment Officer, A I M Advisors Inc.;
Director, Chairman, Chief Executive
Officer, President and Chief Investment
Officer, A I M Capital Management, Inc.;
Executive Vice President, A I M
Management Group Inc. and Vice President
of The AIM Family of Funds--Registered
Trademark--
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; and
Chief Equity Officer, Senior Vice
President and Senior Investment Officer,
A I M Capital Management, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc. and The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); and
President and Principal Executive
Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust Only)
Formerly: Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only)
- ------------------------------------------------------------------------------------------------------------------------------
Lance A. Rejsek -- 1967 2005 Anti-Money Laundering Compliance N/A
Anti-Money Laundering Officer, A I M Advisors, Inc., A I M
Compliance Officer Capital Management, Inc., A I M
Distributors, Inc., AIM Investment
Services, Inc., AIM Private Asset
Management, Inc., Fund Management
Company and The AIM Family of
Funds--Registered Trademark--
Formerly: Manager of the Fraud
Prevention Department, AIM Investment
Services, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
Todd L. Spillane -- 1958 2006 Senior Vice President, A I M Management N/A
Chief Compliance Officer Group Inc.; Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc.; and Vice President,
A I M Distributors, Inc., AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Global Head of Product
Development, AIG-Global Investment
Group, Inc.; Chief Compliance Officer
and Deputy General Counsel,
AIG-SunAmerica Asset Management; and
Chief Compliance Officer, Chief
Operating Officer and Deputy General
Counsel, American General Investment
Management
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS SUB-ADVISOR
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers INVESCO
Suite 100 11 Greenway Plaza Inc. LLP Institutional
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street (NA), Inc.
Houston, TX 77046-1173 Suite 100 Suite 2900 INVESCO
Houston, TX 77046-1173 Houston, TX 77002-5678 Alternatives
Group
Division
Three
Galleria
Tower,
Suite
500
13155
Noel
Road
Dallas,
TX
75240-5042
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Ballard Spahr INDEPENDENT TRUSTEES AIM Investment State Street Bank and
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis Services, Inc. Trust Company
1735 Market Street, 51st & Frankel LLP P.O. Box 4739 225 Franklin Street
Floor 1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Philadelphia, PA 19103-7599 Americas
New York, NY 10036-2714
</Table>
Fixed Income AIM V.I. GOVERNMENT SECURITIES FUND
Intermediate-Term Taxable
Investment Grade Annual Report to Shareholders - December 31, 2006
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 [COVER GLOBE IMAGE]
Forms N-Q may be reviewed and copied at the
SEC Public Reference Room in Washington,
D.C.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 AIM V.I. GOVERNMENT SECURITIES FUND seeks to
or on the AIM Web site, AIMinvestments.com. On achieve a high level of current income consistent
the home page, scroll down and click on AIM with a reasonable concern for safety of principal.
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, UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT
click on Required Notices and then click on IS AS OF DECEMBER 31, 2006, AND IS BASED ON TOTAL NET ASSETS.
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
[AIM INVESTMENTS LOGO] INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ
- Registered Trademark - EACH CAREFULLY BEFORE INVESTING.
=========================================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE AIM V.I. GOVERNMENT SECURITIES FUND
=======================================================================================
PERFORMANCE SUMMARY much principal risk we take relative to
our benchmark.
For the fiscal year ended December 31, 2006, AIM V.I. Government Securities Fund,
excluding sales charges, underperformed the Fund's broad market and style-specific After our top-down strategic decisions,
indexes. In this environment of tightening monetary policy, our duration structure and we identify securities we believe are
cash management techniques were major detractors from Fund's performance relative to undervalued given the prevailing market
its broad market and style-specific indexes. environment or potential future
developments.
Your Fund's long-term performance appears on pages 4-5.
Instances in which we sell a security
FUND VS. INDEXES include, but are not limited to, when:
TOTAL RETURNS, 12/31/05-12/31/06, EXCLUDING VARIABLE PRODUCT ISSUER CHARGES. IF - A change in the economic or market
VARIABLE PRODUCT ISSUER CHARGES WERE INCLUDED, RETURNS WOULD BE LOWER. outlook indicates assets should be
reallocated.
Series I Shares 3.55%
Series II Shares 3.28 - A mortgage security is prepaying faster
Lehman Brothers U.S. Aggregate Bond Index (Broad Market Index) 4.33 or slower than we would like.
Lehman Brothers Intermediate U.S. Government and Mortgage Index
(Style-Specific Index) 4.59 - A security is likely to be called, and
Lipper Intermediate U.S. Government Funds Index (Peer Group Index) 3.71 we prefer to own one with a longer
maturity date.
SOURCE: A I M MANAGEMENT GROUP INC., LEHMAN BROTHERS INC. AND LIPPER INC.
- A security has become fully valued.
=======================================================================================
Market conditions and your Fund
HOW WE INVEST
The U.S. economy continued to show clear
We seek to enhance returns by taking direction of interest rates. We develop a signs of deceleration in the pace of its
calculated risks in sector allocation, short-term strategic outlook and look to expansion by the end of 2006. Growth in
duration management and security selection take advantage of tactical opportunities real gross domestic product (GDP) slipped
to take advantage of prevailing market when they arise. This strategic outlook to a 2.0% annual rate in the third
conditions and future developments. helps determine the Fund's allocation quarter, down from a 2.6% pace in the
Duration is a measure of a debt security's strategy among the three sectors second quarter and from a surprisingly
sensitivity to interest rate changes, represented in our style-specific strong 5.6% in the first quarter. The
expressed in terms of years. Longer benchmark -- U.S. Treasuries, U.S. agency slowdown was mostly attributable to
durations usually are more sensitive to bonds and U.S. agency mortgage backed softening in the residential construction
interest rate movements. securities (MBS) -- and where we position market. However, deceleration in
the Fund's duration within a band of plus homebuilding had not yet noticeably
We begin by assessing the overall or minus 1.50 years around our benchmark's impacted the other sectors of the economy,
economic environment and its impact on the duration. This duration band places limits as consumer spending and business
level and on how investment remained solid.
=======================================================================================
PORTFOLIO COMPOSITION TOP FIXED INCOME ISSUERS* On December 12, 2006, the U.S. Federal
- --------------------------------------------------------------------------------------- Reserve Board (the Fed) decided to keep
By sector, based on total investments 1. Federal National Mortgage the target federal funds rate at 5.25%.
Mortgage U.S. Agency Obligations 65.3% Association (FNMA) 50.7% This was the fourth consecutive rate pause
Non-Mortgage U.S. Agency Obligations 25.5 2. Federal Home Loan after 17 consecutive rate increases. While
Money Market Funds 8.3 Mortgage Corp. (FHLMC) 33.1 this pause refreshed the financial
U.S. Treasury Obligations 0.6 3. Government National markets, members of the Fed reiterated
Foreign Sovereign Bonds 0.3 Mortgage Association (GNMA) 11.6 that some inflation risks persist and that
4. Federal Home Loan Bank (FHLB) 9.1 future target interest rate actions would
Total Net Assets $923.62 million 5. Federal Farm Credit Bank 7.2 continue to depend on incoming economic
6. Tennessee Valley Authority 1.2 data.
Total Number of Holdings* 738 7. Federal Agricultural Mortgage
Corp. 1.1 The U.S. Treasury yield curve, which
8. U.S. Treasury Securities 0.8 represents the yields of Treasury
9. Israel Government AID Bond securities with different maturities, was
(Israel) 0.4 inverted for much of 2006 as the Fed
10. Private Export Funding Corp. 0.3 raised short rates through June. That
meant that shorter term Treasuries were
generally yielding more than longer term
Treasuries, a reversal of the norm. The
two- to 10-year spread was inverted by 11
basis points on December 29, 2006.
The Fund's holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
====================================================================================================================================
2
AIM V.I. GOVERNMENT SECURITIES FUND
In 2006, the bond market was were among the top performing securities Scot W. Johnson
characterized by low volatility. The in the MBS market therefore an emphasis on Chartered Financial Analyst,
Lehman Brothers U.S. Aggregate Bond Index, the higher-coupon pools slightly detracted [JOHNSON senior portfolio manager, is
a measure of the investment-grade bond from performance. PHOTO] lead manager of AIM V.I.
market performance, delivered a total Government Securities Fund.
return of 4.33% for the year. Over the The Fund's assets were diversified Mr. Johnson joined AIM in 1994. He earned
same period, MBS generated the highest across different types of MBS issuers such both a B.A. in economics and an M.B.A. in
total return, 5.22%, relative to other as the Government National Mortgage finance from Vanderbilt University.
investment-grade bond segments as measured Association (GNMA), the Federal Home Loan
by the Lehman Brothers Mortgage Backed Mortgage Corporation (FHLMC) and Federal Clint W. Dudley
Securities Index. This was primarily due National Mortgage Association (FNMA). The Chartered Financial Analyst,
to strong demand from foreign investors. pools issued by FNMA outperformed [DUDLEY portfolio manager, is manager
mortgages issued by GNMA and FHLMC. PHOTO] of AIM V.I. Government
The vast majority of the Fund's Investing about 50% of the Fund's assets Securities Fund. Mr. Dudley
holdings were MBS, although the Fund can in securities issued by FNMA helped joined AIM in 1998. He earned both a
own all forms of government securities. We performance. B.B.A. and an M.B.A. from Baylor
prefer the higher yields and potential University.
returns of MBS over U.S. Treasury Throughout the year, we used
securities, as we believe that over longer mortgage dollar roll transactions to take Assisted by the Taxable Investment Grade
periods the greater yields may result in advantage of opportunities in the mortgage Bond Team
higher income and total return for our market and to enhance current income. In
shareholders. Considering the MBS market mortgage dollar roll transactions, we sell
delivered excellent performance for the a mortgage-backed security and
year, the Fund's large weight in mortgages simultaneously agree to later repurchase a
had a positive effect on relative substantially similar mortgage-backed
performance. security with the same interest rate and
maturity date. While giving up the right
Throughout the year, the Fund's to receive interest and principal payments
duration was kept at levels below that of on the security we sold, the Fund may
its style-specific benchmark, reflecting benefit from the interest earned on
our belief that the Fed would hike investing the proceeds of the sale.
interest rates to slow the economic However, the Fund may lose money if these
growth. However, at the August meeting types of securities decline in value, due
monetary policymakers decided to pause to market conditions or prepayments of the
with its interest rate tightening underlying mortgages. During the first
campaign. Although during the first and half of the year, rising interest rates
fourth quarters the Fund's short duration and inflationary pressure in the economy
structure benefited performance, our caused some dollar roll holdings of the
relatively more aggressive duration Fund to decline in value, which slightly
underweight had a negative impact on hindered the Fund's performance.
returns.
IN CLOSING
We began to implement a new strategy
of using derivatives in 2006-- We thank you for your investment in AIM
specifically U.S. Treasury futures--to V.I. Government Securities Fund.
gain exposure to the U.S. Treasury market
for purposes of managing the Fund's THE VIEWS AND OPINIONS EXPRESSED IN
duration. U.S. Treasury futures offer a MANAGEMENT'S DISCUSSION OF FUND
variety of standardized contracts, are PERFORMANCE ARE THOSE OF A I M ADVISORS,
exchange traded and provide a high level INC. THESE VIEWS AND OPINIONS ARE SUBJECT
of liquidity. This strategy offers us the TO CHANGE AT ANY TIME BASED ON FACTORS
opportunity to employ the Fund's cash more SUCH AS MARKET AND ECONOMIC CONDITIONS.
effectively, compared to buying actual THESE VIEWS AND OPINIONS MAY NOT BE RELIED
bonds. During the year we used two-and UPON AS INVESTMENT ADVICE OR
five-year U.S. Treasury Note futures for RECOMMENDATIONS, OR AS AN OFFER FOR A
purposes of maintaining a relatively PARTICULAR SECURITY. THE INFORMATION IS
shorter duration as we viewed the yields NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF
on the 10-year U.S. Treasuries to be in ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR
the lower range. THE FUND. STATEMENTS OF FACT ARE FROM
SOURCES CONSIDERED RELIABLE, BUT A I M
Within the MBS market, we focused on ADVISORS, INC. MAKES NO REPRESENTATION OR
higher coupon securities with lower WARRANTY AS TO THEIR COMPLETENESS OR
duration mortgage pools in order to ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE
maximize yield. However, lower-coupon IS NO GUARANTEE OF FUTURE RESULTS, THESE FOR A DISCUSSION OF THE RISKS OF INVESTING
conventional 30-year mortgages INSIGHTS MAY HELP YOU UNDERSTAND OUR IN YOUR FUND, INDEXES USED IN THIS REPORT
INVESTMENT MANAGEMENT PHILOSOPHY. AND YOUR FUND'S LONG-TERM PERFORMANCE,
PLEASE SEE PAGES 4-5.
3
AIM V.I. GOVERNMENT SECURITIES FUND
YOUR FUND'S LONG-TERM PERFORMANCE
==========================================
AVERAGE ANNUAL TOTAL RETURNS SHARES SINCE THEIR INCEPTION AND THE VARIABLE INSURANCE FUNDS, IS CURRENTLY
- ------------------------------------------ RESTATED HISTORICAL PERFORMANCE OF SERIES OFFERED THROUGH INSURANCE COMPANIES
As of 12/31/06 I SHARES (FOR PERIODS PRIOR TO INCEPTION ISSUING VARIABLE PRODUCTS. YOU CANNOT
OF SERIES II SHARES) ADJUSTED TO REFLECT PURCHASE SHARES OF THE FUND DIRECTLY.
SERIES I SHARES THE RULE 12b-1 FEES APPLICABLE TO SERIES PERFORMANCE FIGURES GIVEN REPRESENT THE
Inception (5/5/93) 4.81% II SHARES. THE PERFORMANCE OF THE FUND'S FUND AND ARE NOT INTENDED TO REFLECT
10 Years 4.89 SERIES I AND SERIES II SHARE CLASSES WILL ACTUAL VARIABLE PRODUCT VALUES. THEY DO
5 Years 3.64 DIFFER PRIMARILY DUE TO DIFFERENT CLASS NOT REFLECT SALES CHARGES, EXPENSES AND
1 Year 3.55 EXPENSES. FEES ASSESSED IN CONNECTION WITH A
VARIABLE PRODUCT. SALES CHARGES, EXPENSES
SERIES II SHARES THE PERFORMANCE DATA QUOTED REPRESENT AND FEES, WHICH ARE DETERMINED BY THE
10 Years 4.62% PAST PERFORMANCE AND CANNOT GUARANTEE VARIABLE PRODUCT ISSUERS, WILL VARY AND
5 Years 3.38 COMPARABLE FUTURE RESULTS; CURRENT WILL LOWER THE TOTAL RETURN.
1 Year 3.28 PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE
========================================== CONTACT YOUR VARIABLE PRODUCT ISSUER OR PER NASD REQUIREMENTS, THE MOST
FINANCIAL ADVISOR FOR THE MOST RECENT RECENT MONTH-END PERFORMANCE DATA AT THE
========================================== MONTH-END VARIABLE PRODUCT PERFORMANCE. FUND LEVEL, EXCLUDING VARIABLE PRODUCT
CUMULATIVE TOTAL RETURNS PERFORMANCE FIGURES REFLECT FUND EXPENSES, CHARGES, IS AVAILABLE ON THIS AIM
REINVESTED DISTRIBUTIONS AND CHANGES IN AUTOMATED INFORMATION LINE, 866-702-4402.
6 months ended 12/31/06 NET ASSET VALUE. INVESTMENT RETURN AND AS MENTIONED ABOVE, FOR THE MOST RECENT
PRINCIPAL VALUE WILL FLUCTUATE SO THAT YOU MONTH-END PERFORMANCE INCLUDING VARIABLE
Series I Shares 3.64% MAY HAVE A GAIN OR LOSS WHEN YOU SELL PRODUCT CHARGES, PLEASE CONTACT YOUR
Series II Shares 3.45 SHARES. VARIABLE PRODUCT ISSUER OR FINANCIAL
========================================== ADVISOR.
SERIES II SHARES' INCEPTION DATE IS AIM V.I. GOVERNMENT SECURITIES
SEPTEMBER 19, 2001. RETURNS SINCE THAT FUND, A SERIES PORTFOLIO OF AIM
DATE ARE HISTORICAL. ALL OTHER RETURNS ARE
THE BLENDED RETURNS OF THE HISTORICAL
PERFORMANCE OF SERIES II
====================================================================================================================================
PRINCIPAL RISKS OF INVESTING IN THE FUND The Fund can invest in U.S. ABOUT INDEXES USED IN THIS REPORT
government agency mortgage-backed
To the extent the Fund holds cash or cash securities. The Fund may purchase such The unmanaged LEHMAN BROTHERS U.S.
equivalents rather than equity securities securities at a premium, which means that AGGREGATE BOND INDEX (the Lehman
for risk management purposes, the Fund may a faster-than-expected principal Aggregate), which represents the U.S.
not achieve its investment objective. prepayment rate will reduce both the investment-grade fixed-rate bond market
market value of and income from such (including government and corporate
If the seller of a repurchase securities. securities, mortgage pass-through
agreement in which the Fund invests securities and asset-backed securities),
defaults on its obligation or declares Foreign securities have additional is compiled by Lehman Brothers, a global
bankruptcy, the Fund may experience delays risks, including exchange rate changes, investment bank.
in selling the securities underlying the political and economic upheaval, the
repurchase agreement. relative lack of information about these The unmanaged LEHMAN BROTHERS
companies, relatively low market liquidity INTERMEDIATE U.S. GOVERNMENT AND MORTGAGE
There is no guarantee that the and the potential lack of strict financial INDEX is a market-weighted combination of
investment techniques and risk analyses and accounting controls and standards. the unmanaged Lehman Brothers Intermediate
used by the Fund's portfolio managers will U.S. Government Bond Index and the
produce the desired results. Investing in emerging markets unmanaged Lehman Brothers Mortgage Backed
involves greater risk than investing in Securities Fixed Rate Index. It includes
Debt securities are particularly more established markets. The risks securities in the intermediate maturity
vulnerable to credit risk and interest include the relatively smaller size and range of the U.S. Government Index that
rate fluctuations. lesser liquidity of these markets, high must have between one year and 10 years to
inflation rates, adverse political final maturity, regardless of call
Some securities purchased by the developments and lack of timely features, and fixed-rate mortgage-backed
Fund are not guaranteed by the U.S. information. securities
government. The agencies or
instrumentalities issuing such securities
may default or otherwise be unable to
honor a financial obligation.
Continued on page 5
4
AIM V.I. GOVERNMENT SECURITIES FUND
Past performance cannot guarantee value of an investment, is constructed
comparable future results. with each segment representing a percent
change in the value of the investment. In
This chart, which is a logarithmic this chart, each segment represents a
chart, presents the fluctuations in the doubling, or 100% change, in the value of
value of the Fund and its indexes. We the investment. In other words, the space
believe that a logarithmic chart is more between $5,000 and $10,000 is the same
effective than other types of charts in size as the space between $10,000 and
illustrating changes in value during the $20,000.
early years shown in the chart. The
vertical axis, the one that indicates the
dollar
====================================================================================================================================
Continued from page 4
collateralized by 15-year, 30-year and The Lipper VUF General U.S. Government net asset values calculated for
balloon mortgages issued by GNMA, FHLMC or Funds Index, recently published by Lipper shareholder transactions. Generally
FNMA. Inc., comprises the largest underlying accepted accounting principles require
funds in each variable insurance category adjustments to be made to the net assets
LEHMAN BROTHERS U.S. MORTGAGE BACKED and does not include mortality and expense of the Fund at period end for financial
SECURITIES INDEX covers the fixed-rate fees. reporting purposes, and as such, the net
agency mortgage-backed pass-through asset values for shareholder transactions
securities of Ginnie Mae (GNMA), Fannie The Fund is not managed to track the and the returns based on those net asset
Mae (FNMA) and Freddie Mac (FHLMC). performance of any particular index, values may differ from the net asset
including the indexes defined here, and values and returns reported in the
THE LIPPER INTERMEDIATE U.S. consequently, the performance of the Fund Financial Highlights. Additionally, the
GOVERNMENT FUNDS INDEX represents an may deviate significantly from the returns and net asset values shown
average of the 10 largest intermediate-term performance of the index. throughout this report are at the Fund
U.S. government bond funds tracked by level only and do not include variable
Lipper Inc., an independent mutual fund A direct investment cannot be made product issuer charges. If such charges
performance monitor. in an index. Unless otherwise indicated, were included, the total returns would be
index results include reinvested dividends, lower.
In conjunction with the annual and they do not reflect sales charges.
prospectus update on or about May 1, 2007, Performance of an index of funds reflects The Chartered Financial Analyst
the AIM V.I. Government Securities Fund fund expenses; performance of a market --Registered Trademark-- (CFA --Registered
prospectus will be amended to reflect that index does not. Trademark--) designation is a globally
the Fund has elected to use the Lipper recognized standard for measuring the
Variable Underlying Funds (VUF) General OTHER INFORMATION competence and integrity of investment
U.S. Government Funds Index as its professionals.
peer group rather than the Lipper The returns shown in the management's
Intermediate U.S. Government Funds Index. discussion of Fund performance are based
on
5
===================================================================================================================================
[MOUNTAIN CHART]
RESULTS OF A $10,000 INVESTMENT
Index data from 4/30/93, Fund data from 5/5/93
AIM V.I. GOVERNMENT SECURITIES FUND LIPPER INTERMEDIATE U.S. GOVERNMENT
DATE -SERIES I SHARES LEHMAN BROTHERS U.S. AGGREGATE BOND INDEX FUNDS INDEX
- -----------------------------------------------------------------------------------------------------------------------------------
4/30/93 $ 10000 $ 10000
5/93 $ 9990 10013 9991
6/93 10150 10194 10154
7/93 10180 10252 10194
8/93 10330 10432 10352
9/93 10363 10460 10394
10/93 10393 10499 10414
11/93 10312 10410 10341
12/93 10355 10466 10383
1/94 10479 10608 10499
2/94 10274 10423 10317
3/94 10064 10166 10113
4/94 9940 10085 10015
5/94 9950 10084 9999
6/94 9923 10062 9980
7/94 10070 10261 10116
8/94 10080 10274 10134
9/94 9969 10123 10017
10/94 9948 10114 10007
11/94 9916 10091 9959
12/94 9970 10161 9998
1/95 10120 10362 10167
2/95 10325 10609 10374
3/95 10367 10674 10440
4/95 10487 10823 10561
5/95 10858 11242 10900
6/95 10935 11324 10963
7/95 10869 11299 10939
8/95 10990 11435 11050
9/95 11077 11546 11141
10/95 11219 11696 11272
11/95 11383 11872 11423
12/95 11520 12038 11554
1/96 11599 12118 11632
2/96 11373 11908 11447
3/96 11293 11825 11368
4/96 11226 11758 11304
5/96 11181 11735 11279
6/96 11317 11892 11407
7/96 11351 11925 11432
8/96 11328 11905 11418
9/96 11498 12112 11596
10/96 11713 12380 11823
11/96 11883 12592 12007
12/96 11784 12475 11904
1/97 11820 12514 11937
2/97 11832 12545 11956
3/97 11736 12406 11843
4/97 11891 12591 12003
5/97 11974 12710 12100
6/97 12094 12861 12229
7/97 12368 13208 12528
8/97 12273 13095 12424
9/97 12428 13289 12595
10/97 12571 13481 12762
11/97 12607 13543 12799
12/97 12744 13680 12918
1/98 12887 13855 13086
2/98 12876 13845 13062
3/98 12923 13893 13103
4/98 12983 13965 13159
5/98 13102 14098 13273
6/98 13210 14217 13383
7/98 13245 14247 13409
8/98 13460 14479 13657
9/98 13734 14818 13982
10/98 13663 14740 13903
11/98 13698 14824 13923
12/98 13729 14868 13974
1/99 13815 14974 14042
2/99 13544 14713 13779
3/99 13617 14794 13868
4/99 13654 14841 13905
5/99 13507 14711 13776
6/99 13446 14664 13731
7/99 13410 14602 13683
8/99 13410 14595 13669
9/99 13545 14764 13817
===================================================================================================================================
SOURCE: LIPPER INC.
===================================================================================================================================
[MOUNTAIN CHART]
10/99 13594 14818 13847
11/99 13594 14817 13848
12/99 13548 14746 13780
1/00 13496 14698 13737
2/00 13649 14875 13888
3/00 13789 15071 14065
4/00 13777 15028 14014
5/00 13789 15021 13999
6/00 14018 15334 14268
7/00 14095 15473 14378
8/00 14262 15697 14582
9/00 14376 15796 14681
10/00 14465 15901 14785
11/00 14682 16160 15027
12/00 14920 16460 15319
1/01 15067 16729 15527
2/01 15188 16875 15682
3/01 15215 16960 15754
4/01 15148 16890 15662
5/01 15201 16991 15743
6/01 15241 17056 15792
7/01 15535 17437 16139
8/01 15656 17637 16309
9/01 15936 17842 16549
10/01 16257 18215 16893
11/01 16042 17964 16614
12/01 15875 17850 16480
1/02 15985 17995 16592
2/02 16137 18169 16764
3/02 15916 17867 16459
4/02 16205 18213 16778
5/02 16302 18368 16928
6/02 16426 18527 17106
7/02 16674 18750 17374
8/02 16923 19067 17649
9/02 17266 19376 17963
10/02 17170 19288 17882
11/02 17060 19282 17768
12/02 17399 19681 18127
1/03 17344 19698 18094
2/03 17526 19970 18332
3/03 17428 19955 18294
4/03 17511 20119 18375
5/03 17735 20495 18690
6/03 17679 20454 18636
7/03 17173 19766 18050
8/03 17159 19897 18114
9/03 17538 20424 18540
10/03 17384 20234 18364
11/03 17454 20282 18379
12/03 17585 20489 18523
1/04 17685 20653 18636
2/04 17800 20877 18805
3/04 17871 21033 18931
4/04 17583 20486 18498
5/04 17511 20404 18424
6/04 17611 20519 18494
7/04 17711 20723 18643
8/04 17927 21118 18929
9/04 17927 21175 18944
10/04 18013 21353 19058
11/04 17956 21183 18920
12/04 18033 21377 19050
1/05 18064 21512 19116
2/05 18004 21385 19013
3/05 17973 21275 18953
4/05 18108 21563 19181
5/05 18197 21796 19337
6/05 18243 21915 19416
7/05 18197 21715 19253
8/05 18286 21994 19476
9/05 18226 21767 19390
10/05 18180 21595 19190
11/05 18226 21690 19253
12/05 18331 21897 19402
1/06 18362 21898 19412
2/06 18394 21971 19448
3/06 18302 21755 19309
4/06 18302 21716 19288
5/06 18302 21692 19284
6/06 18316 21738 19315
7/06 18501 22032 19531
8/06 18640 22370 19777
9/06 18748 22566 19926
10/06 18857 22715 20032
11/06 18964 22979 20229
12/06 18990 22846 20121
===================================================================================================================================
CALCULATING YOUR ONGOING FUND EXPENSES AIM V.I. GOVERNMENT SECURITIES FUND
EXAMPLE ACTUAL EXPENSES 5% per year before expenses, which is not
the Fund's actual return. The Fund's
As a shareholder of the Fund, you incur The table below provides information about actual cumulative total returns at net
ongoing costs, including management fees; actual account values and actual expenses. asset value after expenses for the six
distribution and/or service (12b-1) fees; You may use the information in this table, months ended December 31, 2006, appear in
and other Fund expenses. This example is together with the amount you invested, to the table "Cumulative Total Returns" on
intended to help you understand your estimate the expenses that you paid over page 4.
ongoing costs (in dollars) of investing in the period. Simply divide your account
the Fund and to compare these costs with value by $1,000 (for example, an $8,600 The hypothetical account values and
ongoing costs of investing in other mutual account value divided by $1,000 = 8.6), expenses may not be used to estimate the
funds. The example is based on an then multiply the result by the number in actual ending account balance or expenses
investment of $1,000 invested at the the table under the heading entitled you paid for the period. You may use this
beginning of the period and held for the "Actual Expenses Paid During Period" to information to compare the ongoing costs
entire period July 1, 2006, through estimate the expenses you paid on your of investing in the Fund and other funds.
December 31, 2006. account during this period. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples
The actual and hypothetical expenses HYPOTHETICAL EXAMPLE FOR COMPARISON that appear in the shareholder reports of
in the examples below do not represent the PURPOSES the other funds.
effect of any fees or other expenses
assessed in connection with a variable The table below also provides information Please note that the expenses shown in
product; if they did, the expenses shown about hypothetical account values and the table are meant to highlight your
would be higher while the ending account hypothetical expenses based on the Fund's ongoing costs. Therefore, the hypothetical
values shown would be lower. actual expense ratio and an assumed rate information is useful in comparing ongoing
of return of costs, and will not help you determine the
relative total costs of owning different
funds.
===================================================================================================================================
HYPOTHETICAL
ACTUAL (5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (7/1/06) (12/31/06)(1) PERIOD(2) (12/31/06) PERIOD(2) RATIO
Series I $ 1,000.00 $ 1,036.40 $ 3.64 $ 1,021.63 $ 3.62 0.71%
Series II 1,000.00 1,034.50 4.92 1,020.37 4.89 0.96
===================================================================================================================================
(1) The actual ending account value is based on the actual total return of the
Fund for the period July 1, 2006, through December 31, 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 December 31, 2006,
appear in the table "Cumulative Total Returns" on page 4.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated
above multiplied by the average account value over the period, multiplied
by 184/365 to reflect the most recent fiscal half year.
6
APPROVAL OF INVESTMENT ADVISORY AGREEMENT AIM V.I. GOVERNMENT SECURITIES FUND
The Board of Trustees of AIM Variable - The nature and extent of the advisory should be made to the Fund and that it was
Insurance Funds (the "Board") oversees the services to be provided by AIM. The Board not necessary to change the Fund's
management of AIM V.I. Government reviewed the services to be provided by portfolio management team at this time.
Securities Fund (the "Fund") and, as AIM under the Advisory Agreement. Based on However, due to the Fund's
required by law, determines annually such review, the Board concluded that the under-performance, the Board also
whether to approve the continuance of the range of services to be provided by AIM concluded that it would be appropriate for
Fund's advisory agreement with A I M under the Advisory Agreement was the Board to continue to closely monitor
Advisors, Inc. ("AIM"). Based upon the appropriate and that AIM currently is and review the performance of the Fund.
recommendation of the Investments providing services in accordance with the Although the independent written
Committee of the Board, at a meeting held terms of the Advisory Agreement. evaluation of the Fund's Senior Officer
on June 27, 2006, the Board, including all (discussed below) only considered Fund
of the independent trustees, approved the - The quality of services to be provided performance through the most recent
continuance of the advisory agreement (the by AIM. The Board reviewed the credentials calendar year, the Board also reviewed
"Advisory Agreement") between the Fund and and experience of the officers and more recent Fund performance, which did
AIM for another year, effective July 1, employees of AIM who will provide not change their conclusions.
2006. investment advisory services to the Fund.
In reviewing the qualifications of AIM to - Meetings with the Fund's portfolio
The Board considered the factors provide investment advisory services, the managers and investment personnel. With
discussed below in evaluating the fairness Board considered such issues as AIM's respect to the Fund, the Board is meeting
and reasonableness of the Advisory portfolio and product review process, periodically with such Fund's portfolio
Agreement at the meeting on June 27, 2006 various back office support functions managers and/or other investment personnel
and as part of the Board's ongoing provided by AIM and AIM's equity and fixed and believes that such individuals are
oversight of the Fund. In their income trading operations. Based on the competent and able to continue to carry
deliberations, the Board and the review of these and other factors, the out their responsibilities under the
independent trustees did not identify any Board concluded that the quality of Advisory Agreement.
particular factor that was controlling, services to be provided by AIM was
and each trustee attributed different appropriate and that AIM currently is - Overall performance of AIM. The Board
weights to the various factors. providing satisfactory services in considered the overall performance of AIM
accordance with the terms of the Advisory in providing investment advisory and
One responsibility of the Agreement. portfolio administrative services to the
independent Senior Officer of the Fund is Fund and concluded that such performance
to manage the process by which the Fund's - The performance of the Fund relative to was satisfactory.
proposed management fees are negotiated to comparable funds. The Board reviewed the
ensure that they are negotiated in a performance of the Fund during the past - Fees relative to those of clients of AIM
manner which is at arms' length and one, three and five calendar years against with comparable investment strategies. The
reasonable. To that end, the Senior the performance of funds advised by other Board noted that AIM does not serve as an
Officer must either supervise a advisors with investment strategies advisor to other mutual funds or other
competitive bidding process or prepare an comparable to those of the Fund. The Board clients with investment strategies
independent written evaluation. The Senior noted that the Fund's performance in such comparable to those of the Fund.
Officer has recommended an independent periods was below the median performance
written evaluation in lieu of a of such comparable funds. Based on this - Fees relative to those of comparable
competitive bidding process and, upon the review and after taking account of all of funds with other advisors. The Board
direction of the Board, has prepared such the other factors that the Board reviewed the advisory fee rate for the
an independent written evaluation. Such considered in determining whether to Fund under the Advisory Agreement. The
written evaluation also considered certain continue the Advisory Agreement for the Board compared effective contractual
of the factors discussed below. In Fund, the Board concluded that no changes advisory fee rates at a common asset level
addition, as discussed below, the Senior should be made to the Fund and that it was at the end of the past calendar year and
Officer made a recommendation to the Board not necessary to change the Fund's noted that the Fund's rate was comparable
in connection with such written portfolio management team at this time. to the median rate of the funds advised by
evaluation. However, due to the Fund's other advisors with investment strategies
under-performance, the Board also comparable to those of the Fund that the
The discussion below serves as a concluded that it would be appropriate for Board reviewed. The Board noted that AIM
summary of the Senior Officer's the Board to continue to closely monitor has agreed to limit the Fund's total
independent written evaluation and and review the performance of the Fund. operating expenses, as discussed below.
recommendation to the Board in connection Although the independent written Based on this review, the Board concluded
therewith, as well as a discussion of the evaluation of the Fund's Senior Officer that the advisory fee rate for the Fund
material factors and the conclusions with (discussed below) only considered Fund under the Advisory Agreement was fair and
respect thereto that formed the basis for performance through the most recent reasonable.
the Board's approval of the Advisory calendar year, the Board also reviewed
Agreement. After consideration of all of more recent Fund performance, which did - Expense limitations and fee waivers. The
the factors below and based on its not change their conclusions. Board noted that AIM has contractually
informed business judgment, the Board agreed to waive fees and/or limit expenses
determined that the Advisory Agreement is - The performance of the Fund relative to of the Fund through April 30, 2008 so that
in the best interests of the Fund and its indices. The Board reviewed the total annual operating expenses are
shareholders and that the compensation to performance of the Fund during the past limited to a specified percentage of
AIM under the Advisory Agreement is fair one, three and five calendar years against average daily net assets for each class of
and reasonable and would have been the performance of the Lipper Variable the Fund. The Board considered the
obtained through arm's length Underlying Fund General U.S. Government contractual nature of this fee waiver and
negotiations. Fund Index. The Board noted that the noted that it remains in effect until
Fund's performance in such periods was April 30, 2008. The Board considered the
Unless otherwise stated, information below the performance of such Index. Based effect this fee waiver/expense limitation
presented below is as of June 27, 2006 and on this review and after taking account of would have on the Fund's estimated
does not reflect any changes that may have all of the other factors that the Board expenses and concluded that the levels of
occurred since June 27, 2006, including considered in determining whether to fee waivers/expense limitations for the
but not limited to changes to the Fund's continue the Advisory Agreement for the Fund were fair and reasonable.
performance, advisory fees, expense Fund, the Board concluded that no changes
limitations and/or fee waivers.
(continued)
7
AIM V.I. GOVERNMENT SECURITIES FUND
- - Breakpoints and economies of scale. The - Profitability of AIM and its affiliates. - 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
- - 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 - 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 - 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 - 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
- - 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.
8
AIM V.I. Government Securities Fund
SCHEDULE OF INVESTMENTS
December 31, 2006
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------------------------
U.S. MORTGAGE-BACKED SECURITIES-82.10%(a)
FEDERAL HOME LOAN MORTGAGE CORP.
(FHLMC)-31.81%
Pass Through Ctfs.,
8.00%, 05/01/08 to 09/01/36 $27,582,946 $ 29,198,610
- ---------------------------------------------------------------------------
6.00%, 11/01/08 to 02/01/34 23,136,597 23,460,408
- ---------------------------------------------------------------------------
6.50%, 12/01/08 to 12/01/35 63,399,976 64,841,841
- ---------------------------------------------------------------------------
7.00%, 11/01/10 to 09/01/36 34,079,229 35,114,642
- ---------------------------------------------------------------------------
10.50%, 08/01/19 13,545 14,779
- ---------------------------------------------------------------------------
8.50%, 09/01/20 to 08/01/31 2,157,759 2,312,528
- ---------------------------------------------------------------------------
10.00%, 03/01/21 200,215 219,853
- ---------------------------------------------------------------------------
9.00%, 06/01/21 to 06/01/22 1,374,098 1,469,597
- ---------------------------------------------------------------------------
7.05%, 05/20/27 607,499 623,781
- ---------------------------------------------------------------------------
7.50%, 07/01/29 to 08/01/36 6,296,164 6,546,768
- ---------------------------------------------------------------------------
Pass Through Ctfs., TBA,
4.50%, 01/01/22(b) 28,134,265 27,114,398
- ---------------------------------------------------------------------------
5.00%, 01/01/22 to 01/01/37(b) 53,920,000 52,535,995
- ---------------------------------------------------------------------------
5.50%, 01/01/37(b) 33,312,283 32,947,930
- ---------------------------------------------------------------------------
6.00%, 02/01/37(b) 17,300,000 17,424,344
===========================================================================
293,825,474
===========================================================================
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-38.71%
Pass Through Ctfs.,
7.50%, 11/01/09 to 10/01/36 32,031,337 33,361,706
- ---------------------------------------------------------------------------
6.50%, 10/01/10 to 10/01/35 49,606,224 50,861,261
- ---------------------------------------------------------------------------
7.00%, 12/01/10 to 06/01/36 79,164,921 81,708,882
- ---------------------------------------------------------------------------
8.00%, 06/01/12 to 11/01/36 27,442,573 29,014,390
- ---------------------------------------------------------------------------
8.50%, 06/01/12 to 12/01/36 12,354,977 13,266,953
- ---------------------------------------------------------------------------
10.00%, 09/01/13 to 03/01/16 158,570 169,293
- ---------------------------------------------------------------------------
6.00%, 03/01/17 to 02/01/34 13,337,908 13,541,361
- ---------------------------------------------------------------------------
5.00%, 11/01/17 to 12/01/33 2,572,926 2,530,818
- ---------------------------------------------------------------------------
6.75%, 07/01/24 2,141,572 2,198,670
- ---------------------------------------------------------------------------
6.95%, 10/01/25 to 09/01/26 244,038 252,174
- ---------------------------------------------------------------------------
Pass Through Ctfs., TBA,
5.00%, 01/01/22(b) 5,973,250 5,872,451
- ---------------------------------------------------------------------------
5.50%, 01/01/22 to 01/01/37(b) 39,709,268 39,636,424
- ---------------------------------------------------------------------------
6.00%, 01/01/22 to 01/01/37(b) 66,307,701 66,962,570
- ---------------------------------------------------------------------------
6.50%, 01/01/37(b) 17,772,996 18,111,794
===========================================================================
357,488,747
===========================================================================
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA)-11.58%
Pass Through Ctfs.,
7.50%, 03/15/08 to 11/15/36 24,948,811 26,021,838
- ---------------------------------------------------------------------------
9.00%, 09/15/08 to 12/20/16 191,695 204,452
- ---------------------------------------------------------------------------
</Table>
<Table>
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------------------------
<Caption>
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION-(CONTINUED)
6.50%, 09/20/08 to 09/15/35 $41,811,402 $ 43,164,297
- ---------------------------------------------------------------------------
9.38%, 06/15/09 to 12/15/09 720,947 747,763
- ---------------------------------------------------------------------------
8.00%, 07/15/12 to 10/15/36 10,257,506 10,875,898
- ---------------------------------------------------------------------------
11.00%, 10/15/15 2,818 3,130
- ---------------------------------------------------------------------------
9.50%, 09/15/16 4,057 4,398
- ---------------------------------------------------------------------------
7.00%, 04/15/17 to 10/15/36 13,844,744 14,378,735
- ---------------------------------------------------------------------------
10.50%, 09/15/17 to 11/15/19 5,268 5,889
- ---------------------------------------------------------------------------
8.50%, 12/15/17 to 10/15/36 3,275,698 3,508,090
- ---------------------------------------------------------------------------
10.00%, 06/15/19 75,778 83,972
- ---------------------------------------------------------------------------
6.00%, 06/20/20 to 08/15/33 5,696,591 5,798,337
- ---------------------------------------------------------------------------
6.95%, 08/20/25 to 08/20/27 2,140,345 2,202,123
===========================================================================
106,998,922
===========================================================================
Total U.S. Mortgage-Backed Securities
(Cost $764,163,252) 758,313,143
===========================================================================
U.S. GOVERNMENT AGENCY SECURITIES-32.05%(a)
FEDERAL AGRICULTURAL MORTGAGE CORP.-1.08%
Medium Term Notes, 5.40%, 12/14/11 10,000,000 9,952,900
===========================================================================
FEDERAL FARM CREDIT BANK-7.15%
Bonds,
5.75%, 01/18/11 2,000,000 2,052,980
- ---------------------------------------------------------------------------
5.70%, 06/08/15 42,500,000 42,164,675
- ---------------------------------------------------------------------------
6.15%, 10/05/20 6,000,000 5,943,960
- ---------------------------------------------------------------------------
5.59%, 10/04/21 10,075,000 10,003,568
- ---------------------------------------------------------------------------
Medium Term Notes, 5.75%, 12/07/28 5,500,000 5,864,210
===========================================================================
66,029,393
===========================================================================
FEDERAL HOME LOAN BANK (FHLB)-9.05%
Unsec. Bonds,
5.60%, 06/09/20 2,150,000 2,086,618
- ---------------------------------------------------------------------------
6.35%, 10/04/21 5,705,000 5,677,502
- ---------------------------------------------------------------------------
6.15%, 12/08/26 43,000,000 42,299,530
- ---------------------------------------------------------------------------
Unsec. Disc. Bonds, 5.25%, 11/16/15(c) 1,705,000 1,698,691
- ---------------------------------------------------------------------------
Unsec. Sub. Bonds, 6.15%, 01/03/22 32,000,000 31,854,496
===========================================================================
83,616,837
===========================================================================
FEDERAL HOME LOAN MORTGAGE CORP.
(FHLMC)-1.26%
Unsec. Global Notes,
5.20%, 03/05/19 2,775,000 2,707,706
- ---------------------------------------------------------------------------
5.50%, 08/20/19 9,000,000 8,932,410
===========================================================================
11,640,116
===========================================================================
</Table>
AIM V.I. Government Securities Fund
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA)-12.03%
Unsec. Global Bonds, 6.63%, 11/15/30 $ 700,000(d) $ 839,587
- ---------------------------------------------------------------------------
Unsec. Notes,
6.00%, 04/19/13 to 11/17/15 15,868,000 15,832,204
- ---------------------------------------------------------------------------
6.13%, 03/21/16 22,695,000 22,653,014
- ---------------------------------------------------------------------------
6.50%, 07/26/16 30,000,000 30,063,300
- ---------------------------------------------------------------------------
6.38%, 12/28/20 29,466,000 29,444,195
- ---------------------------------------------------------------------------
6.50%, 11/25/25 4,762,000 4,755,667
- ---------------------------------------------------------------------------
7.15%, 07/10/26 6,625,000 6,638,846
- ---------------------------------------------------------------------------
Unsec. Sub. Disc. Deb.,
6.74%, 10/09/19(e) 1,000,000 500,820
- ---------------------------------------------------------------------------
7.37%, 10/09/19(e) 800,000 400,656
===========================================================================
111,128,289
===========================================================================
PRIVATE EXPORT FUNDING CORP.-0.31%
Series G, Sec. Gtd. Notes, 6.67%, 09/15/09 2,701,000 2,814,253
===========================================================================
TENNESSEE VALLEY AUTHORITY-1.17%
Series A, Bonds, 6.79%, 05/23/12 5,000,000 5,415,600
- ---------------------------------------------------------------------------
Series G, Global Bonds, 5.38%, 11/13/08 5,347,000 5,378,494
===========================================================================
10,794,094
===========================================================================
Total U.S. Government Agency Securities
(Cost $297,122,305) 295,975,882
===========================================================================
U.S. TREASURY SECURITIES-0.81%(a)
U.S. TREASURY BONDS-0.54%
7.50%, 11/15/24 2,815,000(d) 3,679,289
- ---------------------------------------------------------------------------
7.63%, 02/15/25 550,000 728,063
- ---------------------------------------------------------------------------
6.88%, 08/15/25 500,000 619,140
===========================================================================
5,026,492
===========================================================================
</Table>
<Table>
PRINCIPAL
AMOUNT VALUE
- ---------------------------------------------------------------------------
<Caption>
U.S. TREASURY STRIPS-0.27%
4.78%, 11/15/18(e) $ 1,400,000 $ 790,566
- ---------------------------------------------------------------------------
4.94%, 11/15/18(e) 2,100,000 1,185,849
- ---------------------------------------------------------------------------
6.37%, 11/15/18(e) 405,000 228,699
- ---------------------------------------------------------------------------
6.79%, 11/15/18(e) 250,000 141,173
- ---------------------------------------------------------------------------
6.85%, 11/15/18(e) 250,000 141,173
===========================================================================
2,487,460
===========================================================================
Total U.S. Treasury Securities (Cost
$6,974,217) 7,513,952
===========================================================================
FOREIGN SOVEREIGN BONDS-0.40%
SOVEREIGN DEBT-0.40%(A)
Israel Government AID Bond (Israel), U.S.
Gtd. Global Bonds, 5.13%, 11/01/24
(Cost $3,835,384) 3,800,000 3,682,086
===========================================================================
<Caption>
SHARES
MONEY MARKET FUNDS-10.43%
Government & Agency Portfolio-Institutional
Class (Cost $96,350,746)(f)(g) 96,350,746 96,350,746
===========================================================================
TOTAL INVESTMENTS-125.79% (Cost
$1,168,445,904) 1,161,835,809
===========================================================================
OTHER ASSETS LESS LIABILITIES-(25.79)% (238,214,465)
===========================================================================
NET ASSETS-100.00% $ 923,621,344
___________________________________________________________________________
===========================================================================
</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 December 31,
2006 was $1,065,485,063, which represented 115.36% 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 1J.
(c) Step coupon bond. The interest rate represents the coupon rate at which the
bond will accrue at a specified future date.
(d) All or a portion of the principal balance was pledged as collateral to cover
margin requirements for open futures contracts. See Note 1L and Note 6.
(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.
(g) Security is considered a cash equivalent for the purpose of the Statement of
Cash Flows. See Note 1I.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. Government Securities Fund
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2006
<Table>
ASSETS:
Investments, at value (cost $1,072,095,158) $1,065,485,063
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $96,350,746) 96,350,746
=============================================================
Total investments (cost $1,168,445,904) 1,161,835,809
=============================================================
Receivables for:
Investments sold 81,769,429
- -------------------------------------------------------------
Variation margin 111,625
- -------------------------------------------------------------
Fund shares sold 637,603
- -------------------------------------------------------------
Dividends and Interest 7,263,232
- -------------------------------------------------------------
Fund expenses absorbed 140,170
- -------------------------------------------------------------
Principal paydowns 56,737
- -------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 57,743
- -------------------------------------------------------------
Other assets 381
=============================================================
Total assets 1,251,872,729
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 324,817,117
- -------------------------------------------------------------
Fund shares reacquired 99,138
- -------------------------------------------------------------
Amount due custodian 2,617,382
- -------------------------------------------------------------
Trustee deferred compensation and
retirement plans 97,590
- -------------------------------------------------------------
Accrued administrative services fees 556,664
- -------------------------------------------------------------
Accrued distribution fees -- Series II 10,332
- -------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 5,701
- -------------------------------------------------------------
Accrued transfer agent fees 1,372
- -------------------------------------------------------------
Accrued operating expenses 46,089
=============================================================
Total liabilities 328,251,385
=============================================================
Net assets applicable to shares outstanding $ 923,621,344
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 937,112,368
- -------------------------------------------------------------
Undistributed net investment income 46,351,185
=============================================================
Undistributed net realized gain (loss) from
investment securities and futures contracts (54,239,167)
=============================================================
Unrealized appreciation (depreciation) of
investment securities and futures contracts (5,603,042)
=============================================================
$ 923,621,344
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $ 907,402,973
_____________________________________________________________
=============================================================
Series II $ 16,218,371
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Series I 76,904,383
_____________________________________________________________
=============================================================
Series II 1,381,466
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 11.80
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 11.74
_____________________________________________________________
=============================================================
</Table>
STATEMENT OF OPERATIONS
For the year ended December 31, 2006
<Table>
INVESTMENT INCOME:
Interest $ 39,176,743
- -------------------------------------------------------------
Dividends from affiliated money market funds 7,155,377
=============================================================
Total investment income 46,332,120
=============================================================
EXPENSES:
Advisory fees 4,037,516
- -------------------------------------------------------------
Administrative services fees 2,318,900
- -------------------------------------------------------------
Custodian fees 99,509
- -------------------------------------------------------------
Distribution fees -- Series II 43,361
- -------------------------------------------------------------
Transfer agent fees 16,892
- -------------------------------------------------------------
Trustees' and officer's fees and benefits 38,872
- -------------------------------------------------------------
Other 144,680
=============================================================
Total expenses 6,699,730
=============================================================
Less: Fees waived and expense offset
arrangements (458,528)
=============================================================
Net expenses 6,241,202
=============================================================
Net investment income 40,090,918
=============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND FUTURES CONTRACTS:
Net realized gain (loss) from:
Investment securities (5,504,326)
- -------------------------------------------------------------
Futures contracts (4,685,415)
=============================================================
(10,189,741)
=============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (594,910)
- -------------------------------------------------------------
Futures contracts 1,007,053
=============================================================
412,143
=============================================================
Net gain (loss) from investment securities and
futures contracts (9,777,598)
=============================================================
Net increase in net assets resulting from
operations $ 30,313,320
_____________________________________________________________
=============================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. Government Securities Fund
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2006 and 2005
<Table>
<Caption>
2006 2005
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 40,090,918 $ 28,009,847
- ------------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities and
futures contracts (10,189,741) (8,167,558)
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and futures contracts 412,143 (6,469,700)
==========================================================================================
Net increase in net assets resulting from operations 30,313,320 13,372,589
==========================================================================================
Distributions to shareholders from net investment income:
Series I (35,873,306) (26,201,982)
- ------------------------------------------------------------------------------------------
Series II (608,462) (562,380)
==========================================================================================
Decrease in net assets resulting from distributions (36,481,768) (26,764,362)
==========================================================================================
Share transactions-net:
Series I 100,669,509 173,693,059
- ------------------------------------------------------------------------------------------
Series II (2,567,156) 1,431,974
==========================================================================================
Net increase in net assets resulting from share
transactions 98,102,353 175,125,033
==========================================================================================
Net increase in net assets 91,933,905 161,733,260
==========================================================================================
NET ASSETS:
Beginning of year 831,687,439 669,954,179
==========================================================================================
End of year (including undistributed net investment income
of $46,351,185 and $36,404,291, respectively) $923,621,344 $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 year ended December 31, 2006
<Table>
CASH PROVIDED BY OPERATING ACTIVITIES:
Net increase in net assets resulting from operations $ 30,313,320
=============================================================================
ADJUSTMENTS TO RECONCILE NET INCREASE (DECREASE) IN NET
ASSETS TO NET CASH PROVIDED BY (USED IN) OPERATIONS:
Purchases of investment securities (513,549,355)
- -----------------------------------------------------------------------------
Amortization of premium and accretion of discount on
investment securities 819,003
- -----------------------------------------------------------------------------
Proceeds from disposition of investment securities and
principal payments 460,183,602
- -----------------------------------------------------------------------------
Realized gain (loss) on investment securities 5,504,326
- -----------------------------------------------------------------------------
Change in unrealized appreciation (depreciation) on
investment securities 594,910
- -----------------------------------------------------------------------------
Increase in variation margin receivable (111,625)
- -----------------------------------------------------------------------------
Increase in receivables and other assets (1,630,971)
- -----------------------------------------------------------------------------
Increase in accrued expenses and other payables 37,656
=============================================================================
Net cash provided by (used in) operating activities (17,839,134)
=============================================================================
CASH PROVIDED BY FINANCING ACTIVITIES:
Proceeds from shares of beneficial interest sold 169,638,849
- -----------------------------------------------------------------------------
Disbursements from shares of beneficial interest
reacquired (108,129,437)
- -----------------------------------------------------------------------------
Increase in amount due to custodian 2,617,382
=============================================================================
Net cash provided by financing activities 64,126,794
=============================================================================
Net increase in cash and cash equivalents 46,287,660
=============================================================================
Cash and cash equivalents at beginning of period 50,063,086
=============================================================================
Cash and cash equivalents at end of period $ 96,350,746
=============================================================================
NON-CASH FINANCING ACTIVITIES:
Value of capital shares issued in reinvestment of
dividends paid to shareholders $ 36,481,768
_____________________________________________________________________________
=============================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. Government Securities Fund
NOTES TO FINANCIAL STATEMENTS
December 31, 2006
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-one 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.
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.
Debt obligations (including convertible bonds) and unlisted equities 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.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price or official closing price as of the close of
the customary trading session on the exchange where the security is
principally traded, or lacking any sales or official closing price on a
particular day, the security may be valued at the closing bid price on that
day. Securities traded in the over-the-counter market 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. 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 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 open-end and closed-end registered
investment companies that trade on an exchange are valued at the last sales
price or official closing price as of the close of the customary trading
session on the exchange where the security is principally traded.
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. If market quotations are available and reliable for
foreign exchange traded equity securities, the securities will be valued at
the market quotations. Because trading hours for certain foreign securities
end before the close of the NYSE, closing market quotations may become
unreliable. If between the time trading ends on a particular security and
the close of the customary trading session on the NYSE, events occur that
are significant and may make the closing price unreliable, the Fund may
fair value the security. 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 prices are not provided by any of the above
methods may be valued based upon quotes furnished by independent sources
and are valued at the last bid price in the case of equity securities and
in the case of debt obligations, the mean between the last bid and asked
prices.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Paydown gains and losses on mortgage and asset-backed securities are
recorded as adjustments to interest income. Dividend income is recorded on
the ex-dividend date. Bond premiums and discounts are amortized and/or
accreted for financial reporting purposes.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment 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
AIM V.I. Government Securities Fund
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 the 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 to distribute substantially all of the
Fund's taxable earnings to shareholders. As such, the Fund will not be
subject to federal income taxes on otherwise taxable income (including net
realized capital gain) that 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. ACCOUNTING ESTIMATES -- 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.
H. INDEMNIFICATIONS -- 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.
I. CASH AND CASH EQUIVALENTS -- For the purposes of the Statement of Cash
Flows the Fund defines Cash and Cash Equivalents as cash (including foreign
currency), money market funds and other investments held in lieu of cash
and excludes investments made with cash collateral received.
J. DOLLAR ROLL TRANSACTIONS -- The Fund may engage in dollar roll transactions
with respect to mortgage-backed securities issued by GNMA, FNMA and FHLMC.
In a dollar roll transaction, the Fund sells a mortgage-backed security
held in the Fund to a financial institution such as a bank or
broker-dealer, and simultaneously agrees to purchase a substantially
similar security (same type, coupon and maturity) from the institution at
an agreed upon price and future date. The mortgage-backed securities to be
purchased will bear the same interest rate as those sold, but generally
will be collateralized by different pools of mortgages with different
prepayment histories. Based on the typical structure of dollar roll
transactions by the Fund, the dollar roll transactions are accounted for as
financing transactions in which the Fund receives compensation as either a
"fee" or a "drop". "Fee" income which is agreed upon amongst the parties at
the commencement of the dollar roll and the "drop" which is the difference
between the selling price and the repurchase price of the mortgage-backed
securities are amortized to income. 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
the return on the securities sold.
K. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in
foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from (i) sales
of foreign currencies, (ii) currency gains or losses realized between the
trade and settlement dates on securities transactions, and (iii) the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
AIM V.I. Government Securities Fund
The Fund may invest in foreign securities which may be subject to foreign
taxes on income, gains on investments or currency repatriation, a portion
of which may be recoverable. Taxes are accrued based on the Fund's current
interpretation of tax regulations and rates that exist in the foreign
markets in which the Fund invests.
L. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts.
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. Risks may exceed
amounts recognized in the Statement of Assets and Liabilities.
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 $250 million 0.50%
- -------------------------------------------------------------------
Over $250 million 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 0.73% and Series
II shares to 0.98% of average daily net assets, through at least 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. In addition, the Fund may also benefit from a one time credit to be used
to offset future custodian expenses. These credits are used to pay certain
expenses incurred by the Fund.
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in
the amount of 25% of the advisory fee AIM receives from the affiliated money
market funds on investments by the Fund in such affiliated money market funds.
AIM is also voluntarily waiving a portion of the advisory fee payable by the
Fund equal to the difference between the income earned from investing in the
affiliated money market fund and the hypothetical income earned from investing
in an appropriate comparative benchmark. Voluntary fee waivers or reimbursements
may be modified or discontinued at any time upon consultation with the Board of
Trustees without further notice to investors.
For the year ended December 31, 2006, AIM waived advisory fees of $449,190.
At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the year ended December 31, 2006, AMVESCAP did not
reimburse any such expenses.
The Trust has entered into a master administrative services agreement with
AIM pursuant to which the Fund 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. The
Fund may reimburse AIM for up to 0.25% of average daily assets invested by each
insurance company providing administrative services to the Fund. Pursuant to
such agreement, for the year ended December 31, 2006, AIM was paid $209,973 for
accounting and fund administrative services and reimbursed $2,108,927 for
services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with AIM
Investment Services, Inc. ("AIS") pursuant to which the Fund has agreed to pay
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 year ended December 31, 2006, expenses incurred under the
agreement are shown in the Statement of Operations as transfer agent fees.
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 Plan payments, 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
AIM V.I. Government Securities Fund
and own Series II shares of the Fund. For the year ended December 31, 2006,
expenses incurred under the Plan are shown in the Statement of Operations as
distribution fees.
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 procedures approved 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 the affiliated money market fund
for the year ended December 31, 2006.
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/05 AT COST FROM SALES (DEPRECIATION) 12/31/06 INCOME GAIN (LOSS)
- --------------------------------------------------------------------------------------------------------------------------------
Government &
Agency
Portfolio-Institutional
Class $50,063,086 $592,873,651 $(546,585,991) $ -- $96,350,746 $7,155,377 $ --
________________________________________________________________________________________________________________________________
================================================================================================================================
</Table>
NOTE 4--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) custodian credits which
result from periodic overnight cash balances at the custodian and (ii) a one
time custodian fee credit to be used to offset future custodian fees. For the
year ended December 31, 2006, the Fund received credits from these arrangements,
which resulted in the reduction of the Fund's total expenses of $9,338.
NOTE 5--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to each Trustee and Officer of the Fund who is not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Fund, and "Trustees' and Officer's Fees and Benefits" also
include amounts accrued by the Fund to fund such deferred compensation amounts.
Those Trustees who defer compensation have the option to select various AIM
Funds in which their deferral accounts shall be deemed to be invested. Finally,
current Trustees are eligible to participate in a retirement plan that provides
for benefits to be paid upon retirement to Trustees over a period of time based
on the number of years of service. The Fund may have certain former Trustees who
also participate in a retirement plan and receive benefits under such plan.
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to fund such retirement benefits. Obligations under the deferred compensation
and retirement plans represent unsecured claims against the general assets of
the Fund.
During the year ended December 31, 2006, the Fund paid legal fees of $6,800
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--FUTURES CONTRACTS
On December 31, 2006, $1,200,000 principal amount of U.S. Treasury and 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 MONTH/ VALUE APPRECIATION
CONTRACT CONTRACTS COMMITMENT 12/31/06 (DEPRECIATION)
- ----------------------------------------------------------------------------------------------------------------------------
U.S. Treasury 2 Year Notes 136 March-07/Long $ 27,748,250 $ (106,152)
- ----------------------------------------------------------------------------------------------------------------------------
U.S. Treasury 5 Year Notes 518 March-07/Long 54,422,375 (392,967)
- ----------------------------------------------------------------------------------------------------------------------------
Subtotal 82,170,625 (499,119)
- ----------------------------------------------------------------------------------------------------------------------------
U.S. Treasury 10 Year Notes 1,237 March-07/Short (132,938,844) 1,506,172
============================================================================================================================
Total $ (50,768,219) $1,007,053
____________________________________________________________________________________________________________________________
============================================================================================================================
</Table>
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. Government Securities Fund
to the credit facility can borrow on a first come, first served basis. Principal
on each loan outstanding shall bear interest at the bid rate quoted by SSB at
the time of the request for the loan.
During the year ended December 31, 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 bank 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 contractually agreed upon rate.
NOTE 8--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended December 31, 2006
and 2005 was as follows:
<Table>
<Caption>
2006 2005
- ----------------------------------------------------------------------------------------
Distributions paid from ordinary income $36,481,768 $26,764,362
________________________________________________________________________________________
========================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2006, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2006
- ----------------------------------------------------------------------------
Undistributed ordinary income $ 46,466,899
- ----------------------------------------------------------------------------
Unrealized appreciation (depreciation) -- investments (8,482,230)
- ----------------------------------------------------------------------------
Temporary book/tax differences (88,985)
- ----------------------------------------------------------------------------
Capital loss carryforward (50,398,524)
- ----------------------------------------------------------------------------
Post-October capital loss deferral (988,184)
- ----------------------------------------------------------------------------
Shares of beneficial interest 937,112,368
============================================================================
Total net assets $923,621,344
____________________________________________________________________________
============================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales, the recognition of gains (losses) on dollar roll transactions and
the recognition for tax purposes of unrealized gains on certain futures
contracts.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions.
The Fund has a capital loss carryforward as of December 31, 2006 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
- -----------------------------------------------------------------------------
December 31, 2014 17,860,899
=============================================================================
Total capital loss carryforward $50,398,524
_____________________________________________________________________________
=============================================================================
</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 9--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities,
U.S. Treasury obligations and money market funds, if any) purchased and sold by
the Fund during the year ended December 31, 2006 was $648,631,286 and
$588,406,797, respectively. During the same period, purchases and sales of U.S.
Treasury obligations were $49,789,063 and $66,160,174.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 1,805,304
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (10,287,534)
==============================================================================
Net unrealized appreciation (depreciation) of investment
securities $ (8,482,230)
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $1,170,318,039.
</Table>
NOTE 10--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of paydowns on
mortgage-backed securities, on December 31, 2006, undistributed net investment
income was increased by $6,337,744 and undistributed net realized gain (loss)
was decreased by $6,337,744. This reclassification had no effect on the net
assets of the Fund.
NOTE 11--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
2006(a) 2005
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------------------
Sold:
Series I 14,050,842 $ 167,801,734 20,898,858 $ 252,971,625
- ------------------------------------------------------------------------------------------------------------------------
Series II 165,527 1,967,287 608,696 7,319,396
========================================================================================================================
Issued as reinvestment of dividends:
Series I 3,040,111 35,873,306 2,216,750 26,201,982
- ------------------------------------------------------------------------------------------------------------------------
Series II 51,828 608,462 47,822 562,380
========================================================================================================================
Reacquired:
Series I (8,636,109) (103,005,531) (8,720,788) (105,480,548)
- ------------------------------------------------------------------------------------------------------------------------
Series II (432,546) (5,142,905) (536,527) (6,449,802)
========================================================================================================================
8,239,653 $ 98,102,353 14,514,811 $ 175,125,033
________________________________________________________________________________________________________________________
========================================================================================================================
</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 90% of
the outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with
these entities whereby these entities sell units of interest in separate
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 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 for 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
currently intends for the Fund to adopt FIN 48 provisions during the fiscal year
ending December 31, 2007.
AIM V.I. Government Securities Fund
NOTE 13--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
-----------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
2006 2005 2004 2003 2002
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.87 $ 12.07 $ 12.23 $ 12.40 $ 11.53
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) 0.55 0.45 0.40 0.36 0.49
- -------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.13) (0.25) (0.09) (0.23) 0.61
=========================================================================================================================
Total from investment operations 0.42 0.20 0.31 0.13 1.10
=========================================================================================================================
Less distributions:
Dividends from net investment income (0.49) (0.40) (0.47) (0.30) (0.23)
- -------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- (0.00) --
=========================================================================================================================
Total distributions (0.49) (0.40) (0.47) (0.30) (0.23)
=========================================================================================================================
Net asset value, end of period $ 11.80 $ 11.87 $ 12.07 $ 12.23 $ 12.40
_________________________________________________________________________________________________________________________
=========================================================================================================================
Total return(b) 3.55% 1.66% 2.56% 1.07% 9.59%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $907,403 $812,824 $652,226 $526,482 $428,322
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.71%(c) 0.85% 0.87% 0.76% 0.81%
- -------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 0.77%(c) 0.88% 0.87% 0.76% 0.81%
=========================================================================================================================
Ratio of net investment income to average net assets 4.62%(c) 3.68% 3.20% 2.93% 4.01%
=========================================================================================================================
Ratio of interest expense to average net assets --% 0.11% 0.09% 0.01% 0.01%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Portfolio turnover rate 89% 174% 95% 265% 170%
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns do not reflect charges assessed
in connection with a variable product, which if included would reduce
total returns.
(c) Ratios are based on average daily net assets of $852,103,814.
<Table>
<Caption>
SERIES II
----------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
2006 2005 2004 2003 2002
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 11.81 $ 12.01 $ 12.17 $ 12.35 $ 11.52
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) 0.52 0.41 0.36 0.33 0.46
- -------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) (0.13) (0.24) (0.08) (0.22) 0.60
=========================================================================================================================
Total from investment operations 0.39 0.17 0.28 0.11 1.06
=========================================================================================================================
Less distributions:
Dividends from net investment income (0.46) (0.37) (0.44) (0.29) (0.23)
- -------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- -- -- (0.00) --
=========================================================================================================================
Total distributions (0.46) (0.37) (0.44) (0.29) (0.23)
=========================================================================================================================
Net asset value, end of period $ 11.74 $ 11.81 $ 12.01 $ 12.17 $ 12.35
_________________________________________________________________________________________________________________________
=========================================================================================================================
Total return(b) 3.28% 1.41% 2.27% 0.93% 9.25%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $16,218 $18,863 $17,728 $22,325 $14,926
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.96%(c) 1.10% 1.12% 1.01% 1.06%
- -------------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.02%(c) 1.13% 1.12% 1.01% 1.06%
=========================================================================================================================
Ratio of net investment income to average net assets 4.37%(c) 3.43% 2.95% 2.68% 3.76%
=========================================================================================================================
Ratio of interest expense to average net assets --% 0.11% 0.09% 0.01% 0.01%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Portfolio turnover rate 89% 174% 95% 265% 170%
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns do not reflect charges assessed
in connection with a variable product, which if included would reduce
total returns.
(c) Ratios are based on average daily net assets of $17,344,206.
AIM V.I. Government Securities 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. 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 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; 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. On September 15, 2006, the
MDL Court granted the AMVESCAP defendants' motion to dismiss the Amended Class
Action Complaint for Violations of ERISA and dismissed such Complaint. The
plaintiff has commenced an appeal from that decision.
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.
AIM V.I. Government Securities Fund
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V.I. Government Securities Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations, of
changes in net assets, of cash flows and the financial highlights present
fairly, in all material respects, the financial position of AIM V.I. Government
Fund, (one of the funds constituting AIM Variable Insurance Funds, hereafter
referred to as the "Fund") at December 31, 2006, the results of its operations
and its cash flows for the year then ended, the changes in its net assets and
the financial highlights for each of the two years in the period then ended, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements and financial highlights (hereafter referred
to as "financial statements") are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2006 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion. The financial highlights for each of the periods ended on or before
December 31, 2004 were audited by another independent registered public
accounting firm whose report dated February 4, 2005 expressed an unqualified
opinion on those statements.
PRICEWATERHOUSECOOPERS LLP
February 14, 2007
Houston, Texas
AIM V.I. Government Securities Fund
TAX INFORMATION
Form 1099-DIV, Form 1042-S and other year-end tax information provide
shareholders with actual calendar year amounts that should be included in their
tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the
Internal Revenue Code or to meet a specific state's requirement.
The Fund designates the following amounts or, if subsequently determined to be
different, the maximum amount allowable for its fiscal year ended December 31,
2006:
<Table>
FEDERAL AND STATE INCOME TAX
U.S. Treasury Obligations* 4.75%
</Table>
* The above percentages are based on ordinary income dividends paid to
shareholders during the fund's fiscal year.
AIM V.I. Government Securities Fund
TRUSTEES AND OFFICERS
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management None
Trustee and Vice Chair Group Inc. (financial services holding
company); Director and Vice Chairman,
AMVESCAP PLC; Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm) and
Trustee and Vice Chair of The AIM Family
of Funds--Registered Trademark--
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer);
Chief Executive Officer, AMVESCAP
PLC -- Managed Products; and President
and Principal Executive Officer of The
AIM Family of Funds--Registered
Trademark--
- -------------------------------------------------------------------------------------------------------------------------------
Philip A. Taylor(2) -- 1954 2006 Director, Chief Executive Officer and None
Trustee, President and President, A I M Management Group Inc.,
Principal AIM Mutual Fund Dealer Inc. (registered
Executive Officer broker dealer), AIM Funds Management
Inc. (registered investment advisor) and
1371 Preferred Inc. (holding company);
Director and President, A I M Advisors,
Inc., INVESCO Funds Group, Inc.
(registered investment advisor and
register transfer agent) and AIM GP
Canada Inc. (general partner for a
limited partnership); Director, A I M
Capital Management, Inc. and A I M
Distributors, Inc.; Director and
Chairman, AIM Investment Services, Inc.,
Fund Management Company and INVESCO
Distributors, Inc. (registered broker
dealer); Director, President and
Chairman, AVZ Callco Inc. (holding
company); AMVESCAP Inc. (holding
company) and AIM Canada Holdings Inc.
(holding company); Director and Chief
Executive Officer, AIM Trimark Corporate
Class Inc. (formerly AIM Trimark Global
Fund Inc.) (corporate mutual fund
company) and AIM Trimark Canada Fund
Inc. (corporate mutual fund company);
Trustee, President and Principal
Executive Officer of The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); Trustee and
Executive Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); and Manager,
Powershares Capital Management LLC
Formerly: President and Principal
Executive Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); Chairman, AIM
Canada Holdings, Inc.; Executive Vice
President and Chief Operations Officer,
AIM Funds Management Inc.; President,
AIM Trimark Global Fund Inc. and AIM
Trimark Canada Fund Inc.; and Director,
Trimark Trust (federally regulated
Canadian Trust Company)
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company
Formerly: Partner, law firm of Baker & (2 portfolios))
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Founder, Green, Manning & Bunch Ltd., None
Trustee (investment banking firm); and Director,
Policy Studies, Inc. and Van Gilder
Insurance Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and None
Trustee private business corporations, including
the Boss Group Ltd. (private investment
and management); Cortland Trust, Inc.
(Chairman) (registered investment
company (3 portfolios)); Annuity and
Life Re (Holdings), Ltd. (insurance
company); CompuDyne Corporation
(provider of products and services to
the public security market); and
Homeowners of America Holding
Corporation (property casualty company)
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and Director of various
affiliated Volvo companies; and
Director, Magellan Insurance Company
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund
company); and Owner, Dos Angelos Ranch, (non-profit)
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- -------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company
(3 portfolios))
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired Director, Mainstay VP Series
Trustee Formerly: Partner, Deloitte & Touche Funds, Inc. (21 portfolios)
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
(2) Mr. Taylor is considered an interested person of the Trust because he is an
officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
TRUSTEES AND OFFICERS--(CONTINUED)
AIM V.I. Government Securities Fund
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Senior Vice President and Senior Officer N/A
Senior Vice President and of The AIM Family of Funds--Registered
Senior Officer Trademark--
Formerly: Director of Compliance and
Assistant General Counsel, ICON
Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
John M. Zerr -- 1962 2006 Director, Senior Vice President, N/A
Senior Vice President, Chief Secretary and General Counsel, A I M
Legal Officer and Secretary Management Group Inc. and A I M
Advisors, Inc.; Director, Vice President
and Secretary, INVESCO Distributors,
Inc.; Vice President and Secretary,
A I M Capital Management, Inc., AIM
Investment Services, Inc., and Fund
Management Company; Senior Vice
President and Secretary, A I M
Distributors, Inc.; Director and Vice
President, INVESCO Funds Group Inc.;
Senior Vice President, Chief Legal
Officer and Secretary of The AIM Family
of Funds--Registered Trademark--; and
Manager, Powershares Capital Management
LLC
Formerly: Chief Operating Officer,
Senior Vice President, General Counsel,
and Secretary, Liberty Ridge Capital,
Inc. (an investment adviser); Vice
President and Secretary, PBHG Funds (an
investment company); Vice President and
Secretary, PBHG Insurance Series Fund
(an investment company); General Counsel
and Secretary, Pilgrim Baxter Value
Investors (an investment adviser); Chief
Operating Officer, General Counsel and
Secretary, Old Mutual Investment
Partners (a broker-dealer); General
Counsel and Secretary, Old Mutual Fund
Services (an administrator); General
Counsel and Secretary, Old Mutual
Shareholder Services (a shareholder
servicing center); Executive Vice
President, General Counsel and
Secretary, Old Mutual Capital, Inc. (an
investment adviser); and Vice President
and Secretary, Old Mutual Advisors Funds
(an investment company)
- ------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Global Compliance Director, AMVESCAP N/A
Vice President PLC; and Vice President of The AIM
Family of Funds--Registered Trademark--
Formerly: Senior Vice President, A I M
Management Group Inc. (financial
services holding company); Senior Vice
President and Chief Compliance Officer,
A I M Advisors, Inc. and The AIM Family
of Funds--Registered Trademark--; Vice
President and Chief Compliance Officer,
A I M Capital Management, Inc. and A I M
Distributors, Inc.; Vice President, AIM
Investment Services, Inc. and Fund
Management Company; Senior Vice
President and Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; and Senior Vice President
and Compliance Director, Delaware
Investments Family of Funds
- ------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Senior Vice President and General
Vice President Counsel, AMVESCAP PLC; Director, INVESCO
Funds Group, Inc.; and Vice President of
The AIM Family of Funds--Registered
Trademark--
Formerly: Director, Vice President and N/A
General Counsel, Fund Management
Company; Director, Senior Vice
President, Secretary and General
Counsel, A I M Management Group Inc. and
A I M Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Senior Vice President, A I M
Distributors, Inc.; Vice President,
A I M Capital Management, Inc. and AIM
Investment Services, Inc.; Senior Vice
President, Chief Legal Officer and
Secretary of The AIM Family of
Funds--Registered Trademark--; Chief
Executive Officer and President, INVESCO
Funds Group, Inc.; and Senior Vice
President, and General Counsel, Liberty
Financial Companies, Inc. and Senior
Vice President and General Counsel
Liberty Funds Group, LLC
- ------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President, Principal Advisors, Inc.; and Vice President,
Financial Officer and Treasurer and Principal Officer of The
Treasurer AIM Family of Funds--Registered
Trademark--
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
J. Philip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment Officer, A I M Advisors Inc.;
Director, Chairman, Chief Executive
Officer, President and Chief Investment
Officer, A I M Capital Management, Inc.;
Executive Vice President, A I M
Management Group Inc. and Vice President
of The AIM Family of Funds--Registered
Trademark--
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; and
Chief Equity Officer, Senior Vice
President and Senior Investment Officer,
A I M Capital Management, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc. and The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); and
President and Principal Executive
Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust Only)
Formerly: Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only)
- ------------------------------------------------------------------------------------------------------------------------------
Lance A. Rejsek -- 1967 2005 Anti-Money Laundering Compliance N/A
Anti-Money Laundering Officer, A I M Advisors, Inc., A I M
Compliance Officer Capital Management, Inc., A I M
Distributors, Inc., AIM Investment
Services, Inc., AIM Private Asset
Management, Inc., Fund Management
Company and The AIM Family of
Funds--Registered Trademark--
Formerly: Manager of the Fraud
Prevention Department, AIM Investment
Services, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
Todd L. Spillane -- 1958 2006 Senior Vice President, A I M Management N/A
Chief Compliance Officer Group Inc.; Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc.; and Vice President,
A I M Distributors, Inc., AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Global Head of Product
Development, AIG-Global Investment
Group, Inc.; Chief Compliance Officer
and Deputy General Counsel,
AIG-SunAmerica Asset Management; and
Chief Compliance Officer, Chief
Operating Officer and Deputy General
Counsel, American General Investment
Management
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers
Suite 100 11 Greenway Plaza Inc. LLP
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Ballard Spahr INDEPENDENT TRUSTEES AIM Investment State Street Bank and
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis Services, Inc. Trust Company
1735 Market Street, 51st & Frankel LLP P.O. Box 4739 225 Franklin Street
Floor 1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Philadelphia, PA 19103-7599 Americas
New York, NY 10036-2714
</Table>
FIXED INCOME AIM V.I. HIGH YIELD FUND
Annual Report to Shareholders - December 31, 2006
Taxable Noninvestment Grade
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 [COVER GLOBE IMAGE]
Reference Room in Washington, D.C. 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 AIM V.I. HIGH YIELD FUND seeks to achieve a high level of current income.
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, UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT IS AS OF
click on Required Notices and then click on DECEMBER 31, 2006, AND IS BASED ON TOTAL NET ASSETS.
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
[AIM INVESTMENTS LOGO] INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ EACH
--Registered Trademark-- CAREFULLY BEFORE INVESTING.
=============================================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE AIM V.I. HIGH YIELD FUND
====================================================================================== we evaluate securities across the
market to find securities that are
PERFORMANCE SUMMARY attractively valued.
We consider selling a bond when:
For the year ended December 31, 2006, AIM V.I. High Yield Fund, excluding variable
product issuer charges, outperformed its broad market index but underperformed its
style-specific index. As low quality bonds (CCC-rated) outperformed higher quality - It becomes fully valued.
bonds (BB- and B-rated) within the high yield market, the Fund's strategy of
overweighting B-rated bonds hurt its performance relative to its style-specific - Overall market and economic
benchmark. However, the Fund outperformed its broad market index, the investment trends indicate that sector emphasis
grade-oriented Lehman Brothers U.S. Aggregate Bond Index, as high yield bonds should be changed.
outperformed investment grade bonds during the year.
- Fundamentals, such as credit
quality ratings, deteriorate for an
Your Fund's long-term performance appears on pages 4-5. individual issuer or a sector.
FUND VS. INDEXES - An unanticipated change occurs
involving an individual issuer or a
Total returns, 12/31/05-12/31/06, excluding variable product issuer charges. If sector.
variable product issuer charges were included, returns would be lower.
Series I Shares 10.74%
Series II Shares 10.41 MARKET CONDITIONS AND YOUR FUND
Lehman Brothers U.S. Aggregate Bond Index (Broad Market Index) 4.33
Lehman Brothers High Yield Index (Style-Specific Index) 11.85 The U.S. economy continued to show
Lipper High Current Yield Bond Funds Index (Peer Group Index) 10.17 signs of deceleration in growth by the
SOURCE: LIPPER INC. end of 2006. Growth in real gross
====================================================================================== domestic product (GDP) slipped to a
2.0% annualized rate in the third
quarter, down from a 2.6% pace in the
second quarter and from a surprisingly
HOW WE INVEST strong 5.6% in the first quarter. The
slowdown was mostly attrib-utableto
Your Fund invests primarily in research. Our top down approach takes the softening in the housing sector.
lower-rated credit quality corporate into account overall economic and market However, the deceleration in
bonds. Our investment discipline focuses trends. Our bottom-up efforts evaluate homebuilding did not noticeably impact
on providing attractive current income individual bond issuers as well as other segments of the economy, as
for shareholders and consistent industry sectors. consumer spending and business
performance within a framework designed investment remained solid.
to control volatility. Additionally, we In conducting our analysis, our
seek growth of shareholders' principal team uses input from various sources On December 12, as widely
without exposure to undue risk. including company financial statements, anticipated by financial markets, the
rating agencies, news services, Wall U.S. Federal Reserve Board (the Fed)
Our security selection process Street fixed income and equity analysts, decided to keep the federal funds
utilizes both top-down and bottom-up economists, company management meetings target rate at 5.25%. This was the
and internally generated credit analysis. fourth consecutive meeting that the
Finally, Fed left the rate unchanged after 17
consecutive rate increases. While this
pause benefited the financial markets,
the Fed reiterated that some inflation
risks persist and that future target
interest rate
=================================================================================================================================
PORTFOLIO COMPOSITION TOP FIVE INDUSTRIES* TOP 10 FIXED INCOME ISSUERS*
- ---------------------------------------------------------------------------------------------------------------------------------
By credit quality 1. Broadcasting & Cable TV 5.2% 1. Targeted Return IndexSecurities
Trust 3.7%
BBB 0.7% 2. Consumer Finance 4.3 2. Ford Motor (Ford) 3.5
BB 23.1 3. Wireless Telecommunication 3. General Motors (GM/GMAC) 3.2
B 56.8 Services 3.9 4. HCA, Inc. 1.3
CCC 8.8 4. Casinos & Gaming 3.7 5. Goodyear Tire & Rubber Co. (The) 1.2
NR 1.2 5. Investment Banking & Brokerage 3.7 6. Travelport Ltd. 1.1
Equity 1.8 7. General Nutrition Centers, Inc. 1.0
Money Market Funds Total Net Assets $59.25 million 8. Caraustar Industries, Inc. 1.0
Plus Other Assets Less Liabilitie 7.6 Total Number of Holdings* 255 9. MGM Mirage 1.0
10. Rainbow National Services LLC 1.0
SOURCES: MOODY'S, STANDARD & POOR'S,
FITCH
The Fund's holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
*Excluding money market fund holdings.
=================================================================================================================================
2
AIM V.I. HIGH YIELD FUND
actions would to depend on incoming operating territories, benefited from a The views and opinions expressed in
economic data. legal ruling involving Sprint, and the management's discussion of Fund
company continued to be the subject of performance are those of AIM Advisors,
The U.S. Treasury yield curve, takeover speculation. Inc. These views and opinions are subject
which represents the yields of Treasury to change at any time based on factors
securities with different maturities, was OM GROUP, a metal-based specialty such as market and economic conditions.
inverted for much of 2006, as the Fed materials firm based in Cleveland, Ohio, These views and opinions may not be
raised short rates through June. That was another positive contributor to Fund relied upon as investment advice or
meant that shorter term Treasuries were performance. The company benefited from recommendations, or as an offer for a
generally yielding more than longer term improved commodity prices and improved particular security. The information is
Treasuries, a reversal of the norm. The overall operational efficiency. We sold not a complete analysis of every aspect
two- to 10-year spread was inverted by 11 the stock. of any market, country, industry,
basis points (0.11%) on December 29. security or the Fund. Statements of fact
As mentioned earlier, during the are from sources considered reliable, but
In 2006, the bond market was year, we maintained our focus on the AIM Advisors, Inc. makes no
characterized by low volatility. While B-rated segment of the high yield representation or warranty as to their
there was more price movement during the market--the middle-quality tier and the completeness or accuracy. Although
first few months of the year, the second broadest part of the market. Although historical performance is no guarantee of
half of 2006 was calmer due to a fairly limiting the exposure to the lowest future results, these insights may help
complacent market. The U.S. high yield quality tier (rated CCC and below) you understand our investment management
market continued to perform well due to hindered the Fund's performance relative philosophy.
solid corporate profitability, low to its style-specific index for 2006, in
defaults and demand for higher yield from our view, the additional yield offered by Peter Ehret
investors. most lower quality credits did not Chartered
justify the extra risk. [EHRET Financial Analyst, senior
On a quality basis, CCC-rated bonds PHOTO] portfolio manager, is co-lead
continued to outperform higher quality In addition, we were less focused manager of AIM V.I. High Yield
debt instruments. Moody's Investors on the BB-rated category, which is the Fund. Mr. Ehret joined AIM in 2001. He
Service global speculative-grade highest quality segment of the high yield graduated cum laude with a B.S. in
corporate default rate finished the year market. The lower yield and structure of economics from the University of
at 1.7%, the lowest year-end level since BB-rated credit quality bonds Minnesota. He also earned an M.S. in real
1996. historically has made them more estate appraisal and investment analysis
susceptible to price declines if U.S. from the University of Wisconsin-Madison.
Among the larger industry Treasury yields rise.
categories in the high yield market, Carolyn L. Gibbs
media/cable, airline and automotive were While the portfolio remained Chartered
some of the best performing industry well-diversified across industries and [GIBBS Financial Analyst, senior
segments in 2006, while health care and issues, some of the Fund's holdings PHOTO] portfolio manager, is co-lead
railroads underperformed. The automotive detracted from performance. HCA had a manager of AIM V.I. High Yield
industry continued to remain volatile, as negative impact on the Fund's Fund. Ms. Gibbs has been in the
it was driven by the two largest issuers performance, as bonds declined on the investment business since 1983. She
in the high yield market, GENERAL MOTORS prospect of increased debt due to the joined AIM in 1992. She graduated magna
(GM/GMAC) AND FORD MOTOR (FORD). The leveraged buyout of the company. cum laude from Texas Christian
health care sector was negatively University, where she earned a B.A. in
affected when a leading hospital SELECT MEDICAL CORP., a health care English. She also earned an M.B.A. in
management company, HOSPITAL CORPORATION operator of specialty hospitals and finance from The Wharton School at the
OF AMERICA (HCA), announced the sale of outpatient rehabilitation clinics, was University of Pennsylvania.
the company in a leveraged buyout another detractor from Fund performance.
transaction. Recently, the company's net operating Darren S. Hughes
revenue and profit decreased due to the Chartered
We increased our exposure to regulatory changes that have reduced the [HUGHES Financial Analyst, portfolio
General Motors, GMAC and Ford throughout payment rates, a decline in Medicare PHOTO] manager, is manager of AIM V.I.
the year, but maintained an underweight volume and the competitive nature of the High Yield Fund. He joined AIM in
position relative to the Fund's physical therapy practices. 1992. Mr. Hughes earned a B.B.A. in
style-specific index. Despite our finance and economics from Baylor
relative underweight positions, which we Finally, MAGNACHIP SEMICONDUCTOR University.
viewed as prudent diversification detracted from performance as a result of
measures, GM/GMAC and Ford were the new product launch delays, pricing Assisted by Taxable High Yield Team
Fund's largest holdings and positively pressure and the resulting lower
contributed to performance for the year. profitability. FOR A DISCUSSION OF THE RISKS OF
INVESTING IN YOUR FUND, INDEXES USED IN
IPCS, a wireless voice and data IN CLOSING THIS REPORT AND YOUR FUND'S LONG-TERM
provider company, was one of the top PERFORMANCE, PLEASE SEE PAGES 4-5.
contributors to Fund performance. IPCS, We appreciate your continued
which uses the Sprint brand in its participation in AIM V.I. High Yield
Fund.
3
YOUR FUND'S LONG-TERM PERFORMANCE AIM V.I. HIGH YIELD FUND
HISTORICAL. ALL OTHER RETURNS ARE THE AIM V.I. HIGH YIELD FUND, A SERIES
========================================= BLENDED RETURNS OF THE HISTORICAL PORTFOLIO OF AIM VARIABLE INSURANCE
AVERAGE ANNUAL TOTAL RETURNS PERFORMANCE OF SERIES II SHARES SINCE FUNDS, IS CURRENTLY OFFERED THROUGH
- ----------------------------------------- THEIR INCEPTION AND THE RESTATED INSURANCE COMPANIES ISSUING VARIABLE
As of 12/31/06 HISTORICAL PERFORMANCE OF SERIES I SHARES PRODUCTS. YOU CANNOT PURCHASE SHARES OF
(FOR PERIODS PRIOR TO INCEPTION OF SERIES THE FUND DIRECTLY. PERFORMANCE FIGURES
SERIES I SHARES II SHARES) ADJUSTED TO REFLECT THE RULE GIVEN REPRESENT THE FUND AND ARE NOT
Inception (5/1/98) 2.11% 12B-1 FEES APPLICABLE TO SERIES II INTENDED TO REFLECT ACTUAL VARIABLE
5 Years 8.81 SHARES. THE INCEPTION DATE OF SERIES I PRODUCT VALUES. THEY DO NOT REFLECT SALES
1 Year 10.74 SHARES IS MAY 1, 1998. THE PERFORMANCE OF CHARGES, EXPENSES AND FEES ASSESSED IN
THE FUND'S SERIES I AND SERIES II SHARE CONNECTION WITH A VARIABLE PRODUCT. SALES
SERIES II SHARES CLASSES WILL DIFFER PRIMARILY DUE TO CHARGES, EXPENSES AND FEES, WHICH ARE
Inception 1.88% DIFFERENT CLASS EXPENSES. DETERMINED BY THE VARIABLE PRODUCT
5 Years 8.59 ISSUERS, WILL VARY AND WILL LOWER THE
1 Year 10.41 THE PERFORMANCE DATA QUOTED TOTAL RETURN.
========================================= REPRESENT PAST PERFORMANCE AND CANNOT
GUARANTEE COMPARABLE FUTURE RESULTS; PER NASD REQUIREMENTS, THE MOST
========================================= CURRENT PERFORMANCE MAY BE LOWER OR RECENT MONTH-END PERFORMANCE DATA AT THE
CUMULATIVE TOTAL RETURNS HIGHER. PLEASE CONTACT YOUR VARIABLE FUND LEVEL, EXCLUDING VARIABLE PRODUCT
6 months ended 12/31/06 PRODUCT ISSUER OR FINANCIAL ADVISOR FOR CHARGES, IS AVAILABLE ON THIS AIM
Series I Shares 8.05% THE MOST RECENT MONTH-END VARIABLE AUTOMATED INFORMATION LINE, 866-702-4402.
Series II Shares 7.90 PRODUCT PERFORMANCE. PERFORMANCE FIGURES AS MENTIONED ABOVE, FOR THE MOST RECENT
========================================= REFLECT FUND EXPENSES, REINVESTED MONTH-END PERFORMANCE INCLUDING VARIABLE
DISTRIBUTIONS AND CHANGES IN NET ASSET PRODUCT CHARGES, PLEASE CONTACT YOUR
VALUE. INVESTMENT RETURN AND PRINCIPAL VARIABLE PRODUCT ISSUER OR FINANCIAL
SERIES II SHARES' INCEPTION DATE IS MARCH VALUE WILL FLUCTUATE SO THAT YOU MAY HAVE ADVISOR.
26, 2002. RETURNS SINCE THAT DATE ARE A GAIN OR LOSS WHEN YOU SELL SHARES.
====================================================================================================================================
PRINCIPAL RISKS OF INVESTING IN THE FUND risks, including exchange rate changes, bankruptcy, the Fund may experience
political and economic upheaval, the delays in selling the securities
Prices of equity securities change in relative lack of information about these underlying the repurchase agreement.
response to many factors including the companies, relatively low market
historical and prospective earnings of liquidity and the potential lack of There is no guarantee that the
the issuer, the value of its assets, strict financial and accounting controls investment techniques and risk analyses
general economic conditions, interest and standards. used by the Fund's portfolio managers
rates, investor perceptions and market will produce the desired results.
liquidity. Investing in emerging markets
involves greater risk than investing in ABOUT INDEXES USED IN THIS REPORT
Debt securities are particularly more established markets. The risks
vulnerable to credit risk and interest include the relatively smaller size and The unmanaged LEHMAN BROTHERS U.S.
rate fluctuations. lesser liquidity of these markets, high AGGREGATE BOND INDEX (the Lehman
inflation rates, adverse political Aggregate), which represents the U.S.
The Fund may invest in developments and lack of timely investment-grade fixed-rate bond market
lower-quality debt securities, commonly information. (including government and corporate
known as "junk bonds". Compared to higher securities, mortgage pass-through
quality debt securities, junk bonds To the extent the Fund holds cash securities and asset-backed securities),
involve greater risk of default or price or cash equivalents rather than equity is compiled by Lehman Brothers, a global
changes due to changes in credit quality securities for risk management purposes, investment bank.
of the issuer because they are generally the Fund may not achieve its investment
unsecured and may be subordinated to objective. The unmanaged LIPPER HIGH CURRENT
other creditors' claims. Credit ratings YIELD BOND FUNDS INDEX represents an
on junk bonds do not necessarily reflect If the seller of a repurchase average of the 30 largest high-yield bond
their actual market risk. agreement in which the Fund invests funds tracked by Lipper Inc., an
defaults on its obligation or declares independent mutual fund performance
Foreign securities have additional monitor.
Continue on page 5
4
AIM V.I. HIGH YIELD FUND
Past performance cannot guarantee vertical axis, the one that indicates the
comparable future results. dollar value of an investment, is
constructed with each segment
This chart, which is a logarithmic representing a percent change in the
chart, presents the fluctuations in the value of the investment. In this chart,
value of the Fund and its indexes. We each segment represents a doubling, or
believe that a logarithmic chart is more 100% change, in the value of the
effective than other types of charts in investment. In other words, the space
illustrating changes in value during the between $5,000 and $10,000 is the same
early years shown in the chart. The size as the space between $10,000 and
$20,000.
====================================================================================================================================
Continued from page 4
The unmanaged LEHMAN BROTHERS HIGH A direct investment cannot be made of Morgan Stanley Capital International
YIELD INDEX, which represents the in an index. Unless otherwise indicated, Inc. and Standard & Poor's.
performance of high-yield debt index results include reinvested
securities, is compiled by Lehman dividends, and they do not reflect sales The returns shown in management's
Brothers, a global investment bank. charges. Performance of an index of funds discussion of Fund performance are based
reflects fund expenses; performance of a on net asset values calculated for
In conjunction with the annual market index does not. shareholder transactions. Generally
prospectus update on or about May 1, accepted accounting principles require
2007, the AIM V.I. High Yield Fund Other information adjustments to be made to the net assets
prospectus will be amended to reflect of the Fund at period end for financial
that the Fund has elected to use the The average credit quality of the Fund's reporting purposes, and as such, the net
Lipper Variable Underlying Funds (VUF) holdings as of the close of the reporting asset values for shareholder transactions
High Current Yield Bond Funds Category period represents the weighted average and the returns based on those net asset
Average as its peer group rather than the quality rating of the securities in the values may differ from the net asset
Lipper High Current Yield Bond Funds portfolio as assigned by Nationally values and returns reported in the
Index. The Lipper VUF High Current Yield Recognized Statistical Rating Financial Highlights. Additionally, the
Bond Funds Category Average, recently Organizations based on assessment of the returns and net asset values shown
published by Lipper Inc., comprises the credit quality of the individual throughout this report are at the Fund
underlying funds in each insurance securities. level only and do not include variable
category and does not include mortality product issuer charges. If such charges
and expense fees. Industry classifications used in were included, the total returns would be
this report are generally according to lower.
The Fund is not managed to track the Global Industry Classification
the performance of any particular index, Standard, which was developed by and is The Chartered Financial Analyst
including the indexes defined here, and the exclusive property and a service mark -REGISTERED TRADEMARK-- (CFA --REGISTERED
consequently, the performance of the Fund TRADEMARK--) designation is a globally
may deviate significantly from the recognized standard for measuring the
performance of the indexes. competence and integrity of investment
professionals.
5
=============================================================================================================================
[MOUNTAIN CHART]
RESULTS OF A $10,000 INVESTMENT
Index data from 4/30/98, Fund data from 5/1/98
AIM V.I. HIGH YIELD FUND LEHMAN BROTHERS LEHMAN BROTHERS LIPPER HIGH CURRENT YIELD
DATE -SERIES I SHARES U.S. AGGREGATE BOND INDEX HIGH YIELD INDEX BOND FUNDS INDEX
- -----------------------------------------------------------------------------------------------------------------------------
4/30/98 $10000 $10000 $10000
5/98 $10080 10095 10035 9989
6/98 10050 10180 10071 10006
7/98 10090 10202 10128 10075
8/98 9410 10368 9569 9307
9/98 9129 10611 9612 9251
10/98 8790 10555 9416 9041
11/98 9279 10615 9806 9572
12/98 9239 10647 9817 9542
1/99 9374 10723 9963 9715
2/99 9479 10535 9904 9676
3/99 9584 10594 9999 9847
4/99 9929 10627 10192 10101
5/99 9772 10534 10054 9909
6/99 9803 10501 10033 9911
7/99 9939 10456 10073 9914
8/99 9835 10451 9962 9813
9/99 9720 10572 9890 9737
10/99 9667 10611 9825 9709
11/99 9918 10610 9940 9880
12/99 10211 10559 10052 9999
1/00 10336 10525 10008 9950
2/00 10506 10652 10028 10020
3/00 10211 10792 9817 9847
4/00 9928 10761 9833 9804
5/00 9646 10756 9732 9629
6/00 9883 10980 9930 9807
7/00 9826 11080 10006 9825
8/00 9769 11240 10074 9876
9/00 9622 11311 9986 9731
10/00 8750 11386 9666 9398
11/00 8139 11572 9284 8874
12/00 8270 11787 9463 9028
1/01 8998 11979 10172 9627
2/01 8986 12084 10307 9657
3/01 8479 12145 10065 9337
4/01 8232 12094 9939 9214
5/01 8310 12167 10118 9314
6/01 7933 12213 9834 9040
7/01 7907 12486 9979 9093
8/01 7919 12629 10097 9133
9/01 7334 12776 9418 8488
10/01 7581 13044 9651 8682
11/01 7919 12864 10003 8958
12/01 7858 12782 9962 8934
1/02 7858 12886 10032 8955
2/02 7621 13010 9892 8797
3/02 7784 12794 10130 8971
4/02 7829 13042 10288 9065
5/02 7740 13153 10235 8974
6/02 7311 13267 9480 8469
7/02 7045 13427 9066 8191
8/02 7119 13653 9325 8332
9/02 7045 13874 9202 8216
10/02 6956 13811 9122 8164
11/02 7297 13808 9687 8635
12/02 7400 14093 9822 8719
1/03 7548 14105 10149 8912
2/03 7622 14300 10274 9031
3/03 7829 14289 10570 9256
4/03 8229 14407 11197 9711
5/03 8347 14676 11313 9826
6/03 8584 14646 11638 10091
7/03 8525 14154 11510 10013
8/03 8629 14248 11643 10148
9/03 8851 14625 11961 10394
10/03 9073 14489 12202 10627
11/03 9221 14523 12387 10751
12/03 9475 14671 12668 11017
1/04 9682 14789 12910 11194
2/04 9635 14949 12877 11172
3/04 9650 15061 12965 11214
4/04 9682 14669 12876 11189
5/04 9476 14611 12658 11016
=============================================================================================================================
Source: Lipper Inc.
=============================================================================================================================
[MOUNTAIN CHART]
6/04 9634 14693 12840 11170
7/04 9713 14839 13014 11259
8/04 9903 15122 13270 11443
9/04 10062 15163 13462 11602
10/04 10252 15290 13706 11808
11/04 10394 15168 13871 11976
12/04 10540 15308 14078 12156
1/05 10557 15404 14059 12126
2/05 10786 15313 14266 12312
3/05 10475 15234 13851 11985
4/05 10312 15440 13716 11845
5/05 10508 15608 13960 12035
6/05 10687 15693 14234 12228
7/05 10867 15550 14483 12418
8/05 10900 15749 14510 12477
9/05 10785 15587 14365 12396
10/05 10671 15464 14265 12294
11/05 10736 15532 14340 12406
12/05 10826 15680 14463 12521
1/06 10952 15680 14694 12682
2/06 11078 15733 14792 12788
3/06 11132 15578 14880 12841
4/06 11167 15550 14972 12915
5/06 11167 15533 14970 12886
6/06 11096 15566 14917 12815
7/06 11186 15777 15063 12912
8/06 11347 16018 15308 13088
9/06 11473 16159 15525 13233
10/06 11635 16266 15736 13424
11/06 11814 16455 16000 13656
12/06 11987 16359 16176 13794
=============================================================================================================================
CALCULATING YOUR ONGOING FUND EXPENSES AIM V.I. HIGH YIELD FUND
EXAMPLE ACTUAL EXPENSES actual expense ratio and an assumed rate
of return of 5% per year before expenses,
As a shareholder of the Fund, you incur The table below provides information which is not the Fund's actual return.
ongoing costs, including management fees; about actual account values and actual The Fund's actual cumulative total
distribution and/or service (12b-1) fees; expenses. You may use the information in returns at net asset value after expenses
and other Fund expenses. This example is this table, together with the amount you for the six months ended December 31,
intended to help you understand your invested, to estimate the expenses that 2006, appear in the table "Cumulative
ongoing costs (in dollars) of investing you paid over the period. Simply divide Total Returns" on page 4.
in the Fund and to compare these costs your account value by $1,000 (for
with ongoing costs of investing in other example, an $8,600 account value divided The hypothetical account values and
mutual funds. The example is based on an by $1,000 = 8.6), then multiply the expenses may not be used to estimate the
investment of $1,000 invested at the result by the number in the table under actual ending account balance or expenses
beginning of the period and held for the the heading entitled "Actual Expenses you paid for the period. You may use this
entire period July 1, 2006, through Paid During Period" to estimate the information to compare the ongoing costs
December 31, 2006. expenses you paid on your account during of investing in the Fund and other funds.
this period. To do so, compare this 5% hypothetical
The actual and hypothetical example with the 5% hypothetical examples
expenses in the examples below do not HYPOTHETICAL EXAMPLE FOR COMPARISON that appear in the shareholder reports of
represent the effect of any fees or other PURPOSES the other funds.
expenses assessed in connection with a
variable product; if they did, the The table below also provides information Please note that the expenses shown
expenses shown would be higher while the about hypothetical account values and in the table are meant to highlight your
ending account values shown would be hypothetical expenses based on the Fund's ongoing costs. Therefore, the
lower. hypothetical information is useful in
comparing ongoing costs, and will not
help you determine the relative total
costs of owning different funds.
====================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (7/1/06) (12/31/06)(1) PERIOD(2) (12/31/06) PERIOD(2) RATIO
- ------------------------------------------------------------------------------------------------------------------------------------
Series I $ 1,000.00 $ 1,080.50 $ 5.03 $ 1,020.37 $ 4.89 0.96%
Series II 1,000.00 1,079.00 6.34 1,019.11 6.16 1.21
(1) The actual ending account value is based on the actual total return of the Fund for the period July 1, 2006, through December
31, 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 December 31, 2006, appear in the table "Cumulative Total Returns" on page 4.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 184/365 to reflect the most recent fiscal half year.
====================================================================================================================================
6
AIM V.I. HIGH YIELD FUND
Approval of Investment Advisory Agreement services to be provided by AIM under the performance, which did not change their
The Board of Trustees of AIM Variable Advisory Agreement was appropriate and conclusions.
Insurance Funds (the "Board") oversees that AIM currently is providing services
the management of AIM V.I. High Yield in accordance with the terms of the - Meetings with the Fund's portfolio
Fund (the "Fund") and, as required by Advisory Agreement. managers and investment personnel. With
law, determines annually whether to respect to the Fund, the Board is meeting
approve the continuance of the Fund's - The quality of services to be provided periodically with such Fund's portfolio
advisory agreement with A I M Advisors, by AIM. The Board reviewed the managers and/or other investment
Inc. ("AIM"). Based upon the credentials and experience of the personnel and believes that such
recommendation of the Investments officers and employees of AIM who will individuals are competent and able to
Committee of the Board, at a meeting held provide investment advisory services to continue to carry out their
on June 27, 2006, the Board, including the Fund. In reviewing the qualifications responsibilities under the Advisory
all of the independent trustees, approved of AIM to provide investment advisory Agreement.
the continuance of the advisory agreement services, the Board considered such
(the "Advisory Agreement") between the issues as AIM's portfolio and product - Overall performance of AIM. The Board
Fund and AIM for another year, effective review process, various back office considered the overall performance of AIM
July 1, 2006. support functions provided by AIM and in providing investment advisory and
AIM's equity and fixed income trading portfolio administrative services to the
The Board considered the factors operations. Based on the review of these Fund and concluded that such performance
discussed below in evaluating the and other factors, the Board concluded was satisfactory.
fairness and reasonableness of the that the quality of services to be
Advisory Agreement at the meeting on June provided by AIM was appropriate and that - Fees relative to those of clients of
27, 2006 and as part of the Board's AIM currently is providing satisfactory AIM with comparable investment
ongoing oversight of the Fund. In their services in accordance with the terms of strategies. The Board reviewed the
deliberations, the Board and the the Advisory Agreement. effective advisory fee rate (before
independent trustees did not identify any waivers) for the Fund under the Advisory
particular factor that was controlling, - The performance of the Fund relative to Agreement. The Board noted that this rate
and each trustee attributed different comparable funds. The Board reviewed the was (i) above the effective advisory fee
weights to the various factors. performance of the Fund during the past rate (before waivers) for a mutual fund
one, three and five calendar years advised by AIM with investment strategies
One responsibility of the against the performance of funds advised comparable to those of the Fund; and (ii)
independent Senior Officer of the Fund is by other advisors with investment above the effective sub-advisory fee rate
to manage the process by which the Fund's strategies comparable to those of the for one offshore fund advised and
proposed management fees are negotiated Fund. The Board noted that the Fund's sub-advised by AIM affiliates with
to ensure that they are negotiated in a performance was above the median investment strategies comparable to those
manner which is at arms' length and performance of such comparable funds for of the Fund, although the total advisory
reasonable. To that end, the Senior the one and three year periods and below fees for such offshore fund were
Officer must either supervise a such median performance for the five year comparable to those for the Fund. The
competitive bidding process or prepare an period. Based on this review and after Board noted that AIM has agreed to limit
independent written evaluation. The taking account of all of the other the Fund's total operating expenses, as
Senior Officer has recommended an factors that the Board considered in discussed below. Based on this review,
independent written evaluation in lieu of determining whether to continue the the Board concluded that the advisory fee
a competitive bidding process and, upon Advisory Agreement for the Fund, the rate for the Fund under the Advisory
the direction of the Board, has prepared Board concluded that no changes should be Agreement was fair and reasonable.
such an independent written evaluation. made to the Fund and that it was not
Such written evaluation also considered necessary to change the Fund's portfolio - Fees relative to those of comparable
certain of the factors discussed below. management team at this time. Although funds with other advisors. The Board
In addition, as discussed below, the the independent written evaluation of the reviewed the advisory fee rate for the
Senior Officer made a recommendation to Fund's Senior Officer (discussed below) Fund under the Advisory Agreement. The
the Board in connection with such written only considered Fund performance through Board compared effective contractual
evaluation. the most recent calendar year, the Board advisory fee rates at a common asset
also reviewed more recent Fund level at the end of the past calendar
The discussion below serves as a performance, which did not change their year and noted that the Fund's rate was
summary of the Senior Officer's conclusions. comparable to the median rate of the
independent written evaluation and funds advised by other advisors with
recommendation to the Board in connection - The performance of the Fund relative to investment strategies comparable to those
therewith, as well as a discussion of the indices. The Board reviewed the of the Fund that the Board reviewed. The
material factors and the conclusions with performance of the Fund during the past Board noted that AIM has agreed to limit
respect thereto that formed the basis for one, three and five calendar years the Fund's total operating expenses, as
the Board's approval of the Advisory against the performance of the Lipper discussed below. Based on this review,
Agreement. After consideration of all of Variable Underlying Fund High Yield the Board concluded that the advisory fee
the factors below and based on its Index. The Board noted that the Fund's rate for the Fund under the Advisory
informed business judgment, the Board performance for the one and three year Agreement was fair and reasonable.
determined that the Advisory Agreement is periods was comparable to the performance
in the best interests of the Fund and its of such Index and below such Index for - Expense limitations and fee waivers.
shareholders and that the compensation to the five year period. Based on this The Board noted that AIM has
AIM under the Advisory Agreement is fair review and after taking account of all of contractually agreed to waive fees and/or
and reasonable and would have been the other factors that the Board limit expenses of the Fund through April
obtained through arm's length considered in determining whether to 30, 2008 in an amount necessary to limit
negotiations. continue the Advisory Agreement for the total annual operating expenses to a
Fund, the Board concluded that no changes specified percentage of average daily net
Unless otherwise stated, should be made to the Fund and that it assets for each class of the Fund. The
information presented below is as of June was not necessary to change the Fund's Board considered the contractual nature
27, 2006 and does not reflect any changes portfolio management team at this time. of this fee waiver/expense limitation and
that may have occurred since June 27, Although the independent written noted that it remains in effect until
2006, including but not limited to evaluation of the Fund's Senior Officer April 30, 2008. The Board considered the
changes to the Fund's performance, (discussed below) only considered Fund effect this fee waiver/expense limitation
advisory fees, expense limitations and/or performance through the most recent would have on the Fund's estimated
fee waivers. calendar year, the Board also reviewed expenses and concluded that the levels of
more recent Fund fee waivers/expense limitations for the
- - The nature and extent of the advisory Fund were fair and reasonable.
services to be provided by AIM. The Board
reviewed the services to be provided by
AIM under the Advisory Agreement. Based
on such review, the Board concluded that
the range of
7
AIM V.I. HIGH YIELD FUND
- - Breakpoints and economies of scale. The - Profitability of AIM and its - 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 - 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
- - 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 - 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, - 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
- - 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.
8
AIM V.I. High Yield Fund
SCHEDULE OF INVESTMENTS
December 31, 2006
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
BONDS & NOTES-86.68%
AEROSPACE & DEFENSE-1.85%
Argo-Tech Corp., Sr. Unsec. Gtd. Global
Notes, 9.25%, 06/01/11(a) $ 261,000 $ 284,490
- -----------------------------------------------------------------------
Armor Holdings, Inc., Sr. Sub. Global Notes,
8.25%, 08/15/13(a) 160,000 166,600
- -----------------------------------------------------------------------
DRS Technologies, Inc.,
Sr. Gtd. Notes, 6.63%, 02/01/16(a) 165,000 167,681
- -----------------------------------------------------------------------
Sr. Unsec. Conv. Putable Notes, 2.00%,
02/01/11 (Acquired 01/30/06; Cost
$110,000)(a)(b) 110,000 116,325
- -----------------------------------------------------------------------
Hexcel Corp., Sr. Unsec. Sub. Global Notes,
6.75%, 02/01/15(a) 367,000 361,954
=======================================================================
1,097,050
=======================================================================
AIRLINES-0.37%
Continental Airlines Inc., Unsec. Unsub.
Notes, 8.75%, 12/01/11(a) 60,000 60,600
- -----------------------------------------------------------------------
Delta Air Lines Inc.-Series 02-1, Class C,
Pass Through Ctfs., 7.78%, 01/02/12(a) 157,234 157,038
=======================================================================
217,638
=======================================================================
ALTERNATIVE CARRIERS-1.03%
Hughes Network Systems LLC/HNS Finance Corp.,
Sr. Unsec. Gtd. Global Notes, 9.50%,
04/15/14(a) 105,000 109,594
- -----------------------------------------------------------------------
Level 3 Communications Inc., Sr. Unsec.
Unsub. Global Notes, 11.50%, 03/01/10(a) 180,000 191,250
- -----------------------------------------------------------------------
Level 3 Financing Inc., Sr. Notes, 9.25%,
11/01/14 (Acquired 10/25/06-12/13/06; Cost
$308,238)(a)(b) 305,000 312,244
=======================================================================
613,088
=======================================================================
ALUMINUM-0.47%
Century Aluminum Co., Sr. Unsec. Gtd. Global
Notes, 7.50%, 08/15/14(a) 103,000 104,545
- -----------------------------------------------------------------------
Novelis Inc. (Canada), Sr. Notes, 8.25%,
02/15/15 (Acquired 05/25/06-06/20/06; Cost
$172,225)(a)(b) 180,000 174,150
=======================================================================
278,695
=======================================================================
APPAREL RETAIL-0.69%
Payless ShoeSource, Inc., Sr. Unsec. Gtd.
Sub. Global Notes, 8.25%, 08/01/13(a) 390,000 406,575
=======================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-2.29%
American Achievement Corp., Sr. Unsec. Gtd.
Sub. Global Notes, 8.25%, 04/01/12(a) 145,000 149,531
- -----------------------------------------------------------------------
Broder Brothers Co.-Series B, Sr. Unsec. Gtd.
Global Notes, 11.25%, 10/15/10(a) 426,000 416,415
- -----------------------------------------------------------------------
Hanesbrands Inc., Sr. Floating Rate Notes,
8.74%, 12/15/14 (Acquired 12/11/06; Cost
$60,000)(a)(b)(c) 60,000 61,275
- -----------------------------------------------------------------------
Levi Strauss & Co., Sr. Unsec. Unsub. Global
Notes, 8.88%, 04/01/16(a)(d) 300,000 314,250
- -----------------------------------------------------------------------
</Table>
<Table>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
<Caption>
APPAREL, ACCESSORIES & LUXURY GOODS-(CONTINUED)
Perry Ellis International, Inc.-Series B, Sr.
Sub. Global Notes, 8.88%, 09/15/13(a) $ 212,000 $ 214,120
- -----------------------------------------------------------------------
Warnaco Inc., Sr. Unsec. Global Notes, 8.88%,
06/15/13(a) 187,000 199,623
=======================================================================
1,355,214
=======================================================================
AUTO PARTS & EQUIPMENT-2.05%
Cooper-Standard Automotive Inc., Sr. Unsec.
Gtd. Global Notes, 7.00%, 12/15/12(a)(d) 165,000 148,500
- -----------------------------------------------------------------------
Delphi Corp., Global Notes, 6.50%,
05/01/09(a)(e) 105,000 118,650
- -----------------------------------------------------------------------
Lear Corp., Sr. Notes,
8.50%, 12/01/13 (Acquired 11/20/06; Cost
$90,000)(a)(b) 90,000 87,862
- -----------------------------------------------------------------------
8.75%, 12/01/16 (Acquired 11/20/06; Cost
$120,000)(a)(b) 120,000 116,700
- -----------------------------------------------------------------------
Tenneco Inc., Sr. Unsec. Gtd. Sub. Global
Notes, 8.63%, 11/15/14(a) 160,000 164,600
- -----------------------------------------------------------------------
TRW Automotive Inc., Sr. Global Notes, 9.38%,
02/15/13(a) 243,000 261,225
- -----------------------------------------------------------------------
Visteon Corp., Sr. Unsec. Notes, 7.00%,
03/10/14(a)(d) 360,000 318,150
=======================================================================
1,215,687
=======================================================================
AUTOMOBILE MANUFACTURERS-2.34%
Ford Motor Co.,
Sr. Unsec. Conv. Putable Notes, 4.25%,
12/20/16(a) 305,000 329,223
- -----------------------------------------------------------------------
Unsec. Unsub. Global Notes, 7.45%,
07/16/31(a)(d) 305,000 239,614
- -----------------------------------------------------------------------
General Motors Corp.,
Global Notes, 7.20%, 01/15/11(a) 350,000 340,375
- -----------------------------------------------------------------------
Sr. Unsec. Unsub. Global Deb., 8.38%,
07/15/33(a)(d) 515,000 477,663
=======================================================================
1,386,875
=======================================================================
BROADCASTING & CABLE TV-5.00%
Adelphia Communications Corp., Sr. Unsec.
Unsub. Notes, 10.88%, 10/01/10(a)(d)(e) 178,000 163,760
- -----------------------------------------------------------------------
CCH I Holdings LLC/CCH I Holdings Captial
Corp., Sr. Sec. Gtd. Global Notes, 11.00%,
10/01/15(a) 300,000 309,000
- -----------------------------------------------------------------------
CSC Holdings, Inc. Series B, Sr. Unsec.
Unsub. Notes,
7.63%, 04/01/11(a) 392,000 401,310
- -----------------------------------------------------------------------
Echostar DBS Corp., Sr. Unsec. Gtd. Global
Notes,
6.38%, 10/01/11(a) 280,000 279,650
- -----------------------------------------------------------------------
7.00%, 10/01/13(a) 120,000 120,300
- -----------------------------------------------------------------------
Intelsat Subsidiary Holding Co. Ltd.
(Bermuda), Sr. Global Notes, 8.25%,
01/15/13(a) 357,000 366,371
- -----------------------------------------------------------------------
Mediacom Broadband LLC/Mediacom Broadband
Corp.,
Sr. Notes, 8.50%, 10/15/15 (Acquired
09/28/06; Cost $119,100)(a)(b) 120,000 122,400
- -----------------------------------------------------------------------
Sr. Unsec. Global Notes, 8.50%, 10/15/15(a) 155,000 157,325
- -----------------------------------------------------------------------
</Table>
AIM V.I. High Yield Fund
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
BROADCASTING & CABLE TV-(CONTINUED)
NTL Cable PLC (United Kingdom), Sr. Unsec.
Gtd. Global Notes, 8.75%, 04/15/14(a) $ 105,000 $ 110,513
- -----------------------------------------------------------------------
Rainbow National Services LLC, Sr. Notes,
8.75%, 09/01/12 (Acquired
08/13/04-09/22/06; Cost $556,527)(a)(b) 538,000 567,590
- -----------------------------------------------------------------------
Videotron Ltee (Canada), Sr. Unsec. Gtd.
Global Notes,
6.88%, 01/15/14(a) 212,000 215,180
- -----------------------------------------------------------------------
XM Satellite Radio Inc., Sr. Unsec. Gtd.
Floating Rate Global Notes, 9.87%,
05/01/13(a)(c) 155,000 151,900
=======================================================================
2,965,299
=======================================================================
BUILDING PRODUCTS-1.56%
Associated Materials Inc.,
Sr. Unsec. Disc. Global Notes, 11.25%,
03/01/14(a)(f) 120,000 81,600
- -----------------------------------------------------------------------
Sr. Unsec. Gtd. Sub. Global Notes,
9.75%, 04/15/12(a) 120,000 124,200
- -----------------------------------------------------------------------
Goodman Global Holdings Inc.,
Sr. Unsec. Sub. Global Notes, 7.88%,
12/15/12(a)(d) 224,000 221,760
- -----------------------------------------------------------------------
Series B, Sr. Unsec. Gtd. Floating Rate
Global Notes, 8.36%, 06/15/12(a)(c) 270,000 276,075
- -----------------------------------------------------------------------
Indalex Holding Corp., Sr. Sec. Notes,
11.50%, 02/01/14 (Acquired
04/13/06-04/24/06; Cost $204,950)(a)(b) 210,000 219,450
=======================================================================
923,085
=======================================================================
CASINOS & GAMING-3.73%
Galaxy Entertainment Finance Co. Ltd.
(China), Gtd. Notes, 9.88%, 12/15/12
(Acquired 12/04/06; Cost $31,950)(a)(b) 30,000 32,288
- -----------------------------------------------------------------------
Harrah's Operating Co., Inc., Notes,
6.50%, 06/01/16(a) 365,000 328,317
- -----------------------------------------------------------------------
Isle of Capri Casinos, Inc., Sr. Unsec. Gtd.
Sub. Global Notes, 7.00%, 03/01/14(a) 180,000 179,100
- -----------------------------------------------------------------------
MGM Mirage,
Sr. Unsec. Gtd. Global Notes, 6.63%,
07/15/15(a) 273,000 262,080
- -----------------------------------------------------------------------
Sr. Unsec. Gtd. Notes, 7.63%, 01/15/17(a) 305,000 308,050
- -----------------------------------------------------------------------
Penn National Gaming, Inc., Sr. Unsec. Sub.
Global Notes, 6.75%, 03/01/15(a) 199,000 197,508
- -----------------------------------------------------------------------
Poster Financial Group Inc., Sr. Sec. Global
Notes, 8.75%, 12/01/11(a) 439,000 460,401
- -----------------------------------------------------------------------
Seneca Gaming Corp., Sr. Global Notes, 7.25%,
05/01/12(a) 124,000 127,100
- -----------------------------------------------------------------------
Station Casinos, Inc., Sr. Unsec. Global
Notes,
6.00%, 04/01/12(a) 140,000 132,650
- -----------------------------------------------------------------------
Sr. Unsec. Notes, 7.75%, 08/15/16(a) 180,000 182,025
=======================================================================
2,209,519
=======================================================================
COAL & CONSUMABLE FUELS-0.51%
Massey Energy Co., Sr. Global Notes, 6.63%,
11/15/10(a) 300,000 300,375
=======================================================================
</Table>
<Table>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
<Caption>
COMMERCIAL PRINTING-0.45%
Quebecor World Capital Corp. (Canada), Sr.
Notes, 8.75%, 03/15/16 (Acquired
12/06/06-12/13/06; Cost $264,288)(a)(b) $ 275,000 $ 265,375
=======================================================================
COMMODITY CHEMICALS-0.99%
BCP Crystal US Holdings Corp., Sr. Sub.
Global Notes,
9.63%, 06/15/14(a) 111,000 122,932
- -----------------------------------------------------------------------
Lyondell Chemical Co., Sr. Unsec. Gtd. Global
Notes,
8.25%, 09/15/16(a) 120,000 126,600
- -----------------------------------------------------------------------
Montell Finance Co. B.V. (Netherlands),
Unsec. Gtd. Yankee Deb., 8.10%, 03/15/27
(Acquired 01/06/05-09/22/06; Cost
$327,683)(a)(b) 347,000 334,855
=======================================================================
584,387
=======================================================================
COMMUNICATIONS EQUIPMENT-0.65%
MasTec, Inc.-Series B, Sr. Sub. Notes, 7.75%,
02/01/08(a) 325,000 324,188
- -----------------------------------------------------------------------
Superior Essex Communications LLC/Essex Group
Inc., Sr. Global Notes, 9.00%, 04/15/12(a) 60,000 62,700
=======================================================================
386,888
=======================================================================
CONSTRUCTION & ENGINEERING-0.55%
Great Lakes Dredge & Dock Corp., Sr. Unsec.
Gtd. Sub. Global Notes, 7.75%, 12/15/13(a) 331,000 326,035
=======================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-0.62%
Esco Corp., Sr. Notes, 8.63%, 12/15/13
(Acquired 12/12/06; Cost $55,000)(a)(b) 55,000 56,513
- -----------------------------------------------------------------------
Titan International Inc., Sr. Notes, 8.00%,
01/15/12 (Acquired 12/19/06; Cost
$120,000)(a)(b) 120,000 121,350
- -----------------------------------------------------------------------
Wabtec Corp., Sr. Unsec. Gtd. Global Notes,
6.88%, 07/31/13(a) 190,000 190,000
=======================================================================
367,863
=======================================================================
CONSTRUCTION MATERIALS-0.60%
U.S. Concrete, Inc.,
Sr. Sub. Notes, 8.38%, 04/01/14 (Acquired
06/29/06; Cost $108,086)(a)(b) 110,000 108,075
- -----------------------------------------------------------------------
Sr. Unsec. Gtd. Sub. Global Notes,
8.38%, 04/01/14(a) 255,000 250,538
=======================================================================
358,613
=======================================================================
CONSUMER FINANCE-4.29%
Ford Motor Credit Co.,
Sr. Notes, 9.88%, 08/10/11(a) 120,000 129,174
- -----------------------------------------------------------------------
Sr. Unsec. Notes, 8.63%, 11/01/10(a) 490,000 507,062
- -----------------------------------------------------------------------
8.00%, 12/15/16(a) 125,000 124,606
- -----------------------------------------------------------------------
Unsub. Global Notes, 7.00%, 10/01/13(a) 770,000 743,050
- -----------------------------------------------------------------------
General Motors Acceptance Corp.,
Global Bonds, 8.00%, 11/01/31(a) 425,000 489,812
- -----------------------------------------------------------------------
Global Notes, 6.75%, 12/01/14(a)(d) 365,000 377,815
- -----------------------------------------------------------------------
Sr. Unsec. Unsub. Notes, 6.00%, 12/15/11(a) 170,000 169,883
=======================================================================
2,541,402
=======================================================================
</Table>
AIM V.I. High Yield Fund
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
DATA PROCESSING & OUTSOURCED SERVICES-0.04%
Sungard Data Systems Inc., Sr. Unsec. Gtd.
Global Notes, 9.13%, 08/15/13(a) $ 21,000 $ 22,234
=======================================================================
DIVERSIFIED CHEMICALS-0.76%
Innophos Inc., Sr. Unsec. Gtd. Sub. Global
Notes, 8.88%, 08/15/14(a) 440,000 449,900
=======================================================================
DIVERSIFIED COMMERCIAL & PROFESSIONAL
SERVICES-1.95%
Corrections Corp. of America, Sr. Unsec. Gtd.
Sub. Global Notes, 6.25%, 03/15/13(a) 171,000 169,290
- -----------------------------------------------------------------------
GEO Group, Inc. (The), Sr. Unsec. Global
Notes, 8.25%, 07/15/13(a) 143,000 148,005
- -----------------------------------------------------------------------
Mobile Services Group Inc., Sr. Notes, 9.75%,
08/01/14 (Acquired 07/20/06; Cost
$60,000)(a)(b) 60,000 63,300
- -----------------------------------------------------------------------
Travelport Ltd.,
Sr. Notes, 9.88%, 09/01/14 (Acquired
08/11/06-09/20/06; Cost $296,100)(a)(b) 300,000 305,250
- -----------------------------------------------------------------------
Sr. Sub. Notes, 11.88%, 09/01/16 (Acquired
08/11/06-11/28/06; Cost $351,700)(a)(b) 355,000 366,537
- -----------------------------------------------------------------------
Worldspan L.P./WS Financing Corp., Sr. Sec.
Gtd. Floating Rate Global Second Lien
Notes, 11.62%, 02/15/11(a)(c) 100,000 103,000
=======================================================================
1,155,382
=======================================================================
DRUG RETAIL-0.87%
Jean Coutu Group (PJC) Inc. (The) (Canada),
Sr. Unsec. Global Notes, 7.63%, 08/01/12(a) 388,000 409,340
- -----------------------------------------------------------------------
Rite Aid Corp., Sr. Sec. Gtd. Global Second
Lien Notes, 8.13%, 05/01/10(a) 103,000 105,704
=======================================================================
515,044
=======================================================================
ELECTRIC UTILITIES-2.78%
Dynegy Holdings, Inc., Sr. Unsec. Global
Notes, 8.38%, 05/01/16(a) 185,000 195,406
- -----------------------------------------------------------------------
Edison Mission Energy, Sr. Unsec. Global
Notes, 7.75%, 06/15/16(a)(d) 155,000 164,881
- -----------------------------------------------------------------------
LSP Energy L.P./LSP Batesville Funding Corp.-
Series C, Sr. Sec. Bonds, 7.16%,
01/15/14(a) 178,291 179,851
- -----------------------------------------------------------------------
Midwest Generation, LLC, Sr. Sec. Second
Priority Putable Global Notes, 8.75%,
05/01/14(a) 145,000 158,050
- -----------------------------------------------------------------------
Mirant North America, LLC, Sr. Unsec. Gtd.
Global Notes, 7.38%, 12/31/13(a) 185,000 189,162
- -----------------------------------------------------------------------
Mission Energy Holding Co., Sr. Sec. Global
Notes, 13.50%, 07/15/08(a) 231,000 256,121
- -----------------------------------------------------------------------
Nevada Power Co.,
Series M, Sr. General Refunding Mortgage
Global Notes, 5.95%, 03/15/16(a) 55,000 55,046
- -----------------------------------------------------------------------
Series O, Sr. General Refunding Mortgage
Global Notes, 6.50%, 05/15/18(a) 50,000 51,970
- -----------------------------------------------------------------------
</Table>
<Table>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
<Caption>
ELECTRIC UTILITIES-(CONTINUED)
Reliant Energy, Inc., Sr. Sec. Gtd. Notes,
6.75%, 12/15/14(a) $ 175,000 $ 171,938
- -----------------------------------------------------------------------
Tenaska Alabama Partners LP, Sr. Sec. Notes,
7.00%, 06/30/21 (Acquired 12/12/06; Cost
$223,754)(a)(b) 222,918 223,476
=======================================================================
1,645,901
=======================================================================
ENVIRONMENTAL & FACILITIES SERVICES-0.83%
Allied Waste North America, Inc., Series B,
Sr. Sec. Gtd. Global Notes,
8.50%, 12/01/08(a) 234,000 246,577
- -----------------------------------------------------------------------
7.13%, 05/15/16(a) 245,000 243,469
=======================================================================
490,046
=======================================================================
FERTILIZERS & AGRICULTURAL CHEMICALS-0.31%
Mosaic Co. (The), Sr. Notes,
7.38%, 12/01/14 (Acquired 11/16/06; Cost
$120,000)(a)(b) 120,000 123,450
- -----------------------------------------------------------------------
7.63%, 12/01/16 (Acquired 11/16/06; Cost
$60,000)(a)(b) 60,000 62,325
=======================================================================
185,775
=======================================================================
FOOD RETAIL-0.11%
Supervalu Inc., Sr. Medium Term Notes, 7.50%,
11/15/14(a) 60,000 62,550
=======================================================================
FOREST PRODUCTS-0.38%
Millar Western Forest Products Ltd. (Canada),
Sr. Unsec. Global Notes, 7.75%, 11/15/13(a) 247,000 223,535
=======================================================================
GAS UTILITIES-0.22%
SEMCO Energy, Inc.,
Sr. Global Notes, 7.75%, 05/15/13(a) 68,000 69,700
- -----------------------------------------------------------------------
Sr. Unsec. Global Notes, 7.13%, 05/15/08(a) 60,000 60,525
=======================================================================
130,225
=======================================================================
GENERAL MERCHANDISE STORES-0.23%
Pantry, Inc. (The), Sr. Sub. Global Notes,
7.75%, 02/15/14(a) 135,000 136,519
=======================================================================
HEALTH CARE EQUIPMENT-0.10%
Encore Medical Finance LLC/Encore Medical
Finance Corp., Sr. Sub. Notes, 11.75%,
11/15/14 (Acquired 10/30/06; Cost
$60,000)(a)(b) 60,000 60,150
=======================================================================
</Table>
AIM V.I. High Yield Fund
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
HEALTH CARE FACILITIES-2.95%
Concentra Operating Corp., Sr. Unsec. Gtd.
Sub. Global Notes, 9.13%, 06/01/12(a) $ 147,000 $ 154,534
- -----------------------------------------------------------------------
HCA, Inc.,
Sr. Sec. Notes,
9.13%, 11/15/14 (Acquired 11/09/06; Cost
$30,000)(a)(b) 30,000 32,100
- -----------------------------------------------------------------------
9.25%, 11/15/16 (Acquired 11/09/06; Cost
$60,000)(a)(b) 60,000 64,350
- -----------------------------------------------------------------------
Sr. Unsec. Bonds, 7.50%, 11/06/33(a) 165,000 136,125
- -----------------------------------------------------------------------
Sr. Unsec. Global Notes,
6.38%, 01/15/15(a) 110,000 93,775
- -----------------------------------------------------------------------
6.50%, 02/15/16(a) 165,000 139,838
- -----------------------------------------------------------------------
Sr. Unsec. Notes,
8.75%, 09/01/10(a) 245,000 256,637
- -----------------------------------------------------------------------
6.25%, 02/15/13(a) 21,850 19,392
- -----------------------------------------------------------------------
Select Medical Corp., Sr. Unsec. Gtd. Sub.
Global Notes, 7.63%, 02/01/15(a) 348,000 289,710
- -----------------------------------------------------------------------
Tenet Healthcare Corp., Sr. Unsec. Notes,
6.38%, 12/01/11(a) 419,000 385,480
- -----------------------------------------------------------------------
7.38%, 02/01/13(a) 21,000 19,425
- -----------------------------------------------------------------------
Triad Hospitals, Inc., Sr. Unsec. Sub. Notes,
7.00%, 11/15/13(a) 155,000 156,162
=======================================================================
1,747,528
=======================================================================
HEALTH CARE SERVICES-2.00%
AmeriPath, Inc., Sr. Unsec. Gtd. Sub. Global
Notes, 10.50%, 04/01/13(a) 305,000 331,688
- -----------------------------------------------------------------------
Omnicare, Inc., Sr. Sub. Notes, 6.88%,
12/15/15(a) 110,000 109,175
- -----------------------------------------------------------------------
Rural/Metro Corp., Sr. Gtd. Sub. Global
Notes, 9.88%, 03/15/15(a) 56,000 58,520
- -----------------------------------------------------------------------
Universal Hospital Services Inc., Sr. Unsec.
Global Notes, 10.13%, 11/01/11(a) 345,000 371,306
- -----------------------------------------------------------------------
US Oncology, Inc., Sr. Unsec. Gtd. Global
Notes, 9.00%, 08/15/12(a) 295,000 314,175
=======================================================================
1,184,864
=======================================================================
HEALTH CARE SUPPLIES-0.27%
Inverness Medical Innovations, Inc., Sr. Sub.
Global Notes, 8.75%, 02/15/12(a) 155,000 161,975
=======================================================================
HOMEBUILDING-0.27%
Technical Olympic USA, Inc., Sr. Unsec. Gtd.
Global Notes, 9.00%, 07/01/10(a) 163,000 159,944
=======================================================================
HOMEFURNISHING RETAIL-0.41%
Rent-A-Center Inc.-Series B, Sr. Unsec. Gtd.
Sub. Global Notes, 7.50%, 05/01/10(a) 240,000 240,600
=======================================================================
</Table>
<Table>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
<Caption>
HOTELS, RESORTS & CRUISE LINES-1.14%
Grupo Posadas S.A. de C.V. (Mexico), Sr.
Notes, 8.75%, 10/04/11 (Acquired 09/27/04;
Cost $183,000)(a)(b) $ 183,000 $ 192,150
- -----------------------------------------------------------------------
NCL Corp., Sr. Unsec. Unsub. Global Notes,
10.63%, 07/15/14(a) 476,000 480,760
=======================================================================
672,910
=======================================================================
HOUSEHOLD APPLIANCES-0.09%
Gregg Appliances, Inc., Sr. Unsec. Gtd.
Global Notes, 9.00%, 02/01/13(a) 53,000 51,145
=======================================================================
INDEPENDENT POWER PRODUCERS & ENERGY
TRADERS-2.58%
AES Corp. (The), Sr. Unsec. Unsub. Notes,
7.75%, 03/01/14(a)(d) 396,000 419,760
- -----------------------------------------------------------------------
AES Red Oak LLC-Series A, Sr. Sec. Bonds,
8.54%, 11/30/19(a) 418,897 458,693
- -----------------------------------------------------------------------
Mirant Americas Generation LLC, Sr. Unsec.
Notes, 8.30%, 05/01/11(a) 120,000 123,600
- -----------------------------------------------------------------------
NRG Energy, Inc., Sr. Unsec. Gtd. Notes,
7.38%, 02/01/16(a) 160,000 161,200
- -----------------------------------------------------------------------
7.38%, 01/15/17(a) 365,000 367,051
=======================================================================
1,530,304
=======================================================================
INDUSTRIAL CONGLOMERATES-0.36%
TransDigm Inc., Sr. Unsec. Gtd. Sub. Global
Notes, 7.75%, 07/15/14(a) 205,000 211,919
=======================================================================
INDUSTRIAL MACHINERY-0.79%
Columbus McKinnon Corp., Sr. Sub. Global
Notes, 8.88%, 11/01/13(a) 318,000 337,477
- -----------------------------------------------------------------------
Stewart & Stevenson LLC/Stewart & Stevenson
Corp., Sr. Notes, 10.00%, 07/15/14
(Acquired 12/06/06; Cost $132,031)(a)(b) 125,000 132,344
=======================================================================
469,821
=======================================================================
INTEGRATED TELECOMMUNICATION SERVICES-0.84%
Empresa Brasileira de Telecom S.A.
(Brazil)-Series B, Gtd. Global Notes,
11.00%, 12/15/08(a) 216,000 237,060
- -----------------------------------------------------------------------
Hawaiian Telcom Communications Inc.-Series B,
Sr. Unsec. Gtd. Sub. Global Notes, 12.50%,
05/01/15(a)(d) 250,000 263,750
=======================================================================
500,810
=======================================================================
METAL & GLASS CONTAINERS-0.56%
Greif, Inc., Sr. Unsec. Gtd. Sub. Global
Notes, 8.88%, 08/01/12(a) 128,000 135,040
- -----------------------------------------------------------------------
Owens-Brockway Glass Container Inc., Sr.
Unsec. Gtd. Global Notes, 8.25%,
05/15/13(a) 56,000 58,030
- -----------------------------------------------------------------------
Pliant Corp., Sr. Sec. Global Notes, 11.63%,
06/15/09(a) 127,085 139,476
=======================================================================
332,546
=======================================================================
</Table>
AIM V.I. High Yield Fund
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
MOVIES & ENTERTAINMENT-1.80%
AMC Entertainment Inc.-Series B, Sr. Unsec.
Gtd. Global Notes, 8.63%, 08/15/12(a) $ 165,000 $ 173,250
- -----------------------------------------------------------------------
Cinemark Inc., Sr. Unsec. Disc. Global Notes,
9.75%, 03/15/14(a)(f) 270,000 232,875
- -----------------------------------------------------------------------
Imax Corp. (Canada), Sr. Unsec. Gtd. Global
Notes, 9.63%, 12/01/10(a) 120,000 103,200
- -----------------------------------------------------------------------
Marquee Holdings Inc., Sr. Disc. Global
Notes, 12.00%, 08/15/14(a)(f) 245,000 207,025
- -----------------------------------------------------------------------
WMG Acquisition Corp., Sr. Sub. Global Notes,
7.38%, 04/15/14(a) 353,000 352,117
=======================================================================
1,068,467
=======================================================================
OIL & GAS EQUIPMENT & SERVICES-2.36%
Allis-Chalmers Energy, Inc., Sr. Unsec. Gtd.
Notes, 9.00%, 01/15/14 (Acquired 08/09/06;
Cost $120,000)(a)(b) 120,000 120,750
- -----------------------------------------------------------------------
Basic Energy Services Inc., Sr. Unsec. Gtd.
Global Notes, 7.13%, 04/15/16(a) 130,000 128,537
- -----------------------------------------------------------------------
CHC Helicopter Corp. (Canada), Sr. Sub.
Global Notes,
7.38%, 05/01/14(a) 310,000 301,475
- -----------------------------------------------------------------------
Complete Production Services Inc., Sr. Notes,
8.00%, 12/15/16 (Acquired 11/29/06; Cost
$60,000)(a)(b) 60,000 61,650
- -----------------------------------------------------------------------
Geokinetics Inc., Sr. Sec. Floating Rate
Notes, 11.86%, 12/15/12 (Acquired 12/11/06;
Cost $125,000)(a)(b)(c) 125,000 126,250
- -----------------------------------------------------------------------
Hanover Compressor Co., Sr. Notes, 9.00%,
06/01/14(a) 106,000 114,745
- -----------------------------------------------------------------------
PHI Inc., Sr. Unsec. Gtd. Global Notes,
7.13%, 04/15/13(a) 565,000 548,050
=======================================================================
1,401,457
=======================================================================
OIL & GAS EXPLORATION & PRODUCTION-3.22%
Clayton Williams Energy, Inc., Sr. Unsec.
Gtd. Global Notes, 7.75%, 08/01/13(a) 197,000 181,732
- -----------------------------------------------------------------------
Delta Petroleum Corp., Sr. Unsec. Gtd. Global
Notes,
7.00%, 04/01/15(a) 180,000 167,400
- -----------------------------------------------------------------------
Encore Acquisition Co., Sr. Unsec. Sub.
Global Notes,
6.00%, 07/15/15(a) 270,000 247,725
- -----------------------------------------------------------------------
OPTI Canada Inc. (Canada), Sr. Sec. Gtd.
Notes, 8.25%, 12/15/14 (Acquired 12/08/06;
Cost $125,000)(a)(b) 125,000 128,438
- -----------------------------------------------------------------------
Paramount Resources Ltd. (Canada), Sr. Unsec.
Unsub. Yankee Notes, 8.50%, 01/31/13(a) 504,000 500,220
- -----------------------------------------------------------------------
Quicksilver Resources Inc., Sr. Unsec. Gtd.
Sub. Notes,
7.13%, 04/01/16(a) 105,000 102,375
- -----------------------------------------------------------------------
Sabine Pass LNG LP, Sr. Sec. Notes, 7.25%,
11/30/13 (Acquired 11/01/06; Cost
$425,000)(a)(b) 425,000 423,937
- -----------------------------------------------------------------------
Whiting Petroleum Corp., Sr. Unsec. Gtd. Sub.
Global Notes, 7.00%, 02/01/14(a) 155,000 154,613
=======================================================================
1,906,440
=======================================================================
OIL & GAS REFINING & MARKETING-0.53%
United Refining Co., Sr. Unsec. Gtd. Global
Notes, 10.50%, 08/15/12(a) 300,000 315,375
=======================================================================
</Table>
<Table>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
<Caption>
OIL & GAS STORAGE & TRANSPORTATION-3.31%
Copano Energy LLC, Sr. Unsec. Gtd. Global
Notes, 8.13%, 03/01/16(a) $ 410,000 $ 426,400
- -----------------------------------------------------------------------
El Paso Production Holding Co., Sr. Unsec.
Gtd. Global Notes, 7.75%, 06/01/13(a) 120,000 126,000
- -----------------------------------------------------------------------
MarkWest Energy Partners L.P./MarkWest Energy
Finance Corp.,
Sr. Notes, 8.50%, 07/15/16 (Acquired
10/16/06-12/07/06; Cost $197,494)(a)(b) 195,000 202,556
- -----------------------------------------------------------------------
Series B, Sr. Unsec. Global Notes,
6.88%, 11/01/14(a) 304,000 295,260
- -----------------------------------------------------------------------
SemGroup LP, Sr. Notes, 8.75%, 11/15/15
(Acquired 10/03/06; Cost $179,100)(a)(b) 180,000 182,700
- -----------------------------------------------------------------------
Sonat Inc., Sr. Unsec. Notes, 7.63%,
07/15/11(a) 517,000 550,605
- -----------------------------------------------------------------------
Tennessee Gas Pipeline Co., Unsec. Deb.,
7.50%, 04/01/17(a) 105,000 115,500
- -----------------------------------------------------------------------
Williams Partners LP/Williams Partners
Finance Corp., Bonds, 7.25%, 02/01/17
(Acquired 12/06/06; Cost $60,000)(a)(b) 60,000 61,500
=======================================================================
1,960,521
=======================================================================
PACKAGED FOODS & MEATS-1.34%
Chiquita Brands International, Inc., Sr.
Unsec. Global Notes, 7.50%, 11/01/14(a)(d) 175,000 160,562
- -----------------------------------------------------------------------
Dole Foods Co. Inc., Sr. Unsec. Gtd. Global
Notes, 7.25%, 06/15/10(a) 335,000 323,275
- -----------------------------------------------------------------------
Nutro Products Inc.,
Sr. Floating Rate Notes, 9.40%, 10/15/13
(Acquired 04/13/06; Cost $25,000)(a)(b)(c) 25,000 25,875
- -----------------------------------------------------------------------
Sr. Sub. Notes, 10.75%, 04/15/14 (Acquired
04/13/06-10/10/06; Cost $269,419)(a)(b) 260,000 285,350
=======================================================================
795,062
=======================================================================
PAPER PACKAGING-1.42%
Caraustar Industries, Inc., Unsec. Unsub.
Notes, 7.38%, 06/01/09(a) 600,000 583,500
- -----------------------------------------------------------------------
Jefferson Smurfit Corp., Sr. Unsec. Gtd.
Unsub. Global Notes, 7.50%, 06/01/13(a) 274,000 259,957
=======================================================================
843,457
=======================================================================
PAPER PRODUCTS-2.97%
Abitibi-Consolidated Finance L.P., Unsec.
Gtd. Notes, 7.88%, 08/01/09(a) 155,000 152,094
- -----------------------------------------------------------------------
Abitibi-Consolidated Inc. (Canada), Unsec.
Unsub. Yankee Notes, 8.55%, 08/01/10(a) 185,000 178,294
- -----------------------------------------------------------------------
Boise Cascade LLC, Sr. Unsec. Gtd. Sub.
Global Notes, 7.13%, 10/15/14(a) 142,000 138,450
- -----------------------------------------------------------------------
Bowater Inc., Global Notes, 6.50%,
06/15/13(a) 95,000 86,806
- -----------------------------------------------------------------------
Cellu Tissue Holdings, Inc., Sec. Gtd. Global
Notes, 9.75%, 03/15/10(a) 182,000 180,635
- -----------------------------------------------------------------------
Domtar Inc. (Canada), Yankee Notes, 5.38%,
12/01/13(a) 50,000 45,500
- -----------------------------------------------------------------------
7.13%, 08/15/15(a) 118,000 117,115
- -----------------------------------------------------------------------
</Table>
AIM V.I. High Yield Fund
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
PAPER PRODUCTS-(CONTINUED)
Exopack Holding Corp., Sr. Notes, 11.25%,
02/01/14 (Acquired 01/26/06-01/27/06; Cost
$145,025)(a)(b) $ 145,000 $ 153,338
- -----------------------------------------------------------------------
Georgia-Pacific Corp., Sr. Gtd. Notes,
7.00%, 01/15/15 (Acquired 12/13/06; Cost
$120,000)(a)(b) 120,000 119,850
- -----------------------------------------------------------------------
7.13%, 01/15/17 (Acquired 12/13/06; Cost
$60,000)(a)(b) 60,000 60,000
- -----------------------------------------------------------------------
Mercer International Inc., Sr. Global Notes,
9.25%, 02/15/13(a) 167,000 164,495
- -----------------------------------------------------------------------
Neenah Paper, Inc., Sr. Unsec. Gtd. Global
Notes, 7.38%, 11/15/14(a) 179,000 172,287
- -----------------------------------------------------------------------
Verso Paper Holdings LLC/Verson Paper Inc.,
Sr. Sec. Notes, 9.13%, 08/01/14 (Acquired
07/26/06; Cost $180,000)(a)(b) 180,000 189,450
=======================================================================
1,758,314
=======================================================================
PERSONAL PRODUCTS-0.83%
DEL Laboratories Inc., Sr. Unsec. Gtd. Sub.
Global Notes, 8.00%, 02/01/12(a) 235,000 222,663
- -----------------------------------------------------------------------
NBTY, Inc., Sr. Unsec. Sub. Global Notes,
7.13%, 10/01/15(a) 269,000 266,982
=======================================================================
489,645
=======================================================================
PHARMACEUTICALS-2.40%
Athena Neurosciences Finance, LLC, Sr. Unsec.
Gtd. Unsub. Notes, 7.25%, 02/21/08(a) 526,000 536,278
- -----------------------------------------------------------------------
Elan Finance PLC/Elan Finance Corp.
(Ireland), Sr. Unsec. Gtd. Global Notes,
7.75%, 11/15/11(a) 166,000 163,095
- -----------------------------------------------------------------------
Sr. Unsec. Notes, 8.88%, 12/01/13 (Acquired
11/17/06; Cost $180,000)(a)(b) 180,000 180,000
- -----------------------------------------------------------------------
Leiner Health Products Inc., Sr. Sub. Global
Notes, 11.00%, 06/01/12(a) 195,000 202,069
- -----------------------------------------------------------------------
Valeant Pharmaceuticals International, Sr.
Unsec. Global Notes, 7.00%, 12/15/11(a) 355,000 339,912
=======================================================================
1,421,354
=======================================================================
PROPERTY & CASUALTY INSURANCE-0.22%
Crum & Forster Holdings Corp., Sr. Global
Notes, 10.38%, 06/15/13(a) 120,000 130,500
=======================================================================
PUBLISHING-2.19%
Dex Media Inc., Unsec. Disc. Global Notes,
9.00%, 11/15/13(a)(d)(f) 449,000 404,100
- -----------------------------------------------------------------------
Idearc Inc., Sr. Notes, 8.00%, 11/15/16
(Acquired 11/01/06; Cost $245,000)(a)(b) 245,000 250,819
- -----------------------------------------------------------------------
MediMedia USA Inc., Sr. Sub. Notes, 11.38%,
11/15/14 (Acquired 11/01/06; Cost
$30,000)(a)(b) 30,000 31,575
- -----------------------------------------------------------------------
Nielsen Finance LLC/Nielsen Finance Co., Sr.
Notes, 10.00%, 08/01/14 (Acquired 11/30/06;
Cost $324,063)(a)(b) 305,000 331,687
- -----------------------------------------------------------------------
Vertis Inc.-Series B, Sr. Unsec. Gtd. Global
Notes, 10.88%, 06/15/09(a)(d) 280,000 282,450
=======================================================================
1,300,631
=======================================================================
</Table>
<Table>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
<Caption>
RAILROADS-1.05%
Kansas City Southern de Mexico, S.A. de C.V.
(Mexico), Sr. Global Notes, 9.38%,
05/01/12(a) $ 507,000 $ 543,757
- -----------------------------------------------------------------------
Kansas City Southern Railway, Sr. Unsec. Gtd.
Global Notes, 7.50%, 06/15/09(a) 75,000 75,938
=======================================================================
619,695
=======================================================================
RESTAURANTS-0.67%
Carrols Corp., Sr. Unsec. Gtd. Sub. Global
Notes, 9.00%, 01/15/13(a) 385,000 396,550
=======================================================================
SEMICONDUCTOR EQUIPMENT-1.04%
Amkor Technology Inc., Sr. Unsec. Global
Notes, 7.13%, 03/15/11(a) 545,000 512,981
- -----------------------------------------------------------------------
Sensata Technologies B.V. (Netherlands), Sr.
Notes, 8.25%, 05/01/14 (Acquired
04/21/06-04/25/06; Cost $105,600)(a)(b)(f) 105,000 101,588
=======================================================================
614,569
=======================================================================
SEMICONDUCTORS-1.03%
Conexant Systems Inc., Sr. Sec. Floating Rate
Notes, 9.13%, 11/15/10 (Acquired 11/07/06;
Cost $60,000)(a)(b)(c) 60,000 61,350
- -----------------------------------------------------------------------
Freescale Semiconductor Inc.,
Sr. Notes, 8.88%, 12/15/14 (Acquired
11/16/06; Cost $60,000)(a)(b) 60,000 60,150
- -----------------------------------------------------------------------
Sr. Sub. Notes, 10.13%, 12/15/16 (Acquired
11/16/06; Cost $60,000)(a)(b) 60,000 60,450
- -----------------------------------------------------------------------
MagnaChip Semiconductor S.A./MagnaChip
Semiconductor Finance Co. (South Korea),
Sr. Sec. Deb. Global Notes, 6.88%,
12/15/11(a) 310,000 264,275
- -----------------------------------------------------------------------
Viasystems Inc., Sr. Unsec. Sub. Global
Notes, 10.50%, 01/15/11(a) 165,000 166,237
=======================================================================
612,462
=======================================================================
SPECIALTY CHEMICALS-1.11%
Johnsondiversey Holdings Inc., Unsec. Disc.
Global Notes, 10.67%, 05/15/13(a)(f) 190,000 184,775
- -----------------------------------------------------------------------
Johnsondiversey Inc.-Series B, Sr. Unsec.
Gtd. Sub. Global Notes, 9.63%, 05/15/12(a) 105,000 110,513
- -----------------------------------------------------------------------
NewMarket Corp., Sr. Notes, 7.13%, 12/15/16
(Acquired 12/07/06; Cost $150,000)(a)(b) 150,000 150,375
- -----------------------------------------------------------------------
Polypore Inc., Sr. Sub. Global Notes, 8.75%,
05/15/12(a) 120,000 119,850
- -----------------------------------------------------------------------
Polypore International Inc., Sr. Unsec. Disc.
Global Notes, 10.50%, 10/01/12(a)(f) 120,000 96,000
=======================================================================
661,513
=======================================================================
</Table>
AIM V.I. High Yield Fund
<Table>
<Caption>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
SPECIALTY STORES-1.73%
General Nutrition Centers Inc., Sr. Unsec.
Sub. Global Notes, 8.50%, 12/01/10(a) $ 570,000 $ 587,100
- -----------------------------------------------------------------------
GNC Parent Corp., Floating Rate Notes,
12.14%, 12/01/11 (Acquired 11/15/06; Cost
$89,100)(a)(b)(c) 90,000 90,225
- -----------------------------------------------------------------------
Linens 'n Things Inc., Sr. Sec. Gtd. Floating
Rate Global Notes, 11.00%, 01/15/14(a)(c) 360,000 349,200
=======================================================================
1,026,525
=======================================================================
STEEL-0.57%
AK Steel Corp., Sr. Unsec. Gtd. Global Notes,
7.75%, 06/15/12(a) 165,000 166,650
- -----------------------------------------------------------------------
Metals USA, Inc., Sr. Sec. Gtd. Global Notes,
11.13%, 12/01/15(a) 155,000 171,275
=======================================================================
337,925
=======================================================================
TEXTILES-0.60%
INVISTA, Sr. Notes, 9.25%, 05/01/12 (Acquired
06/17/04-11/09/06; Cost $342,763)(a)(b) 330,000 354,750
=======================================================================
THRIFTS & MORTGAGE FINANCE-0.28%
Fremont General Corp.-Series B, Sr. Unsec.
Notes, 7.88%, 03/17/09(a) 165,000 164,175
=======================================================================
TIRES & RUBBER-1.16%
Goodyear Tire & Rubber Co. (The),
Sr. Notes, 8.63%, 12/01/11 (Acquired
11/16/06; Cost $180,000)(a)(b) 180,000 186,075
- -----------------------------------------------------------------------
Sr. Unsec. Global Notes, 9.00%, 07/01/15(a) 475,000 501,125
=======================================================================
687,200
=======================================================================
TRADING COMPANIES & DISTRIBUTORS-0.70%
H&E Equipment Services Inc., Sr. Unsec. Gtd.
Global Notes, 8.38%, 07/15/16(a) 120,000 126,600
- -----------------------------------------------------------------------
United Rentals North America, Inc., Sr.
Unsec. Gtd. Global Notes, 6.50%,
02/15/12(a) 180,000 178,200
- -----------------------------------------------------------------------
Wesco Distribution Inc., Sr. Unsec. Gtd. Sub.
Global Notes, 7.50%, 10/15/17(a) 110,000 112,475
=======================================================================
417,275
=======================================================================
WIRELESS TELECOMMUNICATION SERVICES-3.27%
American Cellular Corp.-Series B, Sr. Global
Notes, 10.00%, 08/01/11(a) 85,000 90,419
- -----------------------------------------------------------------------
Centennial Cellular Operating Co.
LLC/Centennial Communications Corp., Sr.
Unsec. Gtd. Global Notes, 10.13%,
06/15/13(a) 353,000 383,005
- -----------------------------------------------------------------------
Dobson Cellular Systems Inc., Sr. Sec. Notes,
8.38%, 11/01/11 (Acquired
05/11/06-09/22/06; Cost $324,875)(a)(b) 310,000 327,825
- -----------------------------------------------------------------------
Rogers Wireless Inc. (Canada), Sr. Sec.
Global Notes, 6.38%, 03/01/14(a) 290,000 295,437
- -----------------------------------------------------------------------
</Table>
<Table>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
<Caption>
WIRELESS TELECOMMUNICATION SERVICES-(CONTINUED)
Rural Cellular Corp.,
Sr. Sec. Global Notes, 8.25%, 03/15/12(a) $ 80,000 $ 83,600
- -----------------------------------------------------------------------
Sr. Unsec. Global Notes, 9.88%, 02/01/10(a) 332,000 356,485
- -----------------------------------------------------------------------
Suncom Wireless, Inc., Sr. Unsec. Gtd. Global
Notes, 8.50%, 06/01/13(a)(d) 415,000 398,400
=======================================================================
1,935,171
=======================================================================
Total Bonds & Notes (Cost $50,036,007) 51,360,323
=======================================================================
BUNDLED SECURITIES-3.73%
INVESTMENT BANKING & BROKERAGE
Targeted Return Index Securities Trust-Series
HY 2006-1 Sec. Bonds, 7.55, 05/01/16
(Acquired 06/27/06-09/27/06; Cost
$2,127,600) (Cost $2,128,773)(a)(b)(d) 2,160,000 2,207,904
=======================================================================
<Caption>
SHARES
PREFERRED STOCKS-0.95%
INDEPENDENT POWER PRODUCERS & ENERGY
TRADERS-0.84%
AES Trust VII, $3.00 Conv. Pfd. 9,995 $ 494,753
=======================================================================
MULTI-UTILITIES-0.11%
NRG Energy, Inc. $14.38 Conv. Pfd. 250 67,406
=======================================================================
Total Preferred Stocks (Cost $495,223) 562,159
=======================================================================
COMMON STOCKS & OTHER EQUITY INTERESTS-0.86%
BROADCASTING & CABLE TV-0.18%
NTL Inc. 4,129 104,216
- -----------------------------------------------------------------------
XM Satellite Radio Inc.-Wts., expiring
03/15/10(g) 182 1,301
=======================================================================
105,517
=======================================================================
CONSTRUCTION MATERIALS-0.00%
Dayton Superior Corp.-Wts., expiring 06/15/09
(Acquired 08/07/00; Cost $0)(b)(g)(h)(i) 175 0
=======================================================================
GENERAL MERCHANDISE STORES-0.03%
Travelcenters of America, Inc.-Wts., expiring
05/01/09(a)(g)(h) 318 16,218
=======================================================================
INTEGRATED TELECOMMUNICATION SERVICES-0.00%
NTELOS Inc.-Wts., expiring 08/15/10 (Acquired
07/21/00-11/15/00; Cost $7,710)(b)(g)(h)(i) 832 0
- -----------------------------------------------------------------------
XO Holdings Inc.(j) 33 142
- -----------------------------------------------------------------------
XO Holdings Inc.-Class A-Wts., expiring
01/16/10(j) 1,533 1,073
- -----------------------------------------------------------------------
XO Holdings Inc.-Class B-Wts., expiring
01/16/10(j) 1,148 494
- -----------------------------------------------------------------------
XO Holdings Inc.-Class C-Wts., expiring
01/16/10(j) 1,148 252
=======================================================================
1,961
=======================================================================
</Table>
AIM V.I. High Yield Fund
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES-0.65%
American Tower Corp.-Class A(k) 4,129 $ 153,929
- -----------------------------------------------------------------------
iPCS, Inc.(k) 4,209 233,011
=======================================================================
386,940
=======================================================================
Total Domestic Common Stocks (Cost
$228,609) 510,636
=======================================================================
<Caption>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
ASSET-BACKED SECURITIES-0.27%
ELECTRIC UTILITIES-0.27%
Reliant Energy Mid-Atlantic Power Holdings,
LLC- Series B, Sr. Unsec. Asset-Backed Pass
Through Ctfs., 9.24%, 07/02/17 (Cost
$143,400)(a) $ 142,787 160,010
=======================================================================
SENIOR SECURED FLOATING RATE INTEREST
LOANS-0.18%
AIRLINES-0.18%
Evergreen International Aviation, Inc. First
Lien Term Loan 8.82%, 10/31/11 (Cost
$108,721)(a) 109,800 107,604
=======================================================================
MONEY MARKET FUNDS-5.04%
Liquid Assets Portfolio-Institutional
Class(l) 1,494,785 1,494,785
- -----------------------------------------------------------------------
Premier Portfolio-Institutional Class(l) 1,494,785 1,494,785
=======================================================================
Total Money Market Funds (Cost
$2,989,570) 2,989,570
=======================================================================
Total Investments (excluding investments
purchased with cash collateral from
securities loaned)-97.71% (Cost
$56,130,303) 57,898,206
=======================================================================
</Table>
<Table>
- -----------------------------------------------------------------------
<Caption>
PRINCIPAL
AMOUNT VALUE
- -----------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-7.56%
Liquid Assets Portfolio-Institutional
Class(l)(m) $2,240,339 $ 2,240,339
- -----------------------------------------------------------------------
STIC Prime Portfolio-Institutional
Class(l)(m) 2,240,340 2,240,340
=======================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $4,480,679) 4,480,679
=======================================================================
TOTAL INVESTMENTS-105.27% (Cost $60,610,982) 62,378,885
=======================================================================
OTHER ASSETS LESS LIABILITIES-(5.27)% (3,123,952)
=======================================================================
NET ASSETS-100.00% $59,254,933
_______________________________________________________________________
=======================================================================
</Table>
Investment Abbreviations:
<Table>
Conv. - Convertible
Ctfs. - Certificates
Deb. - Debentures
Disc. - Discounted
Gtd. - Guaranteed
Pfd. - Preferred
Sec. - Secured
Sr. - Senior
Sub. - Subordinated
Unsec. - Unsecured
Unsub. - Unsubordinated
Wts. - Warrants
</Table>
Notes to Schedule of Investments:
(a) In accordance with the procedures established by the Board of Trustees,
security fair valued based on an evaluated quote provided by an independent
pricing service. The aggregate value of these securities at December 31,
2006 was $53,852,059, which represented 90.88% of the Fund's Net Assets. See
Note 1A.
(b) Security not registered under the Securities Act of 1933, as amended (e.g.,
the security was purchased in a Rule 144A transaction or a Regulation D
transaction). The security may be resold pursuant to an exemption from
registration under the 1933 Act, typically to qualified institutional
buyers. The Fund has no rights to demand registration of these securities.
The aggregate value of these securities at December 31, 2006 was
$10,858,301, which represented 18.32% of the Fund's Net Assets. Unless
otherwise indicated, these securities are not considered to be illiquid.
(c) Interest or dividend rate is redetermined periodically. Rate shown is the
rate in effect on December 31, 2006.
(d) All or a portion of this security was out on loan at December 31, 2006.
(e) Defaulted security. Adelphia Communications Corp. and Delphi Corp. have
filed for protection under Chapter 11 of the U.S. Bankruptcy Code. The
aggregate value of these securities at December 31, 2006 was $282,410, which
represented 0.48% of the Fund's Net Assets.
(f) Step coupon bond issued at discount. The interest rate represents the coupon
rate at which the bond will accrue at a specified future date.
(g) Non-income producing security acquired as part of a unit with or in exchange
for other securities.
(h) Security considered to be illiquid. The Fund is limited to investing 15% of
net assets in illiquid securities at the time of purchase. The aggregate
value of these securities considered illiquid at December 31, 2006 was
$16,218, which represented 0.03% of the Fund's Net Assets.
(i) Security fair valued in good faith in accordance with the procedures
established by the Board of Trustees. The aggregate value of these
securities at December 31, 2006 was $0, which represented 0% of the Fund's
Net Assets. See Note 1A.
(j) Non-income producing security acquired through a corporate action.
(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
December 31, 2006
<Table>
ASSETS:
Investments, at value (cost $53,140,733)* $ 54,908,636
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $7,470,249) 7,470,249
=============================================================
Total investments (cost $60,610,982) 62,378,885
=============================================================
Cash 17,552
- -------------------------------------------------------------
Receivables for:
Investments sold 63,075
- -------------------------------------------------------------
Fund shares sold 6,076
- -------------------------------------------------------------
Dividends and Interest 1,071,788
- -------------------------------------------------------------
Investments matured (Note 10) 304,965
- -------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 42,786
=============================================================
Total assets 63,885,127
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Fund shares reacquired 12,493
- -------------------------------------------------------------
Trustee deferred compensation and retirement
plans 46,448
- -------------------------------------------------------------
Collateral upon return of securities loaned 4,480,679
- -------------------------------------------------------------
Fund expenses advanced 9,701
- -------------------------------------------------------------
Accrued administrative services fees 37,953
- -------------------------------------------------------------
Accrued distribution fees -- Series II 579
- -------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 3,420
- -------------------------------------------------------------
Accrued transfer agent fees 1,051
- -------------------------------------------------------------
Accrued operating expenses 37,870
=============================================================
Total liabilities 4,630,194
=============================================================
Net assets applicable to shares outstanding $ 59,254,933
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 64,906,871
- -------------------------------------------------------------
Undistributed net investment income 3,856,303
- -------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign currencies (11,306,264)
- -------------------------------------------------------------
Unrealized appreciation of investment
securities 1,798,023
=============================================================
$ 59,254,933
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $ 58,335,547
_____________________________________________________________
=============================================================
Series II $ 919,386
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 9,534,547
_____________________________________________________________
=============================================================
Series II 150,954
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 6.12
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 6.09
_____________________________________________________________
=============================================================
</Table>
* At December 31, 2006, securities with an aggregate value of $4,202,054 were on
loan to brokers.
STATEMENT OF OPERATIONS
For the year ended December 31, 2006
<Table>
INVESTMENT INCOME:
Interest $4,124,304
- ------------------------------------------------------------
Dividends from affiliated money market funds
(includes securities lending income of
$133,094) 247,932
- ------------------------------------------------------------
Dividends 36,012
============================================================
Total investment income 4,408,248
============================================================
EXPENSES:
Advisory fees 337,335
- ------------------------------------------------------------
Administrative services fees 175,709
- ------------------------------------------------------------
Custodian fees 22,073
- ------------------------------------------------------------
Distribution fees -- Series II 2,631
- ------------------------------------------------------------
Transfer agent fees 12,421
- ------------------------------------------------------------
Trustees' and officer's fees and benefits 16,183
- ------------------------------------------------------------
Professional services fees 49,769
- ------------------------------------------------------------
Other 23,593
============================================================
Total expenses 639,714
============================================================
Less: Fees waived and expense offset
arrangements (124,772)
- ------------------------------------------------------------
Net expenses 514,942
============================================================
Net investment income 3,893,306
============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND FOREIGN CURRENCIES:
Net realized gain (loss) from:
Investment securities (includes net gains from
securities sold to affiliates of $41,365) 1,322,992
- ------------------------------------------------------------
Foreign currencies (1,119)
============================================================
1,321,873
============================================================
Change in net unrealized appreciation of
investment securities 486,551
============================================================
Net gain from investment securities and foreign
currencies 1,808,424
============================================================
Net increase in net assets resulting from
operations $5,701,730
____________________________________________________________
============================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. High Yield Fund
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2006 and 2005
<Table>
<Caption>
2006 2005
- -----------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 3,893,306 $ 4,842,726
- -----------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 1,321,873 2,184,161
- -----------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities 486,551 (4,907,554)
=========================================================================================
Net increase in net assets resulting from operations 5,701,730 2,119,333
=========================================================================================
Distributions to shareholders from net investment income:
Series I (4,779,802) (5,020,673)
- -----------------------------------------------------------------------------------------
Series II (74,015) (138,745)
=========================================================================================
Decrease in net assets resulting from distributions (4,853,817) (5,159,418)
=========================================================================================
Share transactions-net:
Series I 2,787,332 (38,922,743)
- -----------------------------------------------------------------------------------------
Series II (666,577) 575,779
=========================================================================================
Net increase (decrease) in net assets resulting from
share transactions 2,120,755 (38,346,964)
=========================================================================================
Net increase (decrease) in net assets 2,968,668 (41,387,049)
=========================================================================================
NET ASSETS:
Beginning of year 56,286,265 97,673,314
=========================================================================================
End of year (including undistributed net investment income
of $3,856,303 and $4,816,796, respectively) $59,254,933 $ 56,286,265
_________________________________________________________________________________________
=========================================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. High Yield Fund
NOTES TO FINANCIAL STATEMENTS
December 31, 2006
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-one separate portfolios. The Fund currently offers two classes of shares,
Series I and Series II, both of which are offered to insurance company separate
accounts funding variable annuity contracts and variable life insurance policies
("variable products"). Matters affecting each portfolio or class will be voted
on exclusively by the shareholders of such portfolio or class. Current
Securities and Exchange Commission ("SEC") guidance, however, requires
participating insurance companies offering separate accounts to vote shares
proportionally in accordance with the instructions of the contract owners whose
investments are funded by shares of each portfolio or class. The assets,
liabilities and operations of each portfolio are accounted for separately.
Information presented in these financial statements pertains only to the Fund.
The Fund's investment objective is to achieve a high level of current
income.
The 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.
Debt obligations (including convertible bonds) and unlisted equities 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.
Senior secured floating rate loans and senior secured floating rate debt
securities are fair valued using an evaluated quote provided by an
independent pricing service. Evaluated quotes provided by the pricing
service may reflect appropriate factors such as ratings, tranche type,
industry, company performance, spread, individual trading characteristics,
institution-size trading in similar groups of securities and other market
data.
A security listed or traded on an exchange (except convertible bonds) is
valued at its last sales price or official closing price as of the close of
the customary trading session on the exchange where the security is
principally traded, or lacking any sales or official closing price on a
particular day, the security may be valued at the closing bid price on that
day. Securities traded in the over-the-counter market 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. 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 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 open-end and closed-end registered
investment companies that trade on an exchange are valued at the last sales
price or official closing price as of the close of the customary trading
session on the exchange where the security is principally traded.
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. If market quotations are available and reliable for
foreign exchange traded equity securities, the securities will be valued at
the market quotations. Because trading hours for certain foreign securities
end before the close of the NYSE, closing market quotations may become
unreliable. If between the time trading ends on a particular security and
the close of the customary trading session on the NYSE, events occur that
are significant and may make the closing price unreliable, the Fund may
fair value the security. 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 prices are not provided by any of the above
methods may be valued based upon quotes furnished by independent sources
and are valued at the last bid price in the case of equity securities and
in the case of debt obligations, the mean between the last bid and asked
prices.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date. Bond premiums
and discounts are amortized and/or accreted for financial reporting
purposes.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and,
AIM V.I. High Yield 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 the 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 to distribute substantially all of the
Fund's taxable earnings to shareholders. As such, the Fund will not be
subject to federal income taxes on otherwise taxable income (including net
realized capital gain) that 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. ACCOUNTING ESTIMATES -- 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.
H. INDEMNIFICATIONS -- 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.
I. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in
foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from (i) sales
of foreign currencies, (ii) currency gains or losses realized between the
trade and settlement dates on securities transactions, and (iii) the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
The Fund may invest in foreign securities which may be subject to foreign
taxes on income, gains on investments or currency repatriation, a portion
of which may be recoverable. Taxes are accrued based on the Fund's current
interpretation of tax regulations and rates that exist in the foreign
markets in which the Fund invests.
J. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security.
Fluctuations in the value of these contracts are recorded as unrealized
appreciation (depreciation) until the contracts are closed. When these
contracts are closed, realized gains (losses) are recorded. Realized and
unrealized gains and losses on these contracts are included in the
Statement of Operations. The Fund could be exposed to risk, which may be in
excess of the amount reflected in the Statement of Assets and Liabilities,
if counterparties to the contracts are unable to meet the terms of their
contracts or if the value of the foreign currency changes unfavorably.
K. LOWER-RATED SECURITIES -- The Fund normally invests at least 80% of its net
assets in lower-quality debt securities, i.e., "junk bonds". Investments in
lower-rated securities or unrated securities of comparable quality tend to
be more sensitive to economic conditions than higher rated securities. Junk
bonds involve a greater risk of default by the issuer because such
securities are generally unsecured and are often subordinated to other
creditors' claims.
AIM V.I. High Yield Fund
NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES
The Trust has entered into a master investment advisory agreement with A I M
Advisors, Inc. ("AIM"). Under the terms of the investment advisory agreement,
the Fund pays an advisory fee to AIM based on the annual rate of the Fund's
average daily net assets as follows:
<Table>
<Caption>
AVERAGE NET ASSETS RATE
- --------------------------------------------------------------------
First $200 million 0.625%
- --------------------------------------------------------------------
Next $300 million 0.55%
- --------------------------------------------------------------------
Next $500 million 0.50%
- --------------------------------------------------------------------
Over $1 billion 0.45%
___________________________________________________________________
====================================================================
</Table>
AIM has contractually agreed to waive advisory fees and/or reimburse
expenses to the extent necessary to limit total annual operating expenses
(excluding certain items discussed below) of Series I shares to 0.95% and Series
II shares to 1.20% of average daily net assets, through at least 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. In addition, the Fund may also benefit from a one time credit to be used
to offset future custodian expenses. These credits are used to pay certain
expenses incurred by the Fund.
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in
the amount of 25% of the advisory fee AIM receives from the affiliated money
market funds on investments by the Fund in such affiliated money market funds
(excluding investments made in affiliated money market funds with cash
collateral from securities loaned by the fund). Voluntary fee waivers or
reimbursements may be modified or discontinued at any time upon consultation
with the Board of Trustees without further notice to investors.
For the year ended December 31, 2006, AIM waived advisory fees of $120,651.
At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the year ended December 31, 2006, AMVESCAP did not
reimburse any such expenses.
The Trust has entered into a master administrative services agreement with
AIM pursuant to which the Fund 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. The
Fund may reimburse AIM for up to 0.25% of average daily assets invested by each
insurance company providing administrative services to the Fund. Pursuant to
such agreement, for the year ended December 31, 2006, AIM was paid $50,000 for
accounting and fund administrative services and reimbursed $125,709 for services
provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with AIM
Investment Services, Inc. ("AIS") pursuant to which the Fund has agreed to pay
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 year ended December 31, 2006, expenses incurred under the
agreement are shown in the Statement of Operations as transfer agent fees.
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 Plan payments, 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. For the year ended December 31, 2006, expenses
incurred under the Plan are shown in the Statement of Operations as distribution
fees.
Certain officers and trustees of the Trust are officers and directors of
AIM, AIS and/or ADI.
AIM V.I. High Yield Fund
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to 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 year ended
December 31, 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) 12/31/06 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-Institutional
Class $2,064,801 $18,976,548 $(19,546,564) $ -- $1,494,785 $ 57,466 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
Premier
Portfolio-Institutional
Class -- 11,133,980 (9,639,195) -- 1,494,785 43,015 --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-Institutional
Class 2,064,801 11,116,755 (13,181,556) -- -- 14,357 --
==================================================================================================================================
Subtotal $4,129,602 $41,227,283 $(42,367,315) $ -- $2,989,570 $114,838 $ --
==================================================================================================================================
</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) 12/31/06 INCOME* GAIN (LOSS)
- ---------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-Institutional
Class $ 850,448 $ 8,896,961 $ (7,507,070) $ -- $2,240,339 $66,400 $ --
- ---------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-Institutional
Class 850,448 8,896,961 (7,507,069) -- 2,240,340 66,694 --
=================================================================================================================================
Subtotal $1,700,896 $17,793,922 $(15,014,139) $ -- $4,480,679 $133,094 $ --
=================================================================================================================================
Total
Investments
in Affiliates $5,830,498 $59,021,205 $(57,381,454) $ -- $7,470,249 $247,932 $ --
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</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 year ended December 31, 2006, the Fund
engaged in securities sales of $1,643,331, which resulted in net realized gains
of $41,365, and securities purchases of $2,546,837.
NOTE 5--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) custodian credits which
result from periodic overnight cash balances at the custodian and (ii) a one
time custodian fee credit to be used to offset future custodian fees. For the
year ended December 31, 2006, the Fund received credits from these arrangements,
which resulted in the reduction of the Fund's total expenses of $4,121.
NOTE 6--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to each Trustee and Officer of the Fund who is not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Fund, and "Trustees' and Officer's Fees and Benefits" also
include amounts accrued by the Fund to fund such deferred compensation amounts.
Those Trustees who defer compensation have the option to select various AIM
Funds in which their deferral accounts shall be deemed to be invested. Finally,
current Trustees are eligible to participate in a retirement plan that provides
for benefits to be paid upon retirement to Trustees over a period of time based
on the number of years of service. The Fund may have certain former Trustees who
also participate in a retirement plan and receive benefits under such plan.
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to fund such retirement benefits. Obligations under the deferred compensation
and retirement plans represent unsecured claims against the general assets of
the Fund.
During the year ended December 31, 2006, the Fund paid legal fees of $3,963
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate
AIM V.I. High Yield Fund
available on investments in overnight repurchase agreements) is favorable to
both the lending fund and the borrowing fund. A loan will be secured by
collateral if the Fund's aggregate borrowings from all sources exceeds 10% of
the Fund's total assets. To the extent that the loan is required to be secured
by collateral, the collateral is marked to market daily to ensure that the
market value is at least 102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended December 31, 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 bank 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 contractually agreed upon rate.
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 December 31, 2006, securities with an aggregate value of $4,202,054 were
on loan to brokers. The loans were secured by cash collateral of $4,480,679
received by the Fund and subsequently invested in affiliated money market funds.
For the year ended December 31, 2006, the Fund received dividends on cash
collateral investments of $133,094 for securities lending transactions, which
are net of compensation to counterparties.
NOTE 9--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended December 31, 2006
and 2005 was as follows:
<Table>
<Caption>
2006 2005
- --------------------------------------------------------------------------------------
Distributions paid from ordinary income $4,853,817 $5,159,418
______________________________________________________________________________________
======================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2006, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2006
- ----------------------------------------------------------------------------
Undistributed ordinary income $ 3,894,112
- ----------------------------------------------------------------------------
Unrealized appreciation -- investments 1,711,320
- ----------------------------------------------------------------------------
Temporary book/tax differences (37,809)
- ----------------------------------------------------------------------------
Capital loss carryover (11,219,561)
- ----------------------------------------------------------------------------
Shares of beneficial interest 64,906,871
============================================================================
Total net assets $ 59,254,933
____________________________________________________________________________
============================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales. The tax-basis unrealized appreciation on investments amount includes
remaining proceeds to be received on Century Communications Corp. of $30,120.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan benefits.
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, 2006 to utilizing $4,014,008 of capital loss carryforward in the fiscal year
ended December 31, 2007.
The Fund utilized $837,157 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of December 31, 2006 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- ----------------------------------
December 31, 2010 $11,219,561
__________________________________
==================================
</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.
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities,
U.S. Treasury obligations and money market funds, if any) purchased and sold by
the Fund during the year ended December 31, 2006 was $70,084,131 and
$69,513,209, respectively.
Receivable for investments matured represents the estimated proceeds to the
Fund by Century Communications Corp. which is in default with respect to the
principal payments on $251,000 par value, Senior Unsecured Notes, 9.50%, which
were due March 1, 2005. The estimate was determined in accordance with the fair
valuation procedures authorized by the Board of Trustees. Unrealized
appreciation in aggregate at December 31, 2006 was $30,120.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 2,014,580
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (333,380)
===============================================================================
Net unrealized appreciation of investment securities $ 1,681,200
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $60,697,685.
</Table>
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions on December 31, 2006, undistributed net investment income was
increased by $18 and undistributed net realized gain was decreased by $18. This
reclassification had no effect on the net assets of the Fund.
NOTE 12--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- -----------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
2006(a) 2005
-------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------------------
Sold:
Series I 3,750,321 $ 23,392,683 7,537,516 $ 48,935,734
- -----------------------------------------------------------------------------------------------------------------------
Series II 1,887 11,586 220,053 1,408,205
=======================================================================================================================
Issued as reinvestment of dividends:
Series I 786,151 4,779,801 836,779 5,020,673
- -----------------------------------------------------------------------------------------------------------------------
Series II 12,214 74,015 23,240 138,745
=======================================================================================================================
Reacquired:
Series I (4,078,880) (25,385,152) (14,270,486) (92,879,150)
- -----------------------------------------------------------------------------------------------------------------------
Series II (122,412) (752,178) (150,740) (971,171)
=======================================================================================================================
349,281 $ 2,120,755 (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 75% of
the outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with
these entities whereby these entities sell units of interest in separate
accounts funding variable products that are invested in the Fund. The
Fund, AIM and/or AIM affiliates may make payments to these entities,
which are considered to be related to the Fund, for providing services
to the Fund, AIM and/or AIM affiliates including but not limited to
services such as, securities brokerage, third party record keeping and
account servicing and administrative services. The Trust has no
knowledge as to whether all or any portion of the shares owned of record
by these entities are also owned beneficially.
AIM V.I. High Yield 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 for 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
currently intends for the Fund to adopt FIN 48 provisions during the fiscal year
ending December 31, 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
------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------
2006 2005 2004 2003 2002
- --------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 6.03 $ 6.45 $ 5.97 $ 5.00 $ 5.31
- --------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) 0.45 0.43 0.42 0.49 0.51
- --------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.19 (0.26) 0.23 0.91 (0.82)
====================================================================================================================
Increase from payments by affiliates -- -- 0.02 -- --
====================================================================================================================
Total from investment operations 0.64 0.17 0.67 1.40 (0.31)
====================================================================================================================
Less dividends from net investment income (0.55) (0.59) (0.19) (0.43) --
====================================================================================================================
Net asset value, end of period $ 6.12 $ 6.03 $ 6.45 $ 5.97 $ 5.00
____________________________________________________________________________________________________________________
====================================================================================================================
Total return(b) 10.74% 2.72% 11.25%(c) 28.04% (5.84)%
____________________________________________________________________________________________________________________
====================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $58,336 $54,731 $96,602 $37,267 $24,984
____________________________________________________________________________________________________________________
====================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.96%(d) 1.01% 1.04% 1.20% 1.30%
- --------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.18%(d) 1.16% 1.04% 1.20% 1.30%
====================================================================================================================
Ratio of net investment income to average net assets 7.22%(d) 6.58% 6.79% 8.54% 10.20%
____________________________________________________________________________________________________________________
====================================================================================================================
Portfolio turnover rate 135% 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 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 has agreed to pay for an
economic loss due to a trading error. Total return before reimbursement
by the advisor was 10.90%
(d) Ratios are based on average daily net assets of $52,921,198.
AIM V.I. High Yield Fund
NOTE 14--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
SERIES II
--------------------------------------------------------
MARCH 26,
2002
(DATE SALES
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) 0.43 0.41 0.41 0.49 0.38
- ----------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 0.19 (0.26) 0.24 0.90 (0.66)
======================================================================================================================
Increase from payments by affiliates -- -- 0.01 -- --
======================================================================================================================
Total from investment operations 0.62 0.15 0.66 1.39 (0.28)
======================================================================================================================
Less dividends from net investment income (0.53) (0.58) (0.18) (0.43) --
======================================================================================================================
Net asset value, end of period $ 6.09 $ 6.00 $ 6.43 $ 5.95 $ 4.99
______________________________________________________________________________________________________________________
======================================================================================================================
Total return(b) 10.41% 2.43% 11.14%(c) 27.89% (5.31)%
______________________________________________________________________________________________________________________
======================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 919 $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 1.43%(d) 1.41% 1.29% 1.45% 1.55%(e)
======================================================================================================================
Ratio of net investment income to average net assets 6.97%(d) 6.37% 6.59% 8.29% 10.05%(e)
______________________________________________________________________________________________________________________
======================================================================================================================
Portfolio turnover rate(f) 135% 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 has 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 based on average daily net assets of $1,052,399.
(e) Annualized.
(f) 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. 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 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. High Yield 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; 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. On September 15, 2006, the
MDL Court granted the AMVESCAP defendants' motion to dismiss the Amended Class
Action Complaint for Violations of ERISA and dismissed such Complaint. The
plaintiff has commenced an appeal from that decision.
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.
AIM V.I. High Yield Fund
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V.I. High Yield Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM V.I. High Yield Fund, (one of
the funds constituting AIM Variable Insurance Funds, hereafter referred to as
the "Fund") at December 31, 2006, the results of its operations for the year
then ended, the changes in its net assets and the financial highlights for each
of the two years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2006 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion. The financial highlights for each of the periods ended on or before
December 31, 2004 were audited by another independent registered public
accounting firm whose report dated February 4, 2005 expressed an unqualified
opinion on those statements.
PRICEWATERHOUSECOOPERS LLP
February 14, 2007
Houston, Texas
AIM V.I. High Yield Fund
TRUSTEES AND OFFICERS
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management None
Trustee and Vice Chair Group Inc. (financial services holding
company); Director and Vice Chairman,
AMVESCAP PLC; Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm) and
Trustee and Vice Chair of The AIM Family
of Funds--Registered Trademark--
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer);
Chief Executive Officer, AMVESCAP
PLC -- Managed Products; and President
and Principal Executive Officer of The
AIM Family of Funds--Registered
Trademark--
- -------------------------------------------------------------------------------------------------------------------------------
Philip A. Taylor(2) -- 1954 2006 Director, Chief Executive Officer and None
Trustee, President and President, A I M Management Group Inc.,
Principal AIM Mutual Fund Dealer Inc. (registered
Executive Officer broker dealer), AIM Funds Management
Inc. (registered investment advisor) and
1371 Preferred Inc. (holding company);
Director and President, A I M Advisors,
Inc., INVESCO Funds Group, Inc.
(registered investment advisor and
register transfer agent) and AIM GP
Canada Inc. (general partner for a
limited partnership); Director, A I M
Capital Management, Inc. and A I M
Distributors, Inc.; Director and
Chairman, AIM Investment Services, Inc.,
Fund Management Company and INVESCO
Distributors, Inc. (registered broker
dealer); Director, President and
Chairman, AVZ Callco Inc. (holding
company); AMVESCAP Inc. (holding
company) and AIM Canada Holdings Inc.
(holding company); Director and Chief
Executive Officer, AIM Trimark Corporate
Class Inc. (formerly AIM Trimark Global
Fund Inc.) (corporate mutual fund
company) and AIM Trimark Canada Fund
Inc. (corporate mutual fund company);
Trustee, President and Principal
Executive Officer of The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); Trustee and
Executive Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); and Manager,
Powershares Capital Management LLC
Formerly: President and Principal
Executive Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); Chairman, AIM
Canada Holdings, Inc.; Executive Vice
President and Chief Operations Officer,
AIM Funds Management Inc.; President,
AIM Trimark Global Fund Inc. and AIM
Trimark Canada Fund Inc.; and Director,
Trimark Trust (federally regulated
Canadian Trust Company)
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company
Formerly: Partner, law firm of Baker & (2 portfolios))
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Founder, Green, Manning & Bunch Ltd., None
Trustee (investment banking firm); and Director,
Policy Studies, Inc. and Van Gilder
Insurance Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and None
Trustee private business corporations, including
the Boss Group Ltd. (private investment
and management); Cortland Trust, Inc.
(Chairman) (registered investment
company (3 portfolios)); Annuity and
Life Re (Holdings), Ltd. (insurance
company); CompuDyne Corporation
(provider of products and services to
the public security market); and
Homeowners of America Holding
Corporation (property casualty company)
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and Director of various
affiliated Volvo companies; and
Director, Magellan Insurance Company
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund
company); and Owner, Dos Angelos Ranch, (non-profit)
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- -------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company
(3 portfolios))
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired Director, Mainstay VP Series
Trustee Formerly: Partner, Deloitte & Touche Funds, Inc. (21 portfolios)
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
(2) Mr. Taylor is considered an interested person of the Trust because he is an
officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
TRUSTEES AND OFFICERS--(CONTINUED)
AIM V.I. High Yield Fund
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Senior Vice President and Senior Officer N/A
Senior Vice President and of The AIM Family of Funds--Registered
Senior Officer Trademark--
Formerly: Director of Compliance and
Assistant General Counsel, ICON
Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
John M. Zerr -- 1962 2006 Director, Senior Vice President, N/A
Senior Vice President, Chief Secretary and General Counsel, A I M
Legal Officer and Secretary Management Group Inc. and A I M
Advisors, Inc.; Director, Vice President
and Secretary, INVESCO Distributors,
Inc.; Vice President and Secretary,
A I M Capital Management, Inc., AIM
Investment Services, Inc., and Fund
Management Company; Senior Vice
President and Secretary, A I M
Distributors, Inc.; Director and Vice
President, INVESCO Funds Group Inc.;
Senior Vice President, Chief Legal
Officer and Secretary of The AIM Family
of Funds--Registered Trademark--; and
Manager, Powershares Capital Management
LLC
Formerly: Chief Operating Officer,
Senior Vice President, General Counsel,
and Secretary, Liberty Ridge Capital,
Inc. (an investment adviser); Vice
President and Secretary, PBHG Funds (an
investment company); Vice President and
Secretary, PBHG Insurance Series Fund
(an investment company); General Counsel
and Secretary, Pilgrim Baxter Value
Investors (an investment adviser); Chief
Operating Officer, General Counsel and
Secretary, Old Mutual Investment
Partners (a broker-dealer); General
Counsel and Secretary, Old Mutual Fund
Services (an administrator); General
Counsel and Secretary, Old Mutual
Shareholder Services (a shareholder
servicing center); Executive Vice
President, General Counsel and
Secretary, Old Mutual Capital, Inc. (an
investment adviser); and Vice President
and Secretary, Old Mutual Advisors Funds
(an investment company)
- ------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Global Compliance Director, AMVESCAP N/A
Vice President PLC; and Vice President of The AIM
Family of Funds--Registered Trademark--
Formerly: Senior Vice President, A I M
Management Group Inc.; Senior Vice
President and Chief Compliance Officer,
A I M Advisors, Inc.; Vice President and
Chief Compliance Officer, A I M Capital
Management, Inc. and A I M Distributors,
Inc.; Vice President, AIM Investment
Services, Inc. and Fund Management
Company; Senior Vice President and Chief
Compliance Officer of The AIM Family of
Funds--Registered Trademark--; and
Senior Vice President and Compliance
Director, Delaware Investments Family of
Funds
- ------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Senior Vice President and General
Vice President Counsel, AMVESCAP PLC; Director, INVESCO
Funds Group, Inc.; and Vice President of
The AIM Family of Funds--Registered
Trademark--
Formerly: Director, Vice President and N/A
General Counsel, Fund Management
Company; Director, Senior Vice
President, Secretary and General
Counsel, A I M Management Group Inc. and
A I M Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Senior Vice President, A I M
Distributors, Inc.; Vice President,
A I M Capital Management, Inc. and AIM
Investment Services, Inc.; Senior Vice
President, Chief Legal Officer and
Secretary of The AIM Family of
Funds--Registered Trademark--; Chief
Executive Officer and President, INVESCO
Funds Group, Inc.; and Senior Vice
President, and General Counsel, Liberty
Financial Companies, Inc. and Senior
Vice President and General Counsel
Liberty Funds Group, LLC
- ------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President, Principal Advisors, Inc.; and Vice President,
Financial Officer and Treasurer and Principal Officer of The
Treasurer AIM Family of Funds--Registered
Trademark--
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
J. Philip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment Officer, A I M Advisors Inc.;
Director, Chairman, Chief Executive
Officer, President and Chief Investment
Officer, A I M Capital Management, Inc.;
Executive Vice President, A I M
Management Group Inc. and Vice President
of The AIM Family of Funds--Registered
Trademark--
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; and
Chief Equity Officer, Senior Vice
President and Senior Investment Officer,
A I M Capital Management, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc. and The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); and
President and Principal Executive
Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust Only)
Formerly: Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only)
- ------------------------------------------------------------------------------------------------------------------------------
Lance A. Rejsek -- 1967 2005 Anti-Money Laundering Compliance N/A
Anti-Money Laundering Officer, A I M Advisors, Inc., A I M
Compliance Officer Capital Management, Inc., A I M
Distributors, Inc., AIM Investment
Services, Inc., AIM Private Asset
Management, Inc., Fund Management
Company and The AIM Family of
Funds--Registered Trademark--
Formerly: Manager of the Fraud
Prevention Department, AIM Investment
Services, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
Todd L. Spillane -- 1958 2006 Senior Vice President, A I M Management N/A
Chief Compliance Officer Group Inc.; Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc.; and Vice President,
A I M Distributors, Inc., AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Global Head of Product
Development, AIG-Global Investment
Group, Inc.; Chief Compliance Officer
and Deputy General Counsel,
AIG-SunAmerica Asset Management; and
Chief Compliance Officer, Chief
Operating Officer and Deputy General
Counsel, American General Investment
Management
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers
Suite 100 11 Greenway Plaza Inc. LLP
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Ballard Spahr INDEPENDENT TRUSTEES AIM Investment State Street Bank and
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis Services, Inc. Trust Company
1735 Market Street, 51st & Frankel LLP P.O. Box 4739 225 Franklin Street
Floor 1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Philadelphia, PA 19103-7599 Americas
New York, NY 10036-2714
</Table>
INTERNATIONAL/ AIM V.I. INTERNATIONAL GROWTH FUND
GLOBAL EQUITY
International/Global Growth
Annual Report to Shareholders - December 31, 2006
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, [COVER GLOBE IMAGE]
sec.gov. Copies of the Fund's Forms N-Q
may be reviewed and copied at the SEC
Public Reference Room in Washington,
D.C. 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 AIM V.I. INTERNATIONAL GROWTH FUND seeks
department at 800-410-4246 or on the AIM to provide long-term growth of capital.
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 UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT
tab, click on Required Notices and then IS AS OF DECEMBER 31, 2006, AND IS BASED ON TOTAL NET ASSETS.
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
[AIM INVESTMENTS LOGO] INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ EACH
--Registered Trademark-- CAREFULLY BEFORE INVESTING.
==================================================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE AIM V.I. INTERNATIONAL GROWTH FUND
We believe disciplined sell decisions
are key to successful investing. We
======================================================================================= consider selling a stock when:
PERFORMANCE SUMMARY - A company's fundamentals deteriorate, or
it posts disappointing earnings.
Foreign equity markets posted strong positive returns over the year, ending 2006 with a
fourth consecutive year of double-digit gains. Following a trend of recent years, - A stock's price seems overvalued.
foreign equities continued to outperform U.S. equities.
- A more attractive opportunity becomes
We are pleased to have provided shareholders with double-digit Fund performance. available.
As the table below illustrates, AIM V.I. International Growth Fund -- excluding
applicable sales charges -- significantly outperformed both its broad market and Market conditions and your Fund
style-specific benchmarks. We attribute our comparative success to strong stock
selection in Europe and Asia/Pacific. Our exposure to emerging markets, which Markets continued to rally in Europe, as
outperformed during the year, provided a competitive advantage as well. positive economic data and strong company
earnings continued to bolster investor
Your Fund's long-term performance appears on pages 4 - 5. confidence. Asian stock markets also
performed strongly during the year.
FUND VS. INDEXES Japanese shares, though, remained
lackluster. Emerging markets experienced a
Total returns, 12/31/05 - 12/31/06, excluding variable product issuer charges. If volatile 12-month period during which
variable product issuer charges were included, returns would be lower. stocks hit record highs in many countries
before correcting from early May. A
Series I Shares 28.23% combination of higher global interest
Series II Shares 27.88 rates and an unwinding of leverage amid
MSCI EAFE --REGISTERED TRADEMARK-- Index (Broad Market Index) 26.34 rising levels of risk aversion accentuated
MSCI EAFE --REGISTERED TRADEMARK-- Growth Index (Style-Specific Index) 22.33 the sell-off of equities. Most of these
Lipper International Multi-Cap Growth Funds Index (Peer Group Index) 25.50 markets bounced back from July onward,
ending the year with strong positive
SOURCE: LIPPER INC. overall returns.
======================================================================================= Fund performance was broad based with
all major regions registering double-digit
How we invest whose prices do not fully reflect these positive returns for the fiscal year. Our
attributes. largest regional allocation remained in
When selecting stocks for your Fund, we European stocks. Strong stock selection
employ a disciplined investment strategy While research responsibilities across multiple markets (including France,
that emphasizes fundamental research, within the portfolio management team are Germany, Switzerland and the United
supported by both quantitative analysis focused by region and market Kingdom) helped us outperform our
and portfolio construction techniques. Our capitalization, such as large- or style-specific benchmark in Europe,
"EQV" (Earnings, Quality, Valuation) mid/small-cap, we select investments for although we continued to underweight our
strategy focuses primarily on identifying the Fund by using a "bottom-up" investment exposure to the region. This allocation
quality companies that have experienced, approach. We construct the Fund on a strategy should not be construed as a bias
or exhibit the potential for, accelerated stock-by-stock basis, focusing on against European stocks -- we continue to
or above-average earnings growth but strengths of individual companies rather find very compelling
than on sectors, countries or market-cap
trends.
========================================== ========================================== ==========================================
PORTFOLIO COMPOSITION TOP FIVE COUNTRIES* TOP 10 EQUITY HOLDINGS*
- ------------------------------------------------------------------------------------------------------------------------------------
By sector 1. Japan 13.2% 1. Syngenta A.G. (Switzerland) 2.0%
Financials 22.3% 2. United Kingdom 10.1 2. Roche Holding A.G. (Switzerland) 2.0
Consumer Discretionary 16.0 3. Germany 9.5 3. Vinci S.A. (France) 1.9
Consumer Staples 11.3 4. Switzerland 9.3 4. BNP Paribas (France) 1.9
Industrials 11.3 5. France 9.1 5. UBS A.G. (Switzerland) 1.7
Information Technology 9.9 6. Canon Inc. (Japan) 1.7
Energy 7.1 Total Net Assets $727.12 million 7. Anglo Irish Bank Corp. PLC 1.6
Health Care 6.2 (Ireland)
Materials 5.8 Total Number of Holdings* 95
Telecommunication Services 2.1 8. Infosys Technologies Ltd. (India) 1.6
Utilities 1.1
Money Market Funds Plus 9. Total S.A. (France) 1.6
Other Assets Less Liabilities 6.9 10. Toyota Motor Corp. (Japan) 1.5
The Fund's holdings are subject to change, and there is no assurance that the
Fund will continue to hold any particular security.
*Excluding money market fund holdings.
========================================== ========================================== ==========================================
2
AIM V.I. INTERNATIONAL GROWTH FUND
investment opportunities there -- but However, favorable stock selection Clas G. Olsson
rather an indication of our flexibility in delivered strong positive returns,
seeking opportunities across international offsetting losses caused by the [OLSSON Senior portfolio manager, is
markets, both developed and emerging. For underweight position. PHOTO] lead manager of AIM V.I.
instance, allocations across emerging International Growth Fund with
markets such as India, Mexico and China In addition to regional and sector respect to the Fund's investments in
(countries not represented in the EAFE contributions, the Fund also benefited Europe and Canada. Mr. Olsson joined AIM
benchmarks) gave the Fund a competitive from its large/mid-cap flexibility, which in 1994. Mr. Olsson became a commissioned
edge. These markets continued to be enabled us to invest in several naval officer at the Royal Swedish Naval
underpinned by positive macroeconomic news attractive, under-followed mid-cap stocks. Academy in 1988. He also earned a B.B.A.
and, in most cases, were further supported Foreign exchange was another contributor from The University of Texas at Austin.
by attractive valuations. The Fund's to Fund performance. As we do not
emerging markets exposure is limited to typically hedge currencies -- we buy Barrett K. Sides
less than 20%. stocks in their local currency and then
translate that value into dollars for the [SIDES Senior Portfolio manager, is
The Fund's relative outperformance Fund -- foreign currency appreciation, PHOTO] lead manager of AIM V.I.
was also aided by strong stock selection predominantly in the euro, provided a International Growth Fund with
combined with a continued underweight boost to Fund performance. respect to the Fund's investments in Asia
exposure versus the style-specific Pacific and Latin America. He joined AIM
benchmark to the weak Japanese equity As indicated by the Fund's strong in 1990. Mr. Sides graduated with a B.S.
market. Despite improving fundamentals at relative and absolute performance, in economics from Bucknell University. He
the company level, we believe valuations detractors over the year were limited and also earned a master's in international
in Japanese equities remained less predominantly stock specific. TEVA business from the University of St.Thomas.
attractive compared with other markets in PHARMACEUTICALS (Israel/pharmaceuticals),
the region. The Fund's bottom-up stock NITTO DENKO CORPORATION (Japan, materials) Shuxin Cao
selection process enabled us -- despite and HYUNDAI MOTOR CO. (South
mixed macroeconomic fundamentals -- to Korea/automobile manufacturer) were key [CAO Chartered Financial Analyst,
identify strong-performing companies not detractors. We either trimmed or sold out PHOTO] portfolio manager,is manager
included in the style-specific benchmark, of these positions over the year. of AIM V.I.International
including TOYOTA MOTORS and SUZUKI MOTORS. Growth Fund. He joined AIM in 1997.
In closing Mr. Cao graduated from Tianjin Foreign
Beyond regional diversity, sector Language Institute with a B.A. in English.
performance was also broad based, with Over the past 12 months, the Fund has He also received an M.B.A. from Texas A&M
every sector registering double-digit experienced strong double-digit returns. University and is a certified public
returns for the year. The Fund It would be imprudent for us to suggest accountant.
outperformed its style-specific index that such a level of performance is
across all sectors with top contributors sustainable over the long term. Regardless Matthew W. Dennis
coming from the Fund's information of macro-economic trends, the Fund
technology, financials, industrials, maintained a disciplined strategy of [DENNIS Chartered Financial Analyst,
consumer discretionary and energy selecting attractive investment PHOTO] portfolio manager, is manager
holdings. French financial giant BNP opportunities based on its "EQV" of AIM V.I. International
PARIBAS and French construction company investment strategy. We welcome new Growth Fund. He has been in the investment
VINCI were both top-10 contributors for investors and thank all of our business since 1994. Mr. Dennis earned a
the year. shareholders for investing in AIM V.I. B.A. in economics from The University of
International Growth Fund. Texas at Austin. He also earned an M.S. in
BNP PARIBAS, a Fund holding since finance from Texas A&M University
1997, is one of Europe's largest banks and THE VIEWS AND OPINIONS EXPRESSED IN
a good example of what we look for in an MANAGEMENT'S DISCUSSION OF FUND Jason T. Holzer
investment. It's the leading French bank PERFORMANCE ARE THOSE OF A I M ADVISORS,
operating in a strong domestic market INC. THESE VIEWS AND OPINIONS ARE SUBJECT [HOLZER Chartered Financial Analyst,
where mortgage lending and consumer TO CHANGE AT ANY TIME BASED ON FACTORS PHOTO] senior portfolio manager, is
finance are growing rapidly and generating SUCH AS MARKET AND ECONOMIC CONDITIONS. manager of AIM V.I.
strong returns. BNP is also expanding THESE VIEWS AND OPINIONS MAY NOT BE RELIED International Growth Fund. Mr. Holzer
abroad both in emerging markets and the upon as investment advice or joined AIM in 1996. He earned a B.A. in
United States, and it recently acquired RECOMMENDATIONS, OR AS AN OFFER FOR A quantitative economics and an M.S. in
BNL in Italy. The management team has a PARTICULAR SECURITY. THE INFORMATION IS engineering-economic systems from Stanford
successful track record of allocating NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF University.
capital efficiently and delivered strong ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR
returns with relatively low risk. Capable THE FUND. STATEMENTS OF FACT ARE FROM Assisted by Asia Pacific/Latin America
management has made the company a top Fund SOURCES CONSIDERED RELIABLE, BUT A I M Team and Europe/Canada Team
holding that is trading at an attractive ADVISORS, INC. MAKES NO REPRESENTATION OR
valuation. WARRANTY AS TO THEIR COMPLETENESS OR
ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE
In contrast, the Fund's underweight IS NO GUARANTEE OF FUTURE RESULTS, THESE
exposure to the utilities sector relative INSIGHTS MAY HELP YOU UNDERSTAND OUR
to its style-specific benchmark detracted INVESTMENT MANAGEMENT PHILOSOPHY.
FROM performance.
FOR A DISCUSSION OF THE RISKS OF INVESTING
IN YOUR FUND, INDEXES USED IN THIS REPORT
AND YOUR FUND'S LONG-TERM PERFORMANCE,
PLEASE SEE PAGES 4 - 5.
3
YOUR FUND'S LONG-TERM PERFORMANCE AIM V.I. INTERNATIONAL GROWTH FUND
==========================================
AVERAGE ANNUAL TOTAL RETURNS RESTATED HISTORICAL PERFORMANCE OF SERIES THROUGH INSURANCE COMPANIES ISSUING
- ------------------------------------------ I SHARES (FOR PERIODS PRIOR TO INCEPTION VARIABLE PRODUCTS. YOU CANNOT PURCHASE
OF SERIES II SHARES) ADJUSTED TO REFLECT SHARES OF THE FUND DIRECTLY. PERFORMANCE
As of 12/31/06 THE RULE 12b-1 FEES APPLICABLE TO SERIES FIGURES GIVEN REPRESENT THE FUND AND ARE
II SHARES. THE PERFORMANCE OF THE FUND'S NOT INTENDED TO REFLECT ACTUAL VARIABLE
SERIES I SHARES SERIES I AND SERIES II SHARE CLASSES WILL PRODUCT VALUES. THEY DO NOT REFLECT SALES
Inception (5/5/93) 9.88% DIFFER PRIMARILY DUE TO DIFFERENT CLASS CHARGES, EXPENSES AND FEES ASSESSED IN
5 Years 15.34 EXPENSES. CONNECTION WITH A VARIABLE PRODUCT. SALES
1 Year 28.23 CHARGES, EXPENSES AND FEES, WHICH ARE
THE PERFORMANCE DATA QUOTED REPRESENT DETERMINED BY THE VARIABLE PRODUCT
SERIES II SHARES PAST PERFORMANCE AND CANNOT GUARANTEE ISSUERS, WILL VARY AND WILL LOWER THE
10 Years 7.92% COMPARABLE FUTURE RESULTS; CURRENT TOTAL RETURN.
5 Years 15.03 PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE
1 Year 27.88 CONTACT YOUR VARIABLE PRODUCT ISSUER OR PER NASD REQUIREMENTS, THE MOST
========================================== FINANCIAL ADVISOR FOR THE MOST RECENT RECENT MONTH-END PERFORMANCE DATA AT THE
MONTH-END VARIABLE PRODUCT PERFORMANCE. FUND LEVEL, EXCLUDING VARIABLE PRODUCT
========================================== PERFORMANCE FIGURES REFLECT FUND EXPENSES, CHARGES, IS AVAILABLE ON THIS AIM
CUMULATIVE TOTAL RETURNS REINVESTED DISTRIBUTIONS AND CHANGES IN AUTOMATED INFORMATION LINE, 866-702-4402.
- ------------------------------------------ NET ASSET VALUE. INVESTMENT RETURN AND AS MENTIONED ABOVE, FOR THE MOST RECENT
PRINCIPAL VALUE WILL FLUCTUATE SO THAT YOU MONTH-END PERFORMANCE INCLUDING VARIABLE
6 months ended 12/31/06 MAY HAVE A GAIN OR LOSS WHEN YOU SELL PRODUCT CHARGES, PLEASE CONTACT YOUR
SHARES. VARIABLE PRODUCT ISSUER OR FINANCIAL
Series I Shares 17.72% ADVISOR
Series II Shares 17.56 AIM V.I. INTERNATIONAL GROWTH FUND, A
SERIES PORTFOLIO OF AIM VARIABLE INSURANCE
SERIES II SHARES' INCEPTION DATE IS FUNDS, IS CURRENTLY OFFERED
SEPTEMBER 19, 2001. RETURNS SINCE THAT
DATE ARE HISTORICAL. ALL OTHER RETURNS ARE
THE BLENDED RETURNS OF THE HISTORICAL
PERFORMANCE OF SERIES II SHARES SINCE
THEIR INCEPTION AND THE
====================================================================================================================================
PRINCIPAL RISKS OF INVESTING IN THE FUND tion or declares bankruptcy, the Fund may the largest underlying funds in each
experience delays in selling the variable insurance category and does not
Prices of equity securities change in securities underlying the repurchase include mortality and expense fees.
response to many factors including the agreement.
historical and prospective earnings of the The Fund is not managed to track the
issuer, the value of its assets, general There is no guarantee that the performance of any particular index,
economic conditions, interest rates, investment techniques and risk analyses including the index defined here, and
investor perceptions and market liquidity. used by the Fund's portfolio managers will consequently, the performance of the Fund
produce the desired results. may deviate significantly from the
Foreign securities have additional performance of the indexes.
risks, including exchange rate changes, About indexes used in this report
political and economic upheaval, the A direct investment cannot be made in
relative lack of information about these The unmanaged MSCI EUROPE, AUSTRALASIA AND an index. Unless otherwise indicated,
companies, relatively low market liquidity THE FAR EAST INDEX (the MSCI EAFE) is a index results include reinvested
and the potential lack of strict financial group of foreign securities tracked by dividends, and they do not reflect sales
and accounting controls and standards. Morgan Stanley Capital International. charges. Performance of an index of funds
reflects fund expenses; performance of a
Investing in emerging markets The unmanaged MSCI EUROPE, market index does not.
involves greater risk than investing in AUSTRALASIA AND THE FAR EAST (the MSCI
more established markets. The risks EAFE) GROWTH INDEX is a subset of the Other information
include the relatively smaller size and unmanaged MSCI EAFE, which represents the
lesser liquidity of these markets, high performance of foreign stocks tracked by The returns shown in the management's
inflation rates, adverse political Morgan Stanley Capital International. The discussion of Fund performance are based
developments and lack of timely Growth portion measures performance of on net asset values calculated for
information. companies with higher price/earnings shareholder transactions. Generally
ratios and higher forecasted growth accepted accounting principles require
To the extent the Fund holds cash or values. adjustments to be made to the net assets
cash equivalents rather than equity of the Fund at period end for financial
securities for risk management purposes, The unmanaged LIPPER INTERNATIONAL reporting purposes, and as such, the net
the Fund may not achieve its investment MULTI-CAP GROWTH FUNDS INDEX represents an asset values for shareholder transactions
objective. average of the performance of the 10 and the returns based on those net asset
largest international multi-capitalization values may differ from the net asset
If the seller of a repurchase growth funds tracked by Lipper Inc., an values and returns reported in the
agreement in which the Fund invests independent mutual fund performance Financial Highlights. Additionally, the
defaults on its obliga- monitor. returns and net asset values shown
throughout this report are at the Fund
In conjunction with the annual level only and do not include variable
prospectus update on or about May 1, 2007, product issuer charges. If such charges
the AIM V.I. International Growth Fund were included, the total returns would be
prospectus will be amended to reflect that lower.
the Fund has elected to use the LIPPER VUF
INTERNATIONAL GROWTH FUNDS INDEX as its Industry classifications used in this
peer group rather than the Lipper report are generally according to the
International Multi-Cap Growth Funds Global Industry Classification Standard,
Index. The Lipper Variable Underlying which was developed by and is the
Funds (VUF) International Growth Funds exclusive property and a service mark of
Index, recently published by Lipper Inc., Morgan Stanley Capital International Inc.
comprises and Standard & Poor's.
The Chartered Financial Analyst
--REGISTERED TRADEMARK-- (CFA --REGISTERED
TRADEMARK--) designation is a globally
recognized standard for measuring the
competence and integrity of investment
professionals.
4
AIM V.I. INTERNATIONAL GROWTH FUND
Past performance cannot guarantee value of an investment, is constructed
comparable future results. with each segment representing a percent
change in the value of the investment. In
This chart, which is a logarithmic this chart, each segment represents a
chart, presents the fluctuations in the doubling, or 100% change, in the value of
value of the Fund and its indexes. We the investment. In other words, the space
believe that a logarithmic chart is more between $5,000 and $10,000 is the same
effective than other types of charts in size as the space between $10,000 and
illustrating changes in value during the $20,000, and so on.
early years shown in the chart. The
vertical axis, the one that indicates the
dollar
5
================================================================================
[MOUNTAIN CHART]
RESULTS OF A $10,000 INVESTMENT
Index data from 4/30/93, Fund data from 5/5/93
AIM V.I. INTERNATIONAL GROWTH FUND
DATE -SERIES I SHARES MSCI EAFE INDEX MSCI EAFE GROWTH INDEX
- ----------------------------------------------------------------------------------------
4/30/93 $ 10000 $ 10000
5/93 $ 10190 10211 10294
6/93 9880 10052 10201
7/93 9931 10404 10499
8/93 10611 10965 11035
9/93 10661 10719 10766
10/93 11241 11049 11106
11/93 10910 10083 10016
12/93 11890 10811 10607
1/94 12490 11725 11405
2/94 12121 11693 11319
3/94 11561 11189 10761
4/94 11931 11664 11206
5/94 11801 11597 11075
6/94 11620 11761 11180
7/94 12041 11874 11278
8/94 12340 12155 11534
9/94 12070 11772 11149
10/94 12430 12164 11461
11/94 11750 11580 10946
12/94 11698 11652 11087
1/95 11057 11204 10661
2/95 11328 11172 10657
3/95 11739 11869 11328
4/95 12100 12315 11829
5/95 12411 12169 11693
6/95 12671 11955 11451
7/95 13383 12700 12181
8/95 13093 12215 11668
9/95 13334 12454 11935
10/95 13274 12119 11613
11/95 13314 12456 11932
12/95 13716 12958 12348
1/96 14067 13011 12357
2/96 14358 13055 12399
3/96 14630 13332 12697
4/96 15102 13720 13004
5/96 15182 13468 12733
6/96 15504 13543 12777
7/96 14741 13148 12364
8/96 15102 13176 12376
9/96 15534 13526 12715
10/96 15485 13388 12610
11/96 16228 13921 13013
12/96 16468 13742 12776
1/97 16438 13261 12243
2/97 16629 13478 12433
3/97 16508 13526 12506
4/97 16478 13598 12632
5/97 17475 14483 13374
6/97 18391 15282 14152
7/97 19135 15529 14490
8/97 17484 14369 13372
9/97 19035 15174 14256
10/97 17394 14008 12907
11/97 17444 13865 12879
12/97 17610 13986 13045
1/98 17784 14625 13635
2/98 18967 15564 14539
3/98 20139 16043 14736
4/98 20447 16170 14883
5/98 20848 16092 14779
6/98 20921 16214 14983
7/98 21281 16378 15051
8/98 18434 14349 13434
9/98 18032 13909 13056
10/98 18834 15359 14380
11/98 19637 16146 15076
12/98 20340 16783 15942
1/99 20651 16733 16025
2/99 19738 16334 15505
3/99 20050 17016 15714
4/99 20734 17706 15875
5/99 20018 16794 15185
6/99 21241 17448 15773
7/99 21728 17967 16077
8/99 21749 18033 16167
9/99 22226 18214 16423
================================================================================
SOURCE: LIPPER INC.
================================================================================
[MOUNTAIN CHART]
10/99 23844 18896 17303
11/99 26891 19553 18571
12/99 31535 21308 20638
1/00 29337 19954 19477
2/00 32341 20491 20557
3/00 31274 21286 20942
4/00 28731 20165 19558
5/00 26964 19673 18347
6/00 28105 20442 19001
7/00 27428 19585 17811
8/00 28481 19755 18000
9/00 26146 18793 16808
10/00 24326 18349 16031
11/00 22226 17661 15292
12/00 23202 18289 15578
1/01 23513 18280 15534
2/01 20873 16909 13957
3/01 19351 15782 12991
4/01 20469 16879 13881
5/01 20101 16283 13322
6/01 19858 15617 12675
7/01 19397 15333 12367
8/01 18693 14944 11803
9/01 16940 13431 10686
10/01 17263 13775 11111
11/01 17436 14283 11682
12/01 17743 14367 11749
1/02 17040 13604 11116
2/02 17267 13699 11266
3/02 17992 14507 11746
4/02 18015 14536 11756
5/02 18206 14720 11779
6/02 17849 14134 11475
7/02 16041 12739 10252
8/02 16006 12710 10173
9/02 14316 11345 9287
10/02 14863 11955 9812
11/02 15100 12497 10101
12/02 14961 12077 9867
1/03 14411 11573 9378
2/03 14244 11307 9176
3/03 14016 11085 9079
4/03 14902 12172 9866
5/03 15800 12909 10375
6/03 16135 13221 10556
7/03 16208 13541 10694
8/03 16519 13868 10890
9/03 16902 14296 11258
10/03 17981 15187 11906
11/03 18340 15524 12184
12/03 19310 16737 13023
1/04 19924 16974 13277
2/04 20478 17366 13528
3/04 20429 17464 13539
4/04 20021 17068 13203
5/04 20201 17105 13169
6/04 20514 17501 13345
7/04 19876 16933 12803
8/04 20045 17008 12817
9/04 20803 17452 13133
10/04 21633 18048 13573
11/04 22956 19280 14508
12/04 23944 20126 15122
1/05 23556 19757 14774
2/05 24597 20611 15365
3/05 24075 20093 14989
4/05 23396 19620 14699
5/05 23591 19630 14743
6/05 24147 19890 14862
7/05 25152 20500 15315
8/05 25987 21018 15754
9/05 26616 21954 16417
10/05 25817 21313 15968
11/05 26773 21834 16269
12/05 28232 22850 17130
1/06 30327 24253 18186
2/06 30108 24200 17979
3/06 30996 24997 18674
4/06 32410 26191 19524
5/06 30802 25174 18698
6/06 30753 25172 18722
7/06 31070 25421 18809
8/06 32083 26120 19263
9/06 32253 26161 19155
10/06 33546 27178 19807
11/06 34921 27990 20384
12/06 36209 28869 20955
================================================================================
CALCULATING YOUR ONGOING FUND EXPENSES AIM V.I. INTERNATIONAL GROWTH FUND
EXAMPLE ACTUAL EXPENSES Fund's actual return. The Fund's actual
cumulative total returns at net asset
As a shareholder of the Fund, you incur The table below provides information about value after expenses for the six months
ongoing costs, including management fees; actual account values and actual expenses. ended December 31, 2006, appear in the
distribution and/or service (12b-1) fees; You may use the information in this table, table "Cumulative Total Returns" on page
and other Fund expenses. This example is together with the amount you invested, to 4.
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 July 1, 2006, through estimate the expenses you paid on your To do so, compare this 5% hypothetical
December 31, 2006. account during this period. example with the 5% hypothetical examples
that appear in the shareholder reports of
The actual and hypothetical expenses Hypothetical example for comparison the other funds.
in 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 year before expenses, relative total costs of owning different
which is not the funds.
===================================================================================================================================
HYPOTHETICAL
ACTUAL (5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (7/1/06) (12/31/06)(1) PERIOD(2) (12/31/06) PERIOD(2) RATIO
- --------------------------------------------------------------------------------------------------------
Series I $ 1,000.00 $ 1,177.20 $ 6.04 $ 1,019.66 $ 5.60 1.10%
Series II 1,000.00 1,175.60 7.40 1,018.40 6.87 1.35
(1) The actual ending account value is based on the actual total return of the
Fund for the period July 1, 2006, through December 31, 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 December 31, 2006, appear in
the table "Cumulative Total Returns" on page 4.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated
above multiplied by the average account value over the period, multiplied
by 184/365 to reflect the most recent fiscal half year.
===================================================================================================================================
6
APPROVAL OF INVESTMENT ADVISORY AGREEMENT AIM V.I. INTERNATIONAL GROWTH FUND
The Board of Trustees of AIM Variable - The nature and extent of the advisory Agreement for the Fund, the Board
Insurance Funds (the "Board") oversees the services to be provided by AIM. The Board concluded that no changes should be made
management of AIM V.I. International reviewed the services to be provided by to the Fund and that it was not necessary
Growth Fund (the "Fund") and, as required AIM under the Advisory Agreement. Based on to change the Fund's portfolio management
by law, determines annually whether to such review, the Board concluded that the team at this time. Although the
approve the continuance of the Fund's range of services to be provided by AIM independent written evaluation of the
advisory agreement with A I M Advisors, under the Advisory Agreement was Fund's Senior Officer (discussed below)
Inc. ("AIM"). Based upon the appropriate and that AIM currently is only considered Fund performance through
recommendation of the Investments providing services in accordance with the the most recent calendar year, the Board
Committee of the Board, at a meeting held terms of the Advisory Agreement. also reviewed more recent Fund
on June 27, 2006, the Board, including all performance, which did not change their
of the independent trustees, approved the - The quality of services to be provided conclusions.
continuance of the advisory agreement (the by AIM. The Board reviewed the credentials
"Advisory Agreement") between the Fund and and experience of the officers and - Meetings with the Fund's portfolio
AIM for another year, effective July 1, employees of AIM who will provide managers and investment personnel. With
2006. investment advisory services to the Fund. respect to the Fund, the Board is meeting
In reviewing the qualifications of AIM to periodically with such Fund's portfolio
The Board considered the factors provide investment advisory services, the managers and/or other investment personnel
discussed below in evaluating the fairness Board considered such issues as AIM's and believes that such individuals are
and reasonableness of the Advisory portfolio and product review process, competent and able to continue to carry
Agreement at the meeting on June 27, 2006 various back office support functions out their responsibilities under the
and as part of the Board's ongoing provided by AIM and AIM's equity and fixed Advisory Agreement.
oversight of the Fund. In their income trading operation. Based on the
deliberations, the Board and the review of these and other factors, the - Overall performance of AIM. The Board
independent trustees did not identify any Board concluded that the quality of considered the overall performance of AIM
particular factor that was controlling, services to be provided by AIM was in providing investment advisory and
and each trustee attributed different appropriate and that AIM currently is portfolio administrative services to the
weights to the various factors. providing satisfactory services in Fund and concluded that such performance
accordance with the terms of the Advisory was satisfactory.
One responsibility of the independent Agreement.
Senior Officer of the Fund is to manage - Fees relative to those of clients of AIM
the process by which the Fund's proposed - The performance of the Fund relative to with comparable investment strategies. The
management fees are negotiated to ensure comparable funds. The Board reviewed the Board reviewed the effective advisory fee
that they are negotiated in a manner which performance of the Fund during the past rate (before waivers) for the Fund under
is at arms' length and reasonable. To that one, three and five calendar years against the Advisory Agreement. The Board noted
end, the Senior Officer must either the performance of funds advised by other that this rate was (i) below the effective
supervise a competitive bidding process or advisors with investment strategies advisory fee rate (before waivers) for one
prepare an independent written evaluation. comparable to those of the Fund. The Board mutual fund advised by AIM with investment
The Senior Officer has recommended an noted that the Fund's performance was strategies comparable to those of the
independent written evaluation in lieu of above the median performance of such Fund; (ii) above the effective
a competitive bidding process and, upon comparable funds for the one and five year sub-advisory fee rate for one Canadian
the direction of the Board, has prepared periods and below such median performance mutual fund advised by an AIM affiliate
such an independent written evaluation. for the three year period. Based on this and sub-advised by AIM with investment
Such written evaluation also considered review and after taking account of all of strategies comparable to those of the
certain of the factors discussed below. In the other factors that the Board Fund, although the total advisory fees for
addition, as discussed below, the Senior considered in determining whether to such Canadian mutual fund were above those
Officer made a recommendation to the Board continue the Advisory Agreement for the for the Fund; (iii) above the effective
in connection with such written Fund, the Board concluded that no changes sub-advisory fee rates for two variable
evaluation. should be made to the Fund and that it was insurance funds sub-advised by an AIM
not necessary to change the Fund's affiliate and offered to insurance company
The discussion below serves as a portfolio management team at this time. separate accounts with investment
summary of the Senior Officer's Although the independent written strategies comparable to those of the
independent written evaluation and evaluation of the Fund's Senior Officer Fund, although the total advisory fees for
recommendation to the Board in connection (discussed below) only considered Fund such variable insurance funds were above
therewith, as well as a discussion of the performance through the most recent those for the Fund; and (iv) comparable to
material factors and the conclusions with calendar year, the Board also reviewed the total advisory fee rate for one
respect thereto that formed the basis for more recent Fund performance, which did separately managed account/wrap account
the Board's approval of the Advisory not change their conclusions. managed by an AIM affiliate with
Agreement. After consideration of all of investment strategies comparable to those
the factors below and based on its - The performance of the Fund relative to of the Fund and above the total advisory
informed business judgment, the Board indices. The Board reviewed the fee rates for 10 other separately managed
determined that the Advisory Agreement is performance of the Fund during the past accounts/wrap accounts managed by an AIM
in the best interests of the Fund and its one, three and five calendar years against affiliate with investment strategies
shareholders and that the compensation to the performance of the Lipper Variable comparable to those of the Fund. The Board
AIM under the Advisory Agreement is fair Underlying Fund International Growth noted that AIM has agreed to limit the
and reasonable and would have been Index. The Board noted that the Fund's Fund's total operating expenses, as
obtained through arm's length performance was comparable to the discussed below. Based on this review, the
negotiations. performance of such Index for the one year Board concluded that the advisory fee rate
period and above such Index for the three for the Fund under the Advisory Agreement
Unless otherwise stated, information and five year periods. Based on this was fair and reasonable.
presented below is as of June 27, 2006 and review and after taking account of all of
does not reflect any changes that may have the other factors that the Board
occurred since June 27, 2006, including considered in determining whether to
but not limited to changes to the Fund's continue the Advisory
performance, advisory fees, expense
limitations and/or fee waivers.
(continued)
7
AIM V.I. INTERNATIONAL GROWTH FUND
- - Fees relative to those of comparable Fund invests uninvested cash in affiliated form its obligations under the Advisory
funds with other advisors. The Board money market funds, AIM has voluntarily Agreement, and concluded that AIM has the
reviewed the advisory fee rate for the agreed to waive a portion of the advisory financial resources necessary to fulfill
Fund under the Advisory Agreement. The fees it receives from the Fund its obligations under the Advisory
Board compared effective contractual attributable to such investment. The Board Agreement.
advisory fee rates at a common asset level further determined that the proposed
at the end of the past calendar year and securities lending program and related - Historical relationship between the Fund
noted that the Fund's rate was below the procedures with respect to the lending and AIM. In determining whether to
median rate of the funds advised by other Fund is in the best interests of the continue the Advisory Agreement for the
advisors with investment strategies lending Fund and its respective Fund, the Board also considered the prior
comparable to those of the Fund that the shareholders. The Board therefore relationship between AIM and the Fund, as
Board reviewed. The Board noted that AIM concluded that the investment of cash well as the Board's knowledge of AIM's
has agreed to limit the Fund's total collateral received in connection with the operations, and concluded that it was
operating expenses, as discussed below. securities lending program in the money beneficial to maintain the current
Based on this review, the Board concluded market funds according to the procedures relationship, in part, because of such
that the advisory fee rate for the Fund is in the best interests of the lending knowledge. The Board also reviewed the
under the Advisory Agreement was fair and Fund and its respective shareholders. general nature of the non-investment
reasonable. advisory services currently performed by
- Independent written evaluation and AIM and its affiliates, such as
- - Expense limitations and fee waivers. The recommendations of the Fund's Senior administrative, transfer agency and
Board noted that AIM has contractually Officer. The Board noted that, upon their distribution services, and the fees
agreed to waive fees and/or limit expenses direction, the Senior Officer of the Fund, received by AIM and its affiliates for
of the Fund through April 30, 2008 in an who is independent of AIM and AIM's performing such services. In addition to
amount necessary to limit total annual affiliates, had prepared an independent reviewing such services, the trustees also
operating expenses to a specified written evaluation in order to assist the considered the organizational structure
percentage of average daily net assets for Board in determining the reasonableness of employed by AIM and its affiliates to
each class of the Fund. The Board the proposed management fees of the AIM provide those services. Based on the
considered the contractual nature of this Funds, including the Fund. The Board noted review of these and other factors, the
fee waiver/expense limitation and noted that the Senior Officer's written Board concluded that AIM and its
that it remains in effect until April 30, evaluation had been relied upon by the affiliates were qualified to continue to
2008. The Board considered the effect this Board in this regard in lieu of a provide non-investment advisory services
fee waiver/expense limitation would have competitive bidding process. In to the Fund, including administrative,
on the Fund's estimated expenses and determining whether to continue the transfer agency and distribution services,
concluded that the levels of fee Advisory Agreement for the Fund, the Board and that AIM and its affiliates currently
waivers/expense limitations for the Fund considered the Senior Officer's written are providing satisfactory non-investment
were fair and reasonable. evaluation. advisory services.
- - Breakpoints and economies of scale. The - Profitability of AIM and its affiliates. - 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
- - 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 - 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 - AIM's financial soundness in light of
extent the the Fund's needs. The Board considered
whether AIM is financially sound and has
the resources necessary to per-
8
AIM V.I. International Growth Fund
SCHEDULE OF INVESTMENTS
December 31, 2006
<Table>
<Caption>
SHARES VALUE
- -------------------------------------------------------------------------
FOREIGN COMMON STOCKS & OTHER EQUITY
INTERESTS-88.92%
AUSTRALIA-3.25%
Babcock & Brown Ltd. (Other Diversified
Financial Services)(a)(b) 235,000 $ 4,584,240
- -------------------------------------------------------------------------
BHP Billiton Ltd. (Diversified Metals &
Mining)(a)(b) 393,700 7,827,892
- -------------------------------------------------------------------------
Brambles Ltd. (Diversified Commercial &
Professional Services)(c) 611,088 6,189,101
- -------------------------------------------------------------------------
QBE Insurance Group Ltd. (Property & Casualty
Insurance) 219,600 5,001,212
=========================================================================
23,602,445
=========================================================================
BELGIUM-2.44%
InBev N.V. (Brewers)(a) 168,429 11,103,134
- -------------------------------------------------------------------------
KBC Groep N.V. (Diversified Banks)(a) 54,191 6,634,443
=========================================================================
17,737,577
=========================================================================
BRAZIL-0.73%
All America Latina Logistica
(Railroads)(a)(d)() 516,600 5,316,482
=========================================================================
CANADA-3.47%
Canadian National Railway Co. (Railroads) 124,000 5,326,367
- -------------------------------------------------------------------------
Canadian Natural Resources Ltd. (Oil & Gas
Exploration & Production) 102,163 5,447,116
- -------------------------------------------------------------------------
Manulife Financial Corp. (Life & Health
Insurance) 176,061 5,943,465
- -------------------------------------------------------------------------
Suncor Energy, Inc. (Integrated Oil & Gas) 108,575 8,549,822
=========================================================================
25,266,770
=========================================================================
CHINA-1.37%
Ping An Insurance (Group) Co. of China Ltd.-
Class H (Life & Health Insurance) 1,805,000 9,990,261
=========================================================================
DENMARK-0.97%
Novo Nordisk A.S.-Class B (Pharmaceuticals) 84,798 7,064,060
=========================================================================
FRANCE-9.10%
Axa (Multi-Line Insurance)(a)(b) 173,638 7,002,500
- -------------------------------------------------------------------------
BNP Paribas (Diversified Banks)(a) 128,841 13,996,916
- -------------------------------------------------------------------------
Cap Gemini S.A. (IT Consulting & Other
Services)(a) 80,118 5,012,176
- -------------------------------------------------------------------------
Sanofi-Aventis (Pharmaceuticals)(a) 60,485 5,570,507
- -------------------------------------------------------------------------
Societe Generale (Diversified Banks)(a) 54,617 9,242,212
- -------------------------------------------------------------------------
Total S.A. (Integrated Oil & Gas) 157,790 11,384,811
- -------------------------------------------------------------------------
Vinci S.A. (Construction & Engineering)(a)(b) 109,860 13,998,571
=========================================================================
66,207,693
=========================================================================
GERMANY-6.50%
Bayer A.G. (Diversified Chemicals)(a) 135,108 7,249,525
- -------------------------------------------------------------------------
Commerzbank A.G. (Diversified Banks)(a) 221,874 8,421,453
- -------------------------------------------------------------------------
Continental A.G. (Tires & Rubber)(a) 38,329 4,456,604
- -------------------------------------------------------------------------
MAN A.G. (Industrial Machinery)(a) 81,097 7,328,020
- -------------------------------------------------------------------------
</Table>
<Table>
<Caption>
SHARES VALUE
- -------------------------------------------------------------------------
GERMANY-(CONTINUED)
Merck KGaA (Pharmaceuticals)(a) 45,253 $ 4,690,634
- -------------------------------------------------------------------------
Puma A.G. Rudolf Dassler Sport (Footwear)(a) 24,532 9,572,976
- -------------------------------------------------------------------------
Siemens A.G. (Industrial Conglomerates) 55,699 5,525,541
=========================================================================
47,244,753
=========================================================================
GREECE-0.97%
OPAP S.A. (Casinos & Gaming)(a) 182,260 7,043,454
=========================================================================
HONG KONG-1.55%
Esprit Holdings Ltd. (Apparel Retail)(a) 681,500 7,565,866
- -------------------------------------------------------------------------
Hutchison Whampoa Ltd. (Industrial
Conglomerates)(a) 368,000 3,727,548
=========================================================================
11,293,414
=========================================================================
HUNGARY-0.92%
OTP Bank Nyrt. (Diversified Banks)(a) 146,288 6,661,113
=========================================================================
INDIA-2.70%
Housing Development Finance Corp. Ltd.
(Thrifts & Mortgage Finance)(a) 118,764 4,365,913
- -------------------------------------------------------------------------
Infosys Technologies Ltd. (IT Consulting &
Other Services)(a) 232,360 11,724,486
- -------------------------------------------------------------------------
Maruti Udyog Ltd. (Automobile
Manufacturers)(a) 168,268 3,532,841
=========================================================================
19,623,240
=========================================================================
INDONESIA-0.73%
PT Telekomunikasi Indonesia-Series B
(Integrated Telecommunication Services) 4,728,000 5,309,702
=========================================================================
IRELAND-2.74%
Anglo Irish Bank Corp. PLC (Diversified
Banks)(a) 571,610 11,853,536
- -------------------------------------------------------------------------
CRH PLC (Construction Materials)(a) 195,465 8,109,832
=========================================================================
19,963,368
=========================================================================
ISRAEL-0.68%
Teva Pharmaceutical Industries Ltd.-ADR
(Pharmaceuticals) 158,626 4,930,096
=========================================================================
ITALY-1.48%
Eni S.p.A. (Integrated Oil & Gas)(a) 319,302 10,744,586
=========================================================================
JAPAN-13.23%
AEON Co., Ltd. (Hypermarkets & Super
Centers)(a) 183,500 3,951,318
- -------------------------------------------------------------------------
Canon Inc. (Office Electronics)(a)(b) 212,500 12,035,000
- -------------------------------------------------------------------------
Denso Corp. (Auto Parts & Equipment) 133,100 5,278,817
- -------------------------------------------------------------------------
FANUC Ltd. (Industrial Machinery)(a) 94,000 9,218,269
- -------------------------------------------------------------------------
Hitachi High-Technologies Corp. (Trading
Companies & Distributors)(a) 161,400 4,773,129
- -------------------------------------------------------------------------
Hoya Corp. (Electronic Equipment
Manufacturers)(a) 187,200 7,308,299
- -------------------------------------------------------------------------
IBIDEN Co., Ltd. (Electronic Equipment
Manufacturers)(a)(b) 113,800 5,747,884
- -------------------------------------------------------------------------
</Table>
AIM V.I. International Growth Fund
<Table>
<Caption>
SHARES VALUE
- -------------------------------------------------------------------------
JAPAN-(CONTINUED)
JSR Corp. (Specialty Chemicals)(b) 161,000 $ 4,166,709
- -------------------------------------------------------------------------
Keyence Corp. (Electronic Equipment
Manufacturers)(b) 22,300 5,525,813
- -------------------------------------------------------------------------
Mizuho Financial Group, Inc. (Diversified
Banks)(a) 512 3,662,105
- -------------------------------------------------------------------------
Mizuho Financial Group, Inc. (Diversified
Banks) (Acquired 10/24/2005; Cost
$2,127,848)(a)(e) 354 2,532,002
- -------------------------------------------------------------------------
Nissan Motor Co., Ltd. (Automobile
Manufacturers)(a)(b) 572,500 6,954,545
- -------------------------------------------------------------------------
ORIX Corp. (Consumer Finance)(a) 28,250 8,197,040
- -------------------------------------------------------------------------
Suzuki Motor Corp. (Automobile
Manufacturers)(b) 198,200 5,595,765
- -------------------------------------------------------------------------
Toyota Motor Corp. (Automobile
Manufacturers)(a) 171,900 11,275,226
=========================================================================
96,221,921
=========================================================================
MEXICO-2.42%
America Movil S.A. de C.V.-Series L-ADR
(Wireless Telecommunication Services) 155,763 7,043,603
- -------------------------------------------------------------------------
Grupo Televisa S.A.-ADR (Broadcasting & Cable
TV) 157,284 4,248,241
- -------------------------------------------------------------------------
Wal-Mart de Mexico S.A. de C.V.-Series V
(Hypermarkets & Super Centers) 1,436,600 6,320,614
=========================================================================
17,612,458
=========================================================================
NETHERLANDS-1.10%
Heineken Holding N.V. (Brewers)(a) 131,934 5,352,344
- -------------------------------------------------------------------------
ING Groep N.V. (Other Diversified Financial
Services)(a) 59,280 2,627,487
=========================================================================
7,979,831
=========================================================================
NORWAY-1.07%
Petroleum Geo-Services A.S.A. (Oil & Gas
Equipment & Services)(a)(c) 331,140 7,749,051
=========================================================================
RUSSIA-0.56%
LUKOIL-ADR (Integrated Oil & Gas) 46,256 4,042,774
=========================================================================
SINGAPORE-1.30%
Keppel Corp. Ltd. (Industrial
Conglomerates)(a) 486,000 5,564,536
- -------------------------------------------------------------------------
United Overseas Bank Ltd. (Diversified
Banks)(a) 310,000 3,911,273
=========================================================================
9,475,809
=========================================================================
SOUTH AFRICA-1.15%
Standard Bank Group Ltd. (Diversified
Banks)(a)(b) 373,930 5,039,199
- -------------------------------------------------------------------------
Telkom South Africa Ltd. (Integrated
Telecommunication Services)(a)(b) 163,970 3,308,256
=========================================================================
8,347,455
=========================================================================
SOUTH KOREA-1.99%
Hana Financial Group Inc. (Diversified
Banks)(a) 75,100 3,938,630
- -------------------------------------------------------------------------
Hyundai Heavy Industries Co., Ltd.
(Construction & Farm Machinery & Heavy
Trucks)(a)(c) 21,300 2,876,584
- -------------------------------------------------------------------------
Samsung Electronics Co., Ltd.
(Semiconductors)(a) 11,680 7,649,558
=========================================================================
14,464,772
=========================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- -------------------------------------------------------------------------
SPAIN-2.30%
Banco Santander Central Hispano S.A.
(Diversified Banks)(a) 380,899 $ 7,087,640
- -------------------------------------------------------------------------
Industria de Diseno Textil, S.A. (Apparel
Retail)(a) 178,927 9,616,128
=========================================================================
16,703,768
=========================================================================
SWEDEN-1.65%
Atlas Copco A.B.-Class A (Industrial
Machinery)(a) 208,870 6,982,285
- -------------------------------------------------------------------------
Swedish Match A.B. (Tobacco)(a) 270,600 5,056,507
=========================================================================
12,038,792
=========================================================================
SWITZERLAND-9.29%
Compagnie Financiere Richemont A.G.-Class A
(Apparel, Accessories & Luxury Goods)(a)(f) 188,442 10,945,279
- -------------------------------------------------------------------------
Credit Suisse Group (Diversified Capital
Markets)(a) 93,383 6,515,388
- -------------------------------------------------------------------------
Nestle S.A. (Packaged Foods & Meats)(a) 24,756 8,779,256
- -------------------------------------------------------------------------
Roche Holding A.G. (Pharmaceuticals)(a) 79,899 14,295,618
- -------------------------------------------------------------------------
Syngenta A.G. (Fertilizers & Agricultural
Chemicals)(a)(c) 78,276 14,559,529
- -------------------------------------------------------------------------
UBS A.G. (Diversified Capital Markets)(a) 205,548 12,444,917
=========================================================================
67,539,987
=========================================================================
TAIWAN-2.30%
Hon Hai Precision Industry Co., Ltd.
(Electronic Manufacturing Services)(a) 1,207,451 8,621,159
- -------------------------------------------------------------------------
MediaTek Inc. (Semiconductors)(a) 454,700 4,707,119
- -------------------------------------------------------------------------
Taiwan Semiconductor Manufacturing Co.
Ltd.-ADR (Semiconductors)(b) 308,146 3,368,036
=========================================================================
16,696,314
=========================================================================
TURKEY-0.84%
Akbank T.A.S. (Diversified Banks)(a) 1,007,188 6,093,074
=========================================================================
UNITED KINGDOM-10.12%
Aviva PLC (Multi-Line Insurance)(a)(b) 405,515 6,512,420
- -------------------------------------------------------------------------
Capita Group PLC (Human Resource & Employment
Services)(a) 466,592 5,545,562
- -------------------------------------------------------------------------
Enterprise Inns PLC (Restaurants)(a) 181,289 4,792,961
- -------------------------------------------------------------------------
Imperial Tobacco Group PLC (Tobacco)(a) 264,497 10,424,129
- -------------------------------------------------------------------------
Informa PLC (Publishing)(a) 621,080 7,238,694
- -------------------------------------------------------------------------
International Power PLC (Independent Power
Producers & Energy Traders)(a) 1,056,689 7,899,232
- -------------------------------------------------------------------------
Reckitt Benckiser PLC (Household Products)(a) 179,385 8,198,450
- -------------------------------------------------------------------------
Shire PLC (Pharmaceuticals)(a) 403,677 8,341,134
- -------------------------------------------------------------------------
Tesco PLC (Food Retail)(a) 936,553 7,402,911
- -------------------------------------------------------------------------
WPP Group PLC (Advertising)(a) 534,771 7,243,932
=========================================================================
73,599,425
=========================================================================
Total Foreign Common Stocks & Other
Equity Interests (Cost $394,657,327) 646,564,445
=========================================================================
</Table>
AIM V.I. International Growth Fund
<Table>
<Caption>
SHARES VALUE
- -------------------------------------------------------------------------
FOREIGN PREFERRED STOCKS & OTHER EQUITY
INTERESTS-4.15%
BRAZIL-1.20%
Companhia de Bebidas das Americas-Pfd.-ADR
(Brewers)(b) 98,565 $ 4,809,972
- -------------------------------------------------------------------------
Petroleo Brasileiro S.A. Pfd.-ADR (Integrated
Oil & Gas) 42,235 3,917,719
=========================================================================
8,727,691
=========================================================================
GERMANY-2.95%
Henkel KGaA-Pfd. (Household Products)(a) 72,042 10,600,554
- -------------------------------------------------------------------------
Porsche A.G.-Pfd. (Automobile
Manufacturers)(a) 8,544 10,868,454
=========================================================================
21,469,008
=========================================================================
Total Foreign Preferred Stocks & Other
Equity Interests (Cost $19,248,845) 30,196,699
=========================================================================
MONEY MARKET FUNDS-6.26%
Liquid Assets Portfolio-Institutional
Class(g) 22,755,651 22,755,651
- -------------------------------------------------------------------------
Premier Portfolio-Institutional Class(g) 22,755,651 22,755,651
=========================================================================
Total Money Market Funds (Cost
$45,511,302) 45,511,302
=========================================================================
TOTAL INVESTMENTS (excluding investments
purchased with cash collateral from
securities loaned)-99.33% (Cost
$459,417,474) 722,272,446
=========================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- -------------------------------------------------------------------------
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-7.76%
Liquid Assets Portfolio-Institutional
Class(g)(h) 28,210,678 $ 28,210,678
- -------------------------------------------------------------------------
STIC Prime Portfolio-Institutional
Class(g)(h) 28,210,678 28,210,678
=========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $56,421,356) 56,421,356
=========================================================================
TOTAL INVESTMENTS-107.09%
(Cost $515,838,830) 778,693,802
=========================================================================
OTHER ASSETS LESS LIABILITIES-(7.09)% (51,576,830)
=========================================================================
NET ASSETS-100.00% $727,116,972
_________________________________________________________________________
=========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
Pfd. - Preferred
</Table>
Notes to Schedule of Investments:
(a) In accordance with the procedures established by the Board of Trustees, the
foreign security is fair valued using adjusted closing market prices. The
aggregate value of these securities at December 31, 2006 was $541,781,527,
which represented 74.51% of the Fund's Net Assets. See Note 1A.
(b) All or a portion of this security was out on loan at December 31, 2006.
(c) Non-income producing security.
(d) Each unit represents one common share and four preferred shares.
(e) 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 December 31, 2006 represented 0.35% of the
Fund's Net Assets. Unless otherwise indicated, this security is not
considered to be illiquid.
(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 8.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. International Growth Fund
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2006
<Table>
ASSETS:
Investments, at value (cost $413,906,172)* $676,761,144
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $101,932,658) 101,932,658
=============================================================
Total investments (cost $515,838,830) 778,693,802
=============================================================
Cash 96,095
- -------------------------------------------------------------
Foreign currencies, at value (cost $4,552,580) 4,535,499
- -------------------------------------------------------------
Receivables for:
Investments sold 4,718,172
- -------------------------------------------------------------
Fund shares sold 1,816,049
- -------------------------------------------------------------
Dividends 918,763
- -------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 59,106
- -------------------------------------------------------------
Other assets 190
=============================================================
Total assets 790,837,676
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 5,150,207
- -------------------------------------------------------------
Fund shares reacquired 1,402,077
- -------------------------------------------------------------
Trustee deferred compensation and retirement
plans 90,011
- -------------------------------------------------------------
Collateral upon return of securities loaned 56,421,356
- -------------------------------------------------------------
Accrued administrative services fees 463,424
- -------------------------------------------------------------
Accrued distribution fees-Series II 82,248
- -------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 4,601
- -------------------------------------------------------------
Accrued transfer agent fees 4,067
- -------------------------------------------------------------
Accrued operating expenses 102,713
=============================================================
Total liabilities 63,720,704
=============================================================
Net assets applicable to shares outstanding $727,116,972
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $483,572,069
- -------------------------------------------------------------
Undistributed net investment income 2,692,485
- -------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign currencies (22,000,453)
- -------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 262,852,871
=============================================================
$727,116,972
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $563,460,316
_____________________________________________________________
=============================================================
Series II $163,656,656
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 19,141,751
_____________________________________________________________
=============================================================
Series II 5,612,936
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 29.44
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 29.16
_____________________________________________________________
=============================================================
</Table>
* At December 31, 2006, securities with an aggregate value of $53,890,552 were
on loan to brokers.
STATEMENT OF OPERATIONS
For the year ended December 31, 2006
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of
$1,058,197) $ 10,156,875
- -------------------------------------------------------------
Dividends from affiliated money market funds
(includes securities lending income of
$244,666) 1,636,938
- -------------------------------------------------------------
Interest 5,807
=============================================================
Total investment income 11,799,620
=============================================================
EXPENSES:
Advisory fees 4,271,146
- -------------------------------------------------------------
Administrative services fees 1,500,504
- -------------------------------------------------------------
Custodian fees 581,910
- -------------------------------------------------------------
Distribution fees-Series II 236,205
- -------------------------------------------------------------
Transfer agent fees 49,166
- -------------------------------------------------------------
Trustees' and officer's fees and benefits 30,282
- -------------------------------------------------------------
Other 104,356
=============================================================
Total expenses 6,773,569
=============================================================
Less: Fees waived and expense offset
arrangements (56,487)
=============================================================
Net expenses 6,717,082
=============================================================
Net investment income 5,082,538
=============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND FOREIGN CURRENCIES:
Net realized gain (loss) from:
Investment securities (includes net gains
from securities sold to affiliates of
$145,689 and is net of tax on the sale of
foreign investments of $3,733-Note 1I) 36,802,618
- -------------------------------------------------------------
Foreign currencies (32,053)
=============================================================
36,770,565
=============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (net of change in
estimated tax on foreign investments held
of $11,315-Note 1I) 106,373,408
- -------------------------------------------------------------
Foreign currencies (13,496)
=============================================================
106,359,912
=============================================================
Net gain from investment securities and foreign
currencies 143,130,477
=============================================================
Net increase in net assets resulting from
operations $148,213,015
_____________________________________________________________
=============================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. International Growth Fund
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2006 and 2005
<Table>
<Caption>
2006 2005
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 5,082,538 $ 4,447,352
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 36,770,565 27,592,644
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities and foreign currencies 106,359,912 39,522,580
==========================================================================================
Net increase in net assets resulting from operations 148,213,015 71,562,576
==========================================================================================
Distributions to shareholders from net investment income:
Series I (5,173,427) (2,648,284)
- ------------------------------------------------------------------------------------------
Series II (1,205,499) (290,407)
==========================================================================================
Decrease in net assets resulting from distributions (6,378,926) (2,938,691)
==========================================================================================
Share transactions-net:
Series I 317,895 35,930,996
- ------------------------------------------------------------------------------------------
Series II 85,698,882 26,609,350
==========================================================================================
Net increase in net assets resulting from share
transactions 86,016,777 62,540,346
==========================================================================================
Net increase in net assets 227,850,866 131,164,231
==========================================================================================
NET ASSETS:
Beginning of year 499,266,106 368,101,875
==========================================================================================
End of year (including undistributed net investment income
of $2,692,485 and $3,973,621, respectively) $727,116,972 $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
December 31, 2006
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-one 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.
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 or official closing price as of the close of
the customary trading session on the exchange where the security is
principally traded, or lacking any sales or official closing price on a
particular day, the security may be valued at the closing bid price on that
day. Securities traded in the over-the-counter market 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. 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 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 open-end and closed-end registered
investment companies that trade on an exchange are valued at the last sales
price or official closing price as of the close of the customary trading
session on the exchange where the security is principally traded.
Debt obligations (including convertible bonds) and unlisted equities 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.
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. If market quotations are available and reliable for
foreign exchange traded equity securities, the securities will be valued at
the market quotations. Because trading hours for certain foreign securities
end before the close of the NYSE, closing market quotations may become
unreliable. If between the time trading ends on a particular security and
the close of the customary trading session on the NYSE, events occur that
are significant and may make the closing price unreliable, the Fund may
fair value the security. 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 prices are not provided by any of the above
methods may be valued based upon quotes furnished by independent sources
and are valued at the last bid price in the case of equity securities and
in the case of debt obligations, the mean between the last bid and asked
prices.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
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
AIM V.I. International Growth Fund
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 the 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 to distribute substantially all of the
Fund's taxable earnings to shareholders. As such, the Fund will not be
subject to federal income taxes on otherwise taxable income (including net
realized capital gain) that 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. ACCOUNTING ESTIMATES -- 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.
H. INDEMNIFICATIONS -- 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.
I. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in
foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from (i) sales
of foreign currencies, (ii) currency gains or losses realized between the
trade and settlement dates on securities transactions, and (iii) the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
The Fund may invest in foreign securities which may be subject to foreign
taxes on income, gains on investments or currency repatriation, a portion
of which may be recoverable. Taxes are accrued based on the Fund's current
interpretation of tax regulations and rates that exist in the foreign
markets in which the Fund invests.
J. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security.
Fluctuations in the value of these contracts are recorded as unrealized
appreciation (depreciation) until the contracts are closed. When these
contracts are closed, realized gains (losses) are recorded. Realized and
unrealized gains and losses on these contracts are included in the
Statement of Operations. The Fund could be exposed to risk, which may be in
excess of the amount reflected in the Statement of Assets and Liabilities,
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 net 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 at least 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. In
addition, the Fund may also benefit from a one time credit to be used to offset
future custodian expenses. These credits are used to pay certain expenses
incurred by the Fund. AIM did not waive fees and/or reimburse expenses during
the period under this expense limitation.
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in
the amount of 25% of the advisory fee AIM receives from the affiliated money
market funds on investments by the Fund in such affiliated money market funds
(excluding investments made in affiliated money market funds with cash
collateral from securities loaned by the fund). Voluntary fee waivers or
reimbursements may be modified or discontinued at any time upon consultation
with the Board of Trustees without further notice to investors.
For the year ended December 31, 2006, AIM waived advisory fees of $6,840.
At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the year ended December 31, 2006, AMVESCAP did not
reimburse any such expenses.
The Trust has entered into a master administrative services agreement with
AIM pursuant to which the Fund 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. The
Fund may reimburse AIM for up to 0.25% of average daily assets invested by each
insurance company providing administrative services to the Fund. Pursuant to
such agreement, for the year ended December 31, 2006, AIM was paid $146,231 for
accounting and fund administrative services and reimbursed $1,354,273 for
services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with AIM
Investment Services, Inc. ("AIS") pursuant to which the Fund has agreed to pay
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 year ended December 31, 2006, expenses incurred under the
agreement are shown in the Statement of Operations as transfer agent fees.
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 Plan payments, 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. For the year ended December 31, 2006, expenses
incurred under the Plan are shown in the Statement of Operations as distribution
fees.
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 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 year ended
December 31, 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) 12/31/06 INCOME GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $10,902,709 $112,108,559 $(100,255,617) $ -- $22,755,651 $ 696,002 $ --
- -----------------------------------------------------------------------------------------------------------------------------------
Premier
Portfolio-
Institutional
Class -- 70,805,659 (48,050,008) -- 22,755,651 416,288 --
- -----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 10,902,709 53,041,947 (63,944,656) -- -- 279,982 --
===================================================================================================================================
Subtotal $21,805,418 $235,956,165 $(212,250,281) $ -- $45,511,302 $1,392,272 $ --
===================================================================================================================================
</Table>
AIM V.I. International Growth Fund
INVESTMENTS OF CASH COLLATERAL FROM SECURITIES LENDING TRANSACTIONS:
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/05 AT COST FROM SALES (DEPRECIATION) 12/31/06 INCOME* GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $12,938,532 $183,135,614 $(167,863,468) $ -- $ 28,210,678 $ 122,046 $ --
- -----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-
Institutional
Class 12,938,532 187,657,262 (172,385,116) -- 28,210,678 122,620 --
===================================================================================================================================
Subtotal $25,877,064 $370,792,876 $(340,248,584) $ -- $ 56,421,356 $ 244,666 $ --
===================================================================================================================================
Total
Investments
in
Affiliates $47,682,482 $606,749,041 $(552,498,865) $ -- $101,932,658 $1,636,938 $ --
___________________________________________________________________________________________________________________________________
===================================================================================================================================
</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 year ended December 31, 2006, the Fund
engaged in securities sales of $2,900,973, which resulted in net realized gains
of $145,689, and securities purchases of $143,959.
NOTE 5--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) custodian credits which
result from periodic overnight cash balances at the custodian and (ii) a one
time custodian fee credit to be used to offset future custodian fees. For the
year ended December 31, 2006, the Fund received credits from these arrangements,
which resulted in the reduction of the Fund's total expenses of $49,647.
NOTE 6--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to each Trustee and Officer of the Fund who is not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Fund, and "Trustees' and Officer's Fees and Benefits" also
include amounts accrued by the Fund to fund such deferred compensation amounts.
Those Trustees who defer compensation have the option to select various AIM
Funds in which their deferral accounts shall be deemed to be invested. Finally,
current Trustees are eligible to participate in a retirement plan that provides
for benefits to be paid upon retirement to Trustees over a period of time based
on the number of years of service. The Fund may have certain former Trustees who
also participate in a retirement plan and receive benefits under such plan.
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to fund such retirement benefits. Obligations under the deferred compensation
and retirement plans represent unsecured claims against the general assets of
the Fund.
During the year ended December 31, 2006, the Fund paid legal fees of $5,728
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended December 31, 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 bank 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 contractually agreed upon rate.
AIM V.I. International Growth Fund
NOTE 8--PORTFOLIO SECURITIES LOANED
The Fund may lend portfolio securities having a market value up to one-third of
the Fund's total assets. Such loans are secured by collateral equal to no less
than the market value of the loaned securities determined daily. Such collateral
will be cash or debt securities issued or guaranteed by the U.S. Government or
any of its agencies. Cash collateral received in connection with these loans is
invested in short-term money market instruments or affiliated money market
funds. It is the Fund's policy to obtain additional collateral from or return
excess collateral to the borrower by the end of the next business day, following
the valuation date of the securities loaned. Therefore, the value of the
collateral held may be temporarily less than the value of the securities on
loan. Lending securities entails a risk of loss to the Fund if and to the extent
that the market value of the securities loaned were to increase and the borrower
did not increase the collateral accordingly, and the borrower fails to return
the securities. The Fund could also experience delays and costs in gaining
access to the collateral. The Fund bears the risk of any deficiency in the
amount of the collateral available for return to the borrower due to any loss on
the collateral invested.
At December 31, 2006, securities with an aggregate value of $53,890,552 were
on loan to brokers. The loans were secured by cash collateral of $56,421,356
received by the Fund and subsequently invested in affiliated money market funds.
For the year ended December 31, 2006, the Fund received dividends on cash
collateral investments of $244,666 for securities lending transactions, which
are net of compensation to counterparties.
NOTE 9--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended December 31, 2006
and 2005 was as follows:
<Table>
<Caption>
2006 2005
- --------------------------------------------------------------------------------------
Distributions paid from ordinary income $6,378,926 $2,938,691
______________________________________________________________________________________
======================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2006, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2006
- ----------------------------------------------------------------------------
Undistributed ordinary income $ 5,868,782
- ----------------------------------------------------------------------------
Net unrealized appreciation-investments 258,703,141
- ----------------------------------------------------------------------------
Temporary book & tax difference (81,203)
- ----------------------------------------------------------------------------
Capital loss carryover (20,815,284)
- ----------------------------------------------------------------------------
Post-October currency loss deferral (130,533)
- ----------------------------------------------------------------------------
Shares of beneficial interest 483,572,069
============================================================================
Total net assets $727,116,972
____________________________________________________________________________
============================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales and the recognition of unrealized gains for tax purposes on passive
foreign investment companies. The tax-basis net unrealized appreciation on
investments amount includes appreciation (depreciation) on foreign currencies of
$(2,101).
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan benefits.
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, 2006 to utilizing $20,815,284 of capital loss carryforward in the fiscal
year ended December 31, 2007.
The Fund utilized $36,770,213 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of December 31, 2006 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- ---------------------------------------------------------------------------
December 31, 2007 $ 431,410
- ---------------------------------------------------------------------------
December 31, 2010 20,383,874
===========================================================================
Total capital loss carryforward $20,815,284
___________________________________________________________________________
===========================================================================
</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.
AIM V.I. International Growth Fund
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities,
U.S. Treasury obligations and money market funds, if any) purchased and sold by
the Fund during the year ended December 31, 2006 was $265,468,317 and
$192,010,143, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 259,975,279
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (1,270,037)
===============================================================================
Net unrealized appreciation of investment securities $ 258,705,242
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $519,988,560.
</Table>
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions, foreign tax on realized capital gains and passive foreign
investment companies, on December 31, 2006, undistributed net investment income
was increased by $15,252 and undistributed net realized gain (loss) was
decreased by $15,252. This reclassification had no effect on the net assets of
the Fund.
NOTE 12--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
2006(a) 2005
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------------------
Sold:
Series I 5,527,297 $ 145,984,568 8,088,898 $ 167,053,477
- ------------------------------------------------------------------------------------------------------------------------
Series II 4,213,039 111,448,899 1,749,163 36,041,813
========================================================================================================================
Issued as reinvestment of dividends:
Series I 172,402 4,966,887 109,906 2,525,639
- ------------------------------------------------------------------------------------------------------------------------
Series II 42,239 1,205,499 12,732 290,407
========================================================================================================================
Reacquired:
Series I (5,743,301) (150,633,560) (6,547,697) (133,648,120)
- ------------------------------------------------------------------------------------------------------------------------
Series II (1,018,904) (26,955,516) (479,060) (9,722,870)
========================================================================================================================
3,192,772 $ 86,016,777 2,933,942 $ 62,540,346
________________________________________________________________________________________________________________________
========================================================================================================================
</Table>
(a) There are eight entities that are each record owners of more than 5% of
the outstanding shares of the Fund and in the aggregate they own 53% of
the outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with
these entities whereby these entities sell units of interest in separate
accounts funding variable products that are invested in the Fund. The
Fund, AIM and/or AIM affiliates may make payments to these entities,
which are considered to be related to the Fund, for providing services
to the Fund, AIM and/or AIM affiliates including but not limited to
services such as, securities brokerage, third party record keeping and
account servicing and administrative services. The Trust has no
knowledge as to whether all or any portion of the shares owned of record
by these shareholders are also owned beneficially.
NOTE 13--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 for 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
currently intends for the Fund to adopt FIN 48 provisions during the fiscal year
ending December 31, 2007.
AIM V.I. International Growth Fund
NOTE 14--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
-----------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
2006 2005 2004 2003 2002
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 23.17 $ 19.77 $ 16.04 $ 12.49 $ 14.91
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) 0.23 0.23 0.15 0.09 0.06
- -------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 6.32 3.31 3.70 3.54 (2.40)
=========================================================================================================================
Total from investment operations 6.55 3.54 3.85 3.63 (2.34)
=========================================================================================================================
Less dividends from net investment income (0.28) (0.14) (0.12) (0.08) (0.08)
=========================================================================================================================
Net asset value, end of period $ 29.44 $ 23.17 $ 19.77 $ 16.04 $ 12.49
_________________________________________________________________________________________________________________________
=========================================================================================================================
Total return(b) 28.28% 17.93% 24.00% 29.06% (15.67)%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $563,460 $444,608 $346,605 $290,680 $247,580
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratio of expenses to average net assets 1.10%(c) 1.11% 1.14% 1.10% 1.09%
=========================================================================================================================
Ratio of net investment income to average net assets 0.90%(c) 1.11% 0.90% 0.69% 0.41%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Portfolio turnover rate 34% 36% 48% 79% 71%
_________________________________________________________________________________________________________________________
=========================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns do not reflect charges assessed
in connection with a variable product, which if included would reduce
total returns.
(c) Ratios are based on average daily net assets of $497,824,497.
<Table>
<Caption>
SERIES II
-------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
2006 2005 2004 2003 2002
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 23.00 $ 19.65 $ 15.97 $ 12.45 $ 14.90
- ---------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) 0.17 0.18 0.11 0.06 0.03
- ---------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 6.25 3.30 3.66 3.51 (2.40)
=====================================================================================================================
Total from investment operations 6.42 3.48 3.77 3.57 (2.37)
=====================================================================================================================
Less dividends from net investment income (0.26) (0.13) (0.09) (0.05) (0.08)
=====================================================================================================================
Net asset value, end of period $ 29.16 $ 23.00 $ 19.65 $ 15.97 $ 12.45
_____________________________________________________________________________________________________________________
=====================================================================================================================
Total return(b) 27.92% 17.70% 23.63% 28.68% (15.89)%
_____________________________________________________________________________________________________________________
=====================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $163,657 $54,658 $21,497 $10,972 $ 4,751
_____________________________________________________________________________________________________________________
=====================================================================================================================
Ratio of expenses to average net assets 1.35%(c) 1.36% 1.39% 1.35% 1.31%(d)
=====================================================================================================================
Ratio of net investment income to average net assets 0.65%(c) 0.86% 0.65% 0.44% 0.19%
_____________________________________________________________________________________________________________________
=====================================================================================================================
Portfolio turnover rate 34% 36% 48% 79% 71%
_____________________________________________________________________________________________________________________
=====================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns do not reflect charges assessed
in connection with a variable product, which if included would reduce
total returns.
(c) Ratios are based on average daily net assets of $94,482,108.
(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% for the year ended December 31, 2002.
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
AIM V.I. International Growth Fund
NOTE 15--LEGAL PROCEEDINGS--(CONTINUED)
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. 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 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; 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. On September 15, 2006, the
MDL Court granted the AMVESCAP defendants' motion to dismiss the Amended Class
Action Complaint for Violations of ERISA and dismissed such Complaint. The
plaintiff has commenced an appeal from that decision.
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.
AIM V.I. International Growth Fund
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V.I. International Growth Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM V.I. International Growth Fund,
(one of the funds constituting AIM Variable Insurance Funds, hereafter referred
to as the "Fund") at December 31, 2006, the results of its operations for the
year then ended, the changes in its net assets and the financial highlights for
each of the two years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2006 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion. The financial highlights for each of the periods ended on or before
December 31, 2004 were audited by another independent registered public
accounting firm whose report dated February 4, 2005 expressed an unqualified
opinion on those statements.
PRICEWATERHOUSECOOPERS LLP
February 14, 2007
Houston, Texas
AIM V.I. International Growth Fund
TAX INFORMATION
Form 1099-DIV, Form 1042-S and other year-end tax information provide
shareholders with actual calendar year amounts that should be included in their
tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the
Internal Revenue Code or to meet a specific state's requirement.
The Fund designates the following amounts or, if subsequently determined to be
different, the maximum amount allowable for its fiscal year ended December 31,
2006:
FEDERAL AND STATE INCOME TAX
<Table>
Corporate Dividends Received Deduction* 0.00%
</Table>
* The above percentage is based on ordinary income dividends paid to
shareholders during the Fund's fiscal year.
For the fiscal year ended December 31, 2006, the amount of income received
by the Fund from sources within foreign countries and possessions of the United
States was $0.2948 per share (representing a total of $6,913,687). The amount of
taxes paid by the Fund to such countries for the fiscal year end December 31,
2006 was $0.0202 per share (representing a total of $473,132). The following
table provides a breakdown by country of ordinary income received and foreign
taxes paid by the Fund during the fiscal year ended December 31, 2006. The per
share amount is based on shareholders of record on December 8, 2006.
<Table>
<Caption>
COUNTRY GROSS INCOME % FOREIGN TAX PAID %
- ----------------------------------------------------------------------------------
Australia 1.61% 0.00%
- ----------------------------------------------------------------------------------
Austria 0.04% 0.14%
- ----------------------------------------------------------------------------------
Belgium 0.88% 3.57%
- ----------------------------------------------------------------------------------
Brazil 1.31% 2.65%
- ----------------------------------------------------------------------------------
Canada 2.46% 10.02%
- ----------------------------------------------------------------------------------
China 0.44% 0.00%
- ----------------------------------------------------------------------------------
France 5.31% 22.33%
- ----------------------------------------------------------------------------------
Germany 0.41% 1.66%
- ----------------------------------------------------------------------------------
Greece 2.76% 0.00%
- ----------------------------------------------------------------------------------
Hong Kong 2.01% 0.00%
- ----------------------------------------------------------------------------------
Hungary 1.29% 0.00%
- ----------------------------------------------------------------------------------
India 1.46% 0.00%
- ----------------------------------------------------------------------------------
Indonesia 0.91% 3.69%
- ----------------------------------------------------------------------------------
Ireland 1.55% 0.00%
- ----------------------------------------------------------------------------------
Israel 0.30% 1.29%
- ----------------------------------------------------------------------------------
Italy 0.27% 1.10%
- ----------------------------------------------------------------------------------
Japan 4.37% 8.28%
- ----------------------------------------------------------------------------------
Mexico 0.22% 0.00%
- ----------------------------------------------------------------------------------
The Netherlands 0.97% 3.97%
- ----------------------------------------------------------------------------------
Russia 0.41% 1.69%
- ----------------------------------------------------------------------------------
Singapore 2.25% 0.00%
- ----------------------------------------------------------------------------------
South Africa 1.74% 0.00%
- ----------------------------------------------------------------------------------
South Korea 0.94% 4.18%
- ----------------------------------------------------------------------------------
Spain 3.59% 14.64%
- ----------------------------------------------------------------------------------
Sweden 0.50% 2.03%
- ----------------------------------------------------------------------------------
Switzerland 3.99% 8.53%
- ----------------------------------------------------------------------------------
Taiwan 1.18% 10.07%
- ----------------------------------------------------------------------------------
Turkey 0.79% 0.16%
- ----------------------------------------------------------------------------------
United Kingdom 9.81% 0.00%
==================================================================================
Total 53.77% 0.00%
==================================================================================
United States 46.23% 0.00%
==================================================================================
TOTAL 100.00% 100.00%
__________________________________________________________________________________
==================================================================================
Foreign Tax Paid per share $0.0202
__________________________________________________________________________________
==================================================================================
</Table>
( )
AIM V.I. International Growth Fund
TRUSTEES AND OFFICERS
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management None
Trustee and Vice Chair Group Inc. (financial services holding
company); Director and Vice Chairman,
AMVESCAP PLC; Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm) and
Trustee and Vice Chair of The AIM Family
of Funds--Registered Trademark--
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer);
Chief Executive Officer, AMVESCAP
PLC -- Managed Products; and President
and Principal Executive Officer of The
AIM Family of Funds--Registered
Trademark--
- -------------------------------------------------------------------------------------------------------------------------------
Philip A. Taylor(2) -- 1954 2006 Director, Chief Executive Officer and None
Trustee, President and President, A I M Management Group Inc.,
Principal AIM Mutual Fund Dealer Inc. (registered
Executive Officer broker dealer), AIM Funds Management
Inc. (registered investment advisor) and
1371 Preferred Inc. (holding company);
Director and President, A I M Advisors,
Inc., INVESCO Funds Group, Inc.
(registered investment advisor and
register transfer agent) and AIM GP
Canada Inc. (general partner for a
limited partnership); Director, A I M
Capital Management, Inc. and A I M
Distributors, Inc.; Director and
Chairman, AIM Investment Services, Inc.,
Fund Management Company and INVESCO
Distributors, Inc. (registered broker
dealer); Director, President and
Chairman, AVZ Callco Inc. (holding
company); AMVESCAP Inc. (holding
company) and AIM Canada Holdings Inc.
(holding company); Director and Chief
Executive Officer, AIM Trimark Corporate
Class Inc. (formerly AIM Trimark Global
Fund Inc.) (corporate mutual fund
company) and AIM Trimark Canada Fund
Inc. (corporate mutual fund company);
Trustee, President and Principal
Executive Officer of The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); Trustee and
Executive Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); and Manager,
Powershares Capital Management LLC
Formerly: President and Principal
Executive Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); Chairman, AIM
Canada Holdings, Inc.; Executive Vice
President and Chief Operations Officer,
AIM Funds Management Inc.; President,
AIM Trimark Global Fund Inc. and AIM
Trimark Canada Fund Inc.; and Director,
Trimark Trust (federally regulated
Canadian Trust Company)
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company
Formerly: Partner, law firm of Baker & (2 portfolios))
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Founder, Green, Manning & Bunch Ltd., None
Trustee (investment banking firm); and Director,
Policy Studies, Inc. and Van Gilder
Insurance Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and None
Trustee private business corporations, including
the Boss Group Ltd. (private investment
and management); Cortland Trust, Inc.
(Chairman) (registered investment
company (3 portfolios)); Annuity and
Life Re (Holdings), Ltd. (insurance
company); CompuDyne Corporation
(provider of products and services to
the public security market); and
Homeowners of America Holding
Corporation (property casualty company)
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and Director of various
affiliated Volvo companies; and
Director, Magellan Insurance Company
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund
company); and Owner, Dos Angelos Ranch, (non-profit)
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- -------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company
(3 portfolios))
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired Director, Mainstay VP Series
Trustee Formerly: Partner, Deloitte & Touche Funds, Inc. (21 portfolios)
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
(2) Mr. Taylor is considered an interested person of the Trust because he is an
officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
TRUSTEES AND OFFICERS--(CONTINUED)
AIM V.I. International Growth Fund
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Senior Vice President and Senior Officer N/A
Senior Vice President and of The AIM Family of Funds--Registered
Senior Officer Trademark--
Formerly: Director of Compliance and
Assistant General Counsel, ICON
Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
John M. Zerr -- 1962 2006 Director, Senior Vice President, N/A
Senior Vice President, Chief Secretary and General Counsel, A I M
Legal Officer and Secretary Management Group Inc. and A I M
Advisors, Inc.; Director, Vice President
and Secretary, INVESCO Distributors,
Inc.; Vice President and Secretary,
A I M Capital Management, Inc., AIM
Investment Services, Inc., and Fund
Management Company; Senior Vice
President and Secretary, A I M
Distributors, Inc.; Director and Vice
President, INVESCO Funds Group Inc.;
Senior Vice President, Chief Legal
Officer and Secretary of The AIM Family
of Funds--Registered Trademark--; and
Manager, Powershares Capital Management
LLC
Formerly: Chief Operating Officer,
Senior Vice President, General Counsel,
and Secretary, Liberty Ridge Capital,
Inc. (an investment adviser); Vice
President and Secretary, PBHG Funds (an
investment company); Vice President and
Secretary, PBHG Insurance Series Fund
(an investment company); General Counsel
and Secretary, Pilgrim Baxter Value
Investors (an investment adviser); Chief
Operating Officer, General Counsel and
Secretary, Old Mutual Investment
Partners (a broker-dealer); General
Counsel and Secretary, Old Mutual Fund
Services (an administrator); General
Counsel and Secretary, Old Mutual
Shareholder Services (a shareholder
servicing center); Executive Vice
President, General Counsel and
Secretary, Old Mutual Capital, Inc. (an
investment adviser); and Vice President
and Secretary, Old Mutual Advisors Funds
(an investment company)
- ------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Global Compliance Director, AMVESCAP N/A
Vice President PLC; and Vice President of The AIM
Family of Funds--Registered Trademark--
Formerly: Senior Vice President, A I M
Management Group Inc. (financial
services holding company); Senior Vice
President and Chief Compliance Officer,
A I M Advisors, Inc. and The AIM Family
of Funds--Registered Trademark--; Vice
President and Chief Compliance Officer,
A I M Capital Management, Inc. and A I M
Distributors, Inc.; Vice President, AIM
Investment Services, Inc. and Fund
Management Company; Senior Vice
President and Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; and Senior Vice President
and Compliance Director, Delaware
Investments Family of Funds
- ------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Senior Vice President and General
Vice President Counsel, AMVESCAP PLC; Director, INVESCO
Funds Group, Inc.; and Vice President of
The AIM Family of Funds--Registered
Trademark--
Formerly: Director, Vice President and N/A
General Counsel, Fund Management
Company; Director, Senior Vice
President, Secretary and General
Counsel, A I M Management Group Inc. and
A I M Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Senior Vice President, A I M
Distributors, Inc.; Vice President,
A I M Capital Management, Inc. and AIM
Investment Services, Inc.; Senior Vice
President, Chief Legal Officer and
Secretary of The AIM Family of
Funds--Registered Trademark--; Chief
Executive Officer and President, INVESCO
Funds Group, Inc.; and Senior Vice
President, and General Counsel, Liberty
Financial Companies, Inc. and Senior
Vice President and General Counsel
Liberty Funds Group, LLC
- ------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President, Principal Advisors, Inc.; and Vice President,
Financial Officer and Treasurer and Principal Officer of The
Treasurer AIM Family of Funds--Registered
Trademark--
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
J. Philip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment Officer, A I M Advisors Inc.;
Director, Chairman, Chief Executive
Officer, President and Chief Investment
Officer, A I M Capital Management, Inc.;
Executive Vice President, A I M
Management Group Inc. and Vice President
of The AIM Family of Funds--Registered
Trademark--
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; and
Chief Equity Officer, Senior Vice
President and Senior Investment Officer,
A I M Capital Management, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc. and The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); and
President and Principal Executive
Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust Only)
Formerly: Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only)
- ------------------------------------------------------------------------------------------------------------------------------
Lance A. Rejsek -- 1967 2005 Anti-Money Laundering Compliance N/A
Anti-Money Laundering Officer, A I M Advisors, Inc., A I M
Compliance Officer Capital Management, Inc., A I M
Distributors, Inc., AIM Investment
Services, Inc., AIM Private Asset
Management, Inc., Fund Management
Company and The AIM Family of
Funds--Registered Trademark--
Formerly: Manager of the Fraud
Prevention Department, AIM Investment
Services, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
Todd L. Spillane -- 1958 2006 Senior Vice President, A I M Management N/A
Chief Compliance Officer Group Inc.; Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc.; and Vice President,
A I M Distributors, Inc., AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Global Head of Product
Development, AIG-Global Investment
Group, Inc.; Chief Compliance Officer
and Deputy General Counsel,
AIG-SunAmerica Asset Management; and
Chief Compliance Officer, Chief
Operating Officer and Deputy General
Counsel, American General Investment
Management
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers
Suite 100 11 Greenway Plaza Inc. LLP
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Ballard Spahr INDEPENDENT TRUSTEES AIM Investment State Street Bank and
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis Services, Inc. Trust Company
1735 Market Street, 51st & Frankel LLP P.O. Box 4739 225 Franklin Street
Floor 1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Philadelphia, PA 19103-7599 Americas
New York, NY 10036-2714
</Table>
Domestic Equity AIM V.I. LARGE CAP GROWTH FUND
Large-Cap Growth
Annual Report to Shareholders - December 31, 2006
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 [COVER GLOBE IMAGE]
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 in Washington, D.C. 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 AIM V.I. LARGE CAP GROWTH FUND seeks to
Services department at 800-410-4246 or on the AIM provide long-term growth of capital
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 UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT
click on Proxy Voting Activity. Next, select the IS AS OF DECEMBER 31, 2006 AND IS BASED ON TOTAL NET ASSETS.
DECEMBER 31, 2006, AND IS BASED ON TOTAL NET ASSETS.
Fund 2006, 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
[AIM INVESTMENTS LOGO] INVESTING.
- -- Registered Trademark--
========================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE AIM V.I. LARGE CAP GROWTH FUND
================================================================================ strong growth in earnings, revenue
and cash flows.
PERFORMANCE SUMMARY
- Quality. We seek companies with
For the year ended December 31, 2006, AIM V.I. Large Cap Growth Fund had sustainable earnings growth and
positive returns, excluding variable issuer charges, and narrowly underperformed management teams that reinvest
the Fund's style-specific index, the Russell 1000 --REGISTERED TRADEMARK-- shareholder cash flow profitably.
Growth Index. This underperformance was primarily due to stock selection in the
health care sector, as well as an underweight position in the consumer - Valuation. We focus on companies
discretionary sector. Some of this underperformance was offset by strong stock that are attractively valued given
selection in other sectors, including industrials, information technology, their growth potential.
telecommunication services and materials.
- Risk assessment. We avoid "high
The Fund underperformed the broad market as represented by the S&P 500 risk" companies as defined below.
- --REGISTERED TRADEMARK-- Index primarily due to the large weighting in value
stocks in the index, as well as weak performance and an overweight position in - Price momentum. We seek companies
the health care sector. with an upward trend in stock price.
However, the Fund outperformed peers as represented by the Lipper Our fundamental analysis seeks to
Large-Cap Growth Funds Index by a wide margin. determine the company's earnings
drivers and identify
Your Fund's long-term performance appears on pages 4-5. upside-to-earnings estimates. To
accomplish this goal, we examine
FUND VS. INDEXES financial statements and analyze
relevant trends, growth rates and the
TOTAL RETURNS, 12/31/05-12/31/06, EXCLUDING VARIABLE PRODUCT ISSUER CHARGES. IF competitive landscape. We often meet
VARIABLE PRODUCT ISSUER CHARGES WERE INCLUDED, RETURNS WOULD BE LOWER. with company management to evaluate
proprietary products and the quality
Series I Shares 8.05% of management. We believe stocks that
Series II Shares 7.81 pass our quantitative and fundamental
S&P 500 Index (Broad Market Index) 15.78 screens are more likely to
Russell 1000 Growth Index (Style-Specific Index) 9.07 outperform.
Lipper Large-Cap Growth Funds Index (Peer Group Index) 4.72
SOURCE: LIPPER INC. We construct the portfolio using a
bottom-up strategy--focusing on
================================================================================ stocks rather than industries or
sectors. While there are no formal
HOW WE INVEST yet reflected in investor sector guidelines or constraints,
expectations or equity valuations. internal controls and proprietary
We believe a growth investment software help us monitor risk levels
strategy is an essential component of Our quantitative model ranks and sector concentration.
a diversified portfolio. companies based on factors we have
found to be highly correlated with Our sell process is designed to avoid
Our investment process combines outperformance in the large-cap high-risk situations we believe lead
quantitative and fundamental analysis growth universe, including: to underperformance, including:
to uncover companies exhibiting
long-term, sustainable earnings and - Earnings. We focus on companies - Deteriorating business prospects.
cash flow growth that is not exhibiting
- Extended valuation.
===================================== ================================
- Slowing earnings growth.
- Weakened balance sheet.
==========================================
==================================================================================================================================
PORTFOLIO COMPOSITION TOP FIVE INDUSTRIES* TOP 10 EQUITY HOLDINGS*
- ----------------------------------------------------------------------------------------------------------------------------------
By sector 1. Aerospace & Defense 8.9% 1. Cisco Systems, Inc. 3.8%
Information Technology 21.4% 2. Investment Banking & Brokerage 8.3 2. Hewlett-Packard Co. 3.7
Financials 15.7 3. Systems Software 6.3 3. Goldman Sachs Group, Inc (The) 3.6
Industrials 15.0 4. Pharmaceuticals 5.9 4. Lockheed Martin Corp. 3.0
Health Care 14.8 5. Department Stores 5.7 5. America Movil S.A. de C.V.-Series
Consumer Discretionary 14.5 Total Net Assets $122.77 million L-ADR (Mexico) 2.8
Consumer Staples 6.0 Total Number of Holdings* 66 6. Accenture Ltd.-Class A 2.5
Materials 4.4 7. Oracle Corp. 2.4
Telecommunication Services 4.0 8. Lehman Brothers Holdings Inc. 2.2
Energy 2.7 9. News Corp.-Class A 2.2
10. ABB Ltd. (Switzerland) 2.2
Money Market Funds Plus
Other Assets Less Liabilities 1.5
*Excluding money market fund holdings.
The Fund's holdings are subject to change, and there is no assurance that the
Fund will continue to hold any particular security.
====================================================================================================================================
2
MARKET CONDITIONS AND YOUR FUND AIM V.I. LARGE CAP GROWTH FUND
Domestic equities posted solid returns during Fund holding AMERICA MOPVIL, Latin America's to our investment process of
the year, with several major market indexes leading mobile phone provider, performed well focusing on the attractively priced
near-multiyear highs. Strong economic growth, due to continued subscriber growth throughout stocks of large-cap growth
favorable corporate earnings results and Latin America, where the company continues to companies with sustainable cash
continued benign inflation supported grow rapidly. flow and earnings growth. We thank
equities, despite high energy prices, a you for your commitment to AIM V.I.
slowing housing market and the U.S. Federal In the financials sector, investment Large Cap Growth Fund.
Reserve Board's (the Fed) tightening banking and brokerage stocks generally
campaign. continued to perform well during the year. THE VIEWS AND OPINIONS EXPRESSED IN
Our investment process led us to an MANAGEMENT'S DISCUSSION OF FUND
Although mixed signals from the Fed overweight position versus the style-specific PERFORMANCE ARE THOSE OF A I M
created some market volatility in May and benchmark in this area. Several of the Fund's ADVISORS, INC. THESE VIEWS AND
June, the market began to rally when the Fed holdings contributed to performance, OPINIONS ARE SUBJECT TO CHANGE AT
left interest rates unchanged at several including GOLDMAN SACHS GROUP, LEHMAN ANY TIME BASED ON FACTORS SUCH AS
meetings beginning in August. In addition, BROTHERS, BEAR STEARNS Companies and Morgan MARKET AND ECONOMIC CONDITIONS.
the price of crude oil and other commodities Stanley. Favorable capital markets and solid THESE VIEWS AND OPINIONS MAY NOT BE
stabilized, fostering optimism that a hard merger and acquisition activity continued to RELIED UPON AS INVESTMENT ADVICE OR
landing for the U.S. economy could be drive these stocks during the year. RECOMMENDATIONS, OR AS AN OFFER FOR
avoided. While small-cap stocks continued to A PARTICULAR SECURITY. THE
lead the market higher, large- and mid-cap The Fund underperformed the Russell 1000 INFORMATION IS NOT A COMPLETE
stocks also had double-digit returns. Growth Index by the widest margin in the ANALYSIS OF EVERY ASPECT OF ANY
Additionally, value stocks outperformed health care sector. The Fund's MARKET, COUNTRY, INDUSTRY, SECURITY
growth stocks. Positive performance was broad underperformance in this sector was driven OR THE FUND. STATEMENTS OF FACT ARE
among S&P 500 sectors, with the best returns primarily by several health care providers FROM SOURCES CONSIDERED RELIABLE,
found in telecommunication services, energy, and services holdings--AETNA, UNITEDHEALTH BUT A I M ADVISORS, INC. MAKES NO
utilities and financials. GROUP and CIGNA. In addition, eye care REPRESENTATION OR WARRANTY AS TO
holding ALCON INC. was a significant THEIR COMPLETENESS OR ACCURACY.
The Fund posted a modest absolute return detractor. With the exception of UnitedHealth ALTHOUGH HISTORICAL PERFORMANCE IS
in a year that strongly favored the value Group, these holdings were sold before the NO GUARANTEE OF FUTURE RESULTS,
style of investing over the growth style. close of the fiscal year. THESE INSIGHTS MAY HELP YOU
Outperformance versus the Russell 1000 Growth UNDERSTAND OUR INVESTMENT
Index in the industrials, materials, The Fund also underperformed in the MANAGEMENT PHILOSOPHY.
telecommunication services and financials consumer discretionary sector, where two
sectors was offset by underperformance in the holdings in the specialty retail industry Geoffrey V. Keeling
health care and consumer discretionary drove underperformance--BEST BUY and CIRCUIT [KEELING Chartered
sectors. CITY. These two holdings were subsequently PHOTO] Financial Analyst,
sold. An underweight position in the sector senior portfolio
The industrials sector benefited from a relative to the style-specific benchmark also manager, is co-manager of
broad-based rally during the first quarter of detracted from performance. AIM V.I. Large Cap Growth
2006, and the Fund outperformed the benchmark Fund. He joined AIM in 1995 and
Russell 1000 Growth Index in this sector due Our investment process led us to reduce assumed his present responsibi-
to strong stock selection. Specific areas of exposure to the health care, energy and lities in 1999. Mr. Keeling
strength for the Fund included the aerospace information technology sectors due to less earned a B.B.A. in finance from The
and defense and electrical equipment upside-to-earnings estimates. Proceeds from University of Texas at Austin.
industries. Aerospace and defense holdings these sales were primarily invested in a
that performed particularly well included number of attractive opportunities in the
LOCKHEED MARTIN, BOEING and GENERAL DYNAMICS. consumer discretionary, consumer staples, [SHOSS Robert L. Shoss
In the electrical equipment area, ABB LTD was industrials and materials sectors. All PHOTO] Senior portfolio manager,
one of the Fund's top contributors during the changes to the Fund were based on our is co-manager of AIM
year. bottom-up stock selection process of V.I. Large Cap Growth Fund.
identifying high-quality growth companies He joined AIM in 1995 and
Outperformance in the materials sector was trading at what we believe are attractive assumed his present
driven largely by stock selection and an valuations. responsibilities in 1999. Mr.
overweight position relative to the Shoss earned a B.A from The
style-specific index in metals and mining IN CLOSING University of Texas at Austin
stocks. In this area, copper producer PHELPS and an M.B.A. and a J.D. from
DODGE made a significant contribution to Fund Although we are pleased to have provided the University of Houston.
returns. positive returns for our investors for the
year, we are always striving to improve Assisted by the Large/Multi-Cap
In the telecommunication services sector, performance. We remain committed Growth Team
the Fund benefited from strong stock
selection in the wireless telecommunication FOR A DISCUSSION OF THE RISKS
services area. OF INVESTING IN YOUR FUND,
INDEXES USED IN THIS REPORT
AND YOUR FUND'S LONG-TERM
PERFORMANCE, PLEASE SEE PAGES
4-5.
3
YOUR FUND'S LONG-TERM PERFORMANCE AIM V.I. LARGE CAP GROWTH FUND
==========================================
AVERAGE ANNUAL TOTAL RETURNS RESULTS; CURRENT PERFORMANCE MAY BE LOWER PRODUCT VALUES. THEY DO NOT REFLECT SALES
- ------------------------------------------ OR HIGHER. PLEASE CONTACT YOUR VARIABLE CHARGES, EXPENSES AND FEES ASSESSED IN
As of 12/31/06 PRODUCT ISSUER OR FINANCIAL ADVISOR FOR CONNECTION WITH A VARIABLE PRODUCT. SALES
SERIES I SHARES THE MOST RECENT MONTH-END VARIABLE PRODUCT CHARGES, EXPENSES AND FEES, WHICH ARE
Inception (8/29/03) 10.14% PERFORMANCE. PERFORMANCE FIGURES REFLECT DETERMINED BY THE VARIABLE PRODUCT
1 Year 8.05 FUND EXPENSES, REINVESTED DISTRIBUTIONS ISSUERS, WILL VARY AND WILL LOWER THE
AND CHANGES IN NET ASSET VALUE. INVESTMENT TOTAL RETURN.
SERIES II SHARES RETURN AND PRINCIPAL VALUE WILL FLUCTUATE
Inception (8/29/03) 9.94% SO THAT YOU MAY HAVE A GAIN OR LOSS WHEN PER NASD REQUIREMENTS, THE MOST RECENT
1 Year 7.81 YOU SELL SHARES. SERIES I AND SERIES II MONTH-END PERFORMANCE DATA AT THE FUND
SHARES INVEST IN THE SAME PORTFOLIO OF LEVEL, EXCLUDING VARIABLE PRODUCT
=================================== SECURITIES AND WILL HAVE SUBSTANTIALLY CHARGES, IS AVAILABLE ON THIS AIM
SIMILAR PERFORMANCE, EXCEPT TO THE EXTENT AUTOMATED INFORMATION LINE, 866-702-4402.
CUMULATIVE TOTAL RETURNS THAT EXPENSES BORNE BY EACH CLASS DIFFER. AS MENTIONED ABOVE, FOR THE MOST RECENT
- ------------------------------------------ MONTH-END PERFORMANCE INCLUDING VARIABLE
6 months ended 12/31/06 AIM V.I. LARGE CAP GROWTH FUND, A PRODUCT CHARGES, PLEASE CONTACT YOUR
Series I Shares 8.73% SERIES PORTFOLIO OF AIM VARIABLE INSURANCE VARIABLE PRODUCT ISSUER OR FINANCIAL
Series II Shares 8.58 FUNDS, IS CURRENTLY OFFERED THROUGH ADVISOR.
=================================== INSURANCE COMPANIES ISSUING VARIABLE
PRODUCTS. YOU CANNOT PURCHASE SHARES OF HAD THE ADVISOR NOT WAIVED FEES AND/OR
THE PERFORMANCE OF THE FUND'S SERIES I AND THE FUND DIRECTLY. PERFORMANCE FIGURES REIMBURSED EXPENSES, PERFORMANCE WOULD
SERIES II SHARE CLASSES WILL DIFFER GIVEN REPRESENT THE FUND AND ARE NOT HAVE BEEN LOWER.
PRIMARILY DUE TO DIFFERENT CLASS EXPENSES. INTENDED TO REFLECT ACTUAL VARIABLE
THE PERFORMANCE DATA QUOTED REPRESENT
PAST PERFORMANCE AND CANNOT GUARANTEE
COMPARABLE FUTURE
====================================================================================================================================
PRINCIPAL RISKS OF INVESTING IN THE FUND
The Fund invests in synthetic Large-Cap Growth Funds Index, recently
Prices of equity securities change in instruments, the value of which may not published by Lipper Inc., comprises the
response to many factors including the correlate perfectly with the overall largest underlying funds in each variable
historical and prospective earnings of the securities markets. Rising interest rates insurance category and does not include
issuer, the value of its assets, general and market price fluctuations will affect mortality and expense fees.
economic conditions, interest rates, the performance of the Fund's investments
investor perceptions and market liquidity. in synthetic instruments. Also, synthetic The Fund is not managed to track the
instruments are subject to counter party performance of any particular index,
The value of convertible securities in risk--the risk that the other party in the including the indexes defined here, and
which the Fund invests may be affected by transaction will not fulfill its consequently, the performance of the Fund
market interest rates, the risk that the contractual obligation to complete the may deviate significantly from the
issuer may default on interest or transaction with the Fund. performance of the index.
principal payments and the value of the
underlying common stock into which these ABOUT INDEXES USED IN THIS REPORT A direct investment cannot be made in
securities may be converted. an index. Unless otherwise indicated,
The unmanaged STANDARD & POOR'S COMPOSITE index results include reinvested
Foreign securities have additional INDEX OF 500 Stocks (the S&P 500 Index) is dividends, and they do not reflect sales
risks, including exchange rate changes, an index of common stocks frequently used charges. Performance of an index of funds
political and economic upheaval, the as a general measure of U.S. stock market reflects fund expenses; performance of a
relative lack of information about these performance. market index does not.
companies, relatively low market liquidity
and the potential lack of strict financial OTHER INFORMATION
and accounting controls and standards.
The returns shown in the management's
If the seller of a repurchase agreement The unmanaged Russell 1000 Growth Index discussion of Fund performance are based
in which the Fund invests defaults on its is a subset of the unmanaged Russell 1000 on net asset values calculated for
obligation or declares bankruptcy, the Index, which represents the performance of shareholder transactions. Generally
Fund may experience delays in selling the the stocks of large-capitalization accepted accounting principles require
securities underlying the repurchase companies; the Growth subset measures the adjustments to be made to the net assets
agreement. performance of Russell 1000 companies with of the Fund at period end for financial
higher price/book ratios and higher reporting purposes, and as such, the net
There is no guarantee that the forecasted growth values. The Russell 1000 asset values for shareholder transactions
investment techniques and risk analyses Index is a trademark/service mark of the and the returns based on those net asset
used by the Fund's portfolio managers will Frank Russell Company. Russell values may differ from the net asset
produce the desired results. --Registered Trademark-- is a trademark of values and returns reported in the
the Frank Russell Company. Financial Highlights. Additionally, the
returns and net asset values shown
The unmanaged LIPPER LARGE-CAP GROWTH throughout this report are at the Fund
FUNDS INDEX represents an average of the level only and do not include variable
performance of the 30 largest product issuer charges. If such charges
large-capitalization growth funds tracked were included, the total returns would be
by Lipper Inc., an independent mutual fund lower.
performance monitor.
Industry classifications used in this
In conjunction with the annual report are generally according to the
prospectus update on or about May 1, 2007, Global Industry Classification Standard,
the AIM V.I. Large Cap Growth Fund which was developed by and is the
prospectus will be amended to reflect that exclusive property and a service mark of
the Fund has elected to use the Lipper Morgan Stanley Capital International Inc.
Variable Underlying Funds (VUF) Large-Cap and Standard & Poor's.
Growth Funds Index as its peer group
rather than the Lipper Large-Cap Growth The Chartered Financial Analyst
Funds Index. The Lipper VUF --Registered Trademark-- (CFA --Registered
Trademark--) designation is a globally
recognized standard for measuring the
competence and integrity of investment
professionals.
4
AIM V.I. LARGE CAP GROWTH FUND
Past performance cannot guarantee
comparable future results.
5
RESULTS OF A $10,000 INVESTMENT
Fund data from 8/29/03, index data from 08/31/03
[MOUNTAIN CHART]
AIM V.I. LARGE AIM V.I. LARGE
CAP GROWTH FUND CAP GROWTH FUND LIPPER
DATE -SERIES I SHARES -SERIES II SHARES S&P 500 INDEX RUSSELL 1000 GROWTH INDEX LARGE-CAP GROWTH FUNDS INDEX
- --------------------------------------------------------------------------------------------------------------------------------
8/29/03 $ 10000 $ 10000
8/03 10000 10000 $ 10000 $ 10000 $ 10000
9/03 9840 9840 9894 9893 9787
10/03 10610 10610 10454 10449 10381
11/03 10830 10830 10545 10558 10480
12/03 10917 10911 11098 10923 10775
1/04 11107 11101 11302 11146 10982
2/04 11117 11111 11459 11217 11029
3/04 11177 11171 11286 11009 10906
4/04 10916 10911 11109 10881 10661
5/04 11257 11241 11261 11084 10854
6/04 11457 11442 11480 11222 11010
7/04 10777 10761 11100 10588 10359
8/04 10676 10661 11145 10536 10286
9/04 10987 10971 11265 10636 10527
10/04 10958 10941 11437 10802 10654
11/04 11569 11542 11900 11173 11129
12/04 11909 11881 12305 11611 11578
1/05 11617 11590 12005 11224 11180
2/05 11738 11711 12257 11344 11253
3/05 11547 11520 12041 11137 11048
4/05 11075 11049 11812 10925 10808
5/05 11617 11591 12188 11453 11408
6/05 11777 11752 12205 11411 11430
7/05 12148 12113 12659 11969 12005
8/05 11998 11963 12544 11815 11877
9/05 12329 12294 12645 11869 12019
10/05 12169 12123 12434 11754 11941
11/05 12691 12645 12904 12261 12488
12/05 12777 12731 12909 12222 12456
1/06 13421 13363 13250 12437 12795
2/06 13190 13132 13286 12417 12623
3/06 13412 13353 13452 12601 12745
4/06 13412 13344 13632 12583 12725
5/06 12688 12620 13240 12157 12131
6/06 12698 12641 13258 12109 12091
7/06 12597 12531 13340 11878 11782
8/06 12759 12691 13656 12249 12054
9/06 13041 12973 14008 12585 12314
10/06 13442 13364 14464 13028 12685
11/06 13644 13565 14739 13286 12975
12/06 13805 13725 14946 13331 13043
================================================================================================================================
SOURCE: LIPPER INC.
CALCULATING YOUR ONGOING FUND EXPENSES
AIM V.I. LARGE CAP GROWTH FUND
EXAMPLE ACTUAL EXPENSES 5% per year before expenses, which is not
the Fund's actual return. The Fund's
As a shareholder of the Fund, you incur The table below provides information about actual cumulative total returns at net
ongoing costs, including management fees; actual account values and actual expenses. asset value after expenses for the six
distribution and/or service (12b-1) fees; You may use the information in this table, months ended December 31, 2006, appear in
and other Fund expenses. This example is together with the amount you invested, to the table "Cumulative Total Returns" on
intended to help you understand your estimate the expenses that you paid over page 4.
ongoing costs (in dollars) of investing in the period. Simply divide your account
the Fund and to compare these costs with value by $1,000 (for example, an $8,600 The hypothetical account values and
ongoing costs of investing in other mutual account value divided by $1,000 = 8.6), expenses may not be used to estimate the
funds. The example is based on an then multiply the result by the number in actual ending account balance or expenses
investment of $1,000 invested at the the table under the heading entitled you paid for the period. You may use this
beginning of the period and held for the "Actual Expenses Paid During Period" to information to compare the ongoing costs
entire period July 1, 2006, through estimate the expenses you paid on your of investing in the Fund and other funds.
December 31, 2006. account during this period. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples
The actual and hypothetical expenses in HYPOTHETICAL EXAMPLE FOR COMPARISON that appear in the shareholder reports of
the examples below do not represent the PURPOSES the other funds.
effect of any fees or other expenses
assessed in connection with a variable The table below also provides information Please note that the expenses shown in
product; if they did, the expenses shown about hypothetical account values and the table are meant to highlight your
would be higher while the ending account hypothetical expenses based on the Fund's ongoing costs. Therefore, the hypothetical
values shown would be lower. actual expense ratio and an assumed rate information is useful in comparing ongoing
of return of costs only, and will not help you
determine the relative total costs of
owning different funds.
====================================================================================================================================
HYPOTHETICAL
ACTUAL (5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (7/1/06) (12/31/06)(1) PERIOD(2) (12/31/06) PERIOD(2) RATIO
- -------------------------------------------------------------------------------------------------------------------
Series I $ 1,000.00 $ 1,087.30 $ 5.37 $ 1,020.06 $5.19 1.02%
Series II 1,000.00 1,085.80 6.68 1,018.80 6.46 1.27
(1) The actual ending account value is based on the actual total return of the Fund for the period July 1, 2006, through
December 31, 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 December 31, 2006, appear in the table "Cumulative Total Returns" on page
4.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value
over the period, multiplied by 184/365 to reflect the most recent fiscal half year.
===================================================================================================================================
6
APPROVAL OF INVESTMENT ADVISORY AGREEMENT AIM V.I. LARGE CAP GROWTH FUND
The Board of Trustees of AIM Variable - The nature and extent of the advisory the independent written evaluation of the
Insurance Funds (the "Board") oversees the services to be provided by AIM. The Board Fund's Senior Officer (discussed below)
management of AIM V.I. Large Cap Growth reviewed the services to be provided by only considered Fund performance through
Fund (the "Fund") and, as required by law, AIM under the Advisory Agreement. Based on the most recent calendar year, the Board
determines annually whether to approve the such review, the Board concluded that the also reviewed more recent Fund
continuance of the Fund's advisory range of services to be provided by AIM performance, which did not change their
agreement with A I M Advisors, Inc. under the Advisory Agreement was conclusions.
("AIM"). Based upon the recommendation of appropriate and that AIM currently is
the Investments Committee of the Board, at providing services in accordance with the - Meetings with the Fund's portfolio
a meeting held on June 27, 2006, the terms of the Advisory Agreement. managers and investment personnel. With
Board, including all of the independent respect to the Fund, the Board is meeting
trustees, approved the continuance of the - The quality of services to be provided periodically with such Fund's portfolio
advisory agreement (the "Advisory by AIM. The Board reviewed the credentials managers and/or other investment personnel
Agreement") between the Fund and AIM for and experience of the officers and and believes that such individuals are
another year, effective July 1, 2006. employees of AIM who will provide competent and able to continue to carry
investment advisory services to the Fund. out their responsibilities under the
The Board considered the factors In reviewing the qualifications of AIM to Advisory Agreement.
discussed below in evaluating the fairness provide investment advisory services, the
and reasonableness of the Advisory Board considered such issues as AIM's - Overall performance of AIM. The Board
Agreement at the meeting on June 27, 2006 portfolio and product review process, considered the overall performance of AIM
and as part of the Board's ongoing various back office support functions in providing investment advisory and
oversight of the Fund. In their provided by AIM and AIM's equity and fixed portfolio administrative services to the
deliberations, the Board and the income trading operations. Based on the Fund and concluded that such performance
independent trustees did not identify any review of these and other factors, the was satisfactory.
particular factor that was controlling, Board concluded that the quality of
and each trustee attributed different services to be provided by AIM was - Fees relative to those of clients of AIM
weights to the various factors. appropriate and that AIM currently is with comparable investment strategies. The
providing satisfactory services in Board reviewed the effective advisory fee
One responsibility of the independent accordance with the terms of the Advisory rate (before waivers) for the Fund under
Senior Officer of the Fund is to manage Agreement. the Advisory Agreement. The Board noted
the process by which the Fund's proposed that this rate was (i) above the effective
management fees are negotiated to ensure - The performance of the Fund relative to advisory fee rates (before waivers) for
that they are negotiated in a manner which comparable funds. The Board reviewed the two mutual funds advised by AIM with
is at arms' length and reasonable. To that performance of the Fund during the past investment strategies comparable to those
end, the Senior Officer must either calendar year against the performance of of the Fund; (ii) above the effective
supervise a competitive bidding process or funds advised by other advisors with advisory and sub-advisory fee rates for
prepare an independent written evaluation. investment strategies comparable to those one offshore fund advised by an AIM
The Senior Officer has recommended an of the Fund. The Board noted that the affiliate and sub-advised by AIM with
independent written evaluation in lieu of Fund's performance was below the median investment strategies comparable to those
a competitive bidding process and, upon performance of such comparable funds for of the Fund; (iv) above the effective
the direction of the Board, has prepared the one year period. Based on this review sub-advisory fee rates for two variable
such an independent written evaluation. and after taking account of all of the insurance funds sub-advised by an AIM
Such written evaluation also considered other factors that the Board considered in affiliate and offered to insurance company
certain of the factors discussed below. In determining whether to continue the separate accounts with investment
addition, as discussed below, the Senior Advisory Agreement for the Fund, the Board strategies comparable to those of the
Officer made a recommendation to the Board concluded that no changes should be made Fund, although the total advisory fees for
in connection with such written to the Fund and that it was not necessary such variable insurance funds were above
evaluation. to change the Fund's portfolio management those for the Fund; and (v) above the
team at this time. Although total advisory fee rates for 19 separately
The discussion below serves as a the independent written evaluation of the managed accounts/wrap accounts managed by
summary of the Senior Officer's Fund's Senior Officer (discussed below) an AIM affiliate with investment
independent written evaluation and only considered Fund performance through strategies comparable to those of the
recommendation to the Board in connection the most recent calendar year, the Board Fund. The Board noted that AIM has agreed
therewith, as well as a discussion of the also reviewed more recent Fund to waive advisory fees of the Fund and to
material factors and the conclusions with performance, which did not change their limit the Fund's total operating expenses,
respect thereto that formed the basis for conclusions. as discussed below. Based on this review,
the Board's approval of the Advisory the Board concluded that the advisory fee
Agreement. After consideration of all of - The performance of the Fund relative to rate for the Fund under the Advisory
the factors below and based on its indices. The Board reviewed the Agreement was fair and reasonable.
informed business judgment, the Board performance of the Fund during the past
determined that the Advisory Agreement is calendar year against the performance of - Fees relative to those of comparable
in the best interests of the Fund and its the Lipper Variable Underlying Fund funds with other advisors. The Board
shareholders and that the compensation to Large-Cap Growth Index. The Board noted reviewed the advisory fee rate for the
AIM under the Advisory Agreement is fair that the Fund's performance was below the Fund under the Advisory Agreement. The
and reasonable and would have been performance of such Index for the one year Board compared effective contractual
obtained through arm's length period. Based on this review and after advisory fee rates at a common asset level
negotiations. taking account of all of the other factors at the end of the calendar year and noted
that the Board considered in determining that the Fund's rate was comparable to the
Unless otherwise stated, information whether to continue the Advisory Agreement median rate of the funds advised by other
presented below is as of June 27, 2006 and for the Fund, the Board concluded that no advisors with investment strategies
does not reflect any changes that may have changes should be made to the Fund and comparable to those of the Fund that the
occurred since June 27, 2006, including that it was not necessary to change the Board reviewed. The Board noted that AIM
but not limited to changes to the Fund's Fund's portfolio management team at this has agreed to waive advisory fees of the
performance, advisory fees, expense time. Although Fund and
limitations and/or fee waivers.
(continued)
7
AIM V.I. LARGE CAP GROWTH FUND
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 - Benefits of soft dollars to AIM. The
advisory fee rate for the Fund under the money market funds, including a higher net Board considered the benefits realized by
Advisory Agreement was fair and return, increased liquidity, increased AIM as a result of brokerage transactions
reasonable. diversification or decreased transaction executed through "soft dollar"
costs. The Board also found that the Fund arrangements. Under these arrangements,
- - Expense limitations and fee waivers. The will not receive reduced services if it brokerage commissions paid by the Fund
Board noted that AIM has contractually invests its cash balances in such money and/or other funds advised by AIM are used
agreed to waive advisory fees of the Fund market funds. The Board noted that, to the to pay for research and execution
through December 31, 2009 to the extent extent the Fund invests uninvested cash in services. This research may be used by AIM
necessary so that the advisory fees affiliated money market funds, AIM has in making investment decisions for the
payable by the Fund do not exceed a voluntarily agreed to waive a portion of Fund. The Board concluded that such
specified maximum advisory fee rate, which the advisory fees it receives from the arrangements were appropriate.
maximum rate includes breakpoints and is Fund attributable to such investment. The
based on net asset levels. The Board Board further determined that the proposed - AIM's financial soundness in light of
considered the contractual nature of this securities lending program and related the Fund's needs. The Board considered
fee waiver and noted that it remains in procedures with respect to the lending whether AIM is financially sound and has
effect until December 31, 2009. The Board Fund is in the best interests of the the resources necessary to perform its
noted that AIM has contractually agreed to lending Fund and its respective obligations under the Advisory Agreement,
waive fees and/or limit expenses of the shareholders. The Board therefore and concluded that AIM has the financial
Fund through April 30, 2008 in an amount concluded that the investment of cash resources necessary to fulfill its
necessary to limit total annual operating collateral received in connection with the obligations under the Advisory Agreement.
expenses to a specified percentage of securities lending program in the money
average daily net assets for each class of market funds according to the procedures - Historical relationship between the Fund
the Fund. The Board considered the is in the best interests of the lending and AIM. In determining whether to
contractual nature of this fee Fund and its respective shareholders. continue the Advisory Agreement for the
waiver/expense limitation and noted that Fund, the Board also considered the prior
it remains in effect until April 30, 2008. - Independent written evaluation and relationship between AIM and the Fund, as
The Board considered the effect these fee recommendations of the Fund's Senior well as the Board's knowledge of AIM's
waivers/expense limitations would have on Officer. The Board noted that, upon their operations, and concluded that it was
the Fund's estimated expenses and direction, the Senior Officer of the Fund, beneficial to maintain the current
concluded that the levels of fee who is independent of AIM and AIM's relationship, in part, because of such
waivers/expense limitations for the Fund affiliates, had prepared an independent knowledge. The Board also reviewed the
were fair and reasonable. written evaluation in order to assist the general nature of the non-investment
Board in determining the reasonableness of advisory services currently performed by
- - Breakpoints and economies of scale. The the proposed management fees of the AIM AIM and its affiliates, such as
Board reviewed the structure of the Fund's Funds, including the Fund. The Board noted administrative, transfer agency and
advisory fee under the Advisory Agreement, that the Senior Officer's written distribution services, and the fees
noting that it includes two breakpoints. evaluation had been relied upon by the received by AIM and its affiliates for
The Board reviewed the level of the Fund's Board in this regard in lieu of a performing such services. In addition to
advisory fees, and noted that such fees, competitive bidding process. In reviewing such services, the trustees also
as a percentage of the Fund's net assets, determining whether to continue the considered the organizational structure
would decrease as net assets increase Advisory Agreement for the Fund, the Board employed by AIM and its affiliates to
because the Advisory Agreement includes considered the Senior Officer's written provide those services. Based on the
breakpoints. The Board noted that, due to evaluation and the recommendation made by review of these and other factors, the
the Fund's asset levels at the end of the the Senior Officer to the Board that the Board concluded that AIM and its
past calendar year and the way in which Board consider whether the advisory fee affiliates were qualified to continue to
the advisory fee breakpoints have been waivers for certain equity AIM Funds, provide non-investment advisory services
structured, the Fund has yet to benefit including the Fund, should be simplified. to the Fund, including administrative,
from the breakpoints. The Board noted that The Board concluded that it would be transfer agency and distribution services,
AIM has contractually agreed to waive advisable to consider this issue and reach and that AIM and its affiliates currently
advisory fees of the Fund through December a decision prior to the expiration date of are providing satisfactory non-investment
31, 2009 to the extent necessary so that such advisory fee waivers. advisory services.
the advisory fees payable by the Fund do
not exceed a specified maximum advisory - Profitability of AIM and its affiliates. - Other factors and current trends. The
fee rate, which maximum rate includes The Board reviewed information concerning Board considered the steps that AIM and
breakpoints and is based on net asset the profitability of AIM's (and its its affiliates have taken over the last
levels. The Board concluded that the affiliates') investment advisory and other several years, and continue to take, in
Fund's fee levels under the Advisory activities and its financial condition. order to improve the quality and
Agreement therefore would reflect The Board considered the overall efficiency of the services they provide to
economies of scale at higher asset levels profitability of AIM, as well as the the Funds in the areas of investment
and that it was not necessary to change profitability of AIM in connection with performance, product line diversification,
the advisory fee breakpoints in the Fund's managing the Fund. The Board noted that distribution, fund operations, shareholder
advisory fee schedule. AIM's operations remain profitable, services and compliance. The Board
although increased expenses in recent concluded that these steps taken by AIM
- - Investments in affiliated money market years have reduced AIM's profitability. have improved, and are likely to continue
funds. The Board also took into account Based on the review of the profitability to improve, the quality and efficiency of
the fact that uninvested cash and cash of AIM's and its affiliates' investment the services AIM and its affiliates
collateral from securities lending advisory and other activities and its provide to the Fund in each of these
arrangements, if any (collectively, "cash financial condition, the Board concluded areas, and support the Board's approval of
balances") of the Fund may be invested in that the compensation to be paid by the the continuance of the Advisory Agreement
money market funds advised by AIM pursuant Fund to AIM under its for the Fund.
to the terms of an SEC
8
AIM V.I. Large Cap Growth Fund
SCHEDULE OF INVESTMENTS
December 31, 2006
<Table>
<Caption>
SHARES VALUE
- ---------------------------------------------------------------------
DOMESTIC COMMON STOCKS-83.84%
AEROSPACE & DEFENSE-8.91%
Boeing Co. (The) 26,004 $ 2,310,195
- ---------------------------------------------------------------------
General Dynamics Corp. 29,665 2,205,593
- ---------------------------------------------------------------------
Lockheed Martin Corp. 39,775 3,662,084
- ---------------------------------------------------------------------
Northrop Grumman Corp. 14,456 978,671
- ---------------------------------------------------------------------
Raytheon Co. 33,662 1,777,354
=====================================================================
10,933,897
=====================================================================
APPAREL RETAIL-1.92%
American Eagle Outfitters, Inc. 36,494 1,138,962
- ---------------------------------------------------------------------
TJX Cos., Inc. (The) 42,792 1,220,428
=====================================================================
2,359,390
=====================================================================
APPLICATION SOFTWARE-3.00%
Amdocs Ltd.(a) 58,935 2,283,731
- ---------------------------------------------------------------------
BEA Systems, Inc.(a) 111,182 1,398,670
=====================================================================
3,682,401
=====================================================================
AUTOMOTIVE RETAIL-0.77%
AutoZone, Inc.(a) 8,200 947,592
=====================================================================
BREWERS-0.99%
Anheuser-Busch Cos., Inc. 24,747 1,217,552
=====================================================================
BROADCASTING & CABLE TV-0.78%
Comcast Corp.-Class A(a) 22,500 952,425
=====================================================================
COMMUNICATIONS EQUIPMENT-5.16%
Cisco Systems, Inc.(a) 172,428 4,712,457
- ---------------------------------------------------------------------
Motorola, Inc. 79,224 1,628,846
=====================================================================
6,341,303
=====================================================================
COMPUTER HARDWARE-3.67%
Hewlett-Packard Co. 109,482 4,509,564
=====================================================================
DEPARTMENT STORES-5.69%
J.C. Penney Co., Inc. 22,796 1,763,499
- ---------------------------------------------------------------------
Kohl's Corp.(a) 20,771 1,421,359
- ---------------------------------------------------------------------
Nordstrom, Inc. 47,436 2,340,492
- ---------------------------------------------------------------------
Sears Holdings Corp.(a) 8,661 1,454,442
=====================================================================
6,979,792
=====================================================================
DIVERSIFIED METALS & MINING-1.92%
Phelps Dodge Corp. 19,730 2,362,076
=====================================================================
ENVIRONMENTAL & FACILITIES SERVICES-1.63%
Waste Management, Inc. 54,539 2,005,399
=====================================================================
FOOD RETAIL-0.90%
Safeway Inc. 32,115 1,109,894
=====================================================================
</Table>
<Table>
SHARES VALUE
- ---------------------------------------------------------------------
<Caption>
HEALTH CARE DISTRIBUTORS-3.03%
AmerisourceBergen Corp. 38,238 $ 1,719,181
- ---------------------------------------------------------------------
McKesson Corp. 39,373 1,996,211
=====================================================================
3,715,392
=====================================================================
HEALTH CARE SERVICES-1.78%
Laboratory Corp. of America Holdings(a) 29,666 2,179,561
=====================================================================
HUMAN RESOURCE & EMPLOYMENT SERVICES-1.06%
Manpower Inc. 17,395 1,303,407
=====================================================================
INDUSTRIAL CONGLOMERATES-1.29%
McDermott International, Inc.(a) 31,039 1,578,643
=====================================================================
INTEGRATED OIL & GAS-2.67%
Marathon Oil Corp. 19,068 1,763,790
- ---------------------------------------------------------------------
Occidental Petroleum Corp. 30,973 1,512,412
=====================================================================
3,276,202
=====================================================================
INTERNET SOFTWARE & SERVICES-0.84%
Google Inc.-Class A(a) 2,244 1,033,317
=====================================================================
INVESTMENT BANKING & BROKERAGE-8.28%
Bear Stearns Cos. Inc. (The) 9,117 1,484,065
- ---------------------------------------------------------------------
Goldman Sachs Group, Inc. (The) 22,174 4,420,387
- ---------------------------------------------------------------------
Lehman Brothers Holdings Inc. 34,208 2,672,329
- ---------------------------------------------------------------------
Morgan Stanley 19,568 1,593,422
=====================================================================
10,170,203
=====================================================================
IT CONSULTING & OTHER SERVICES-2.46%
Accenture Ltd.-Class A 81,759 3,019,360
=====================================================================
LIFE & HEALTH INSURANCE-1.74%
Prudential Financial, Inc. 24,885 2,136,626
=====================================================================
LIFE SCIENCES TOOLS & SERVICES-1.15%
Applera Corp.-Applied Biosystems Group 38,394 1,408,676
=====================================================================
MANAGED HEALTH CARE-3.01%
Humana Inc.(a) 21,627 1,196,189
- ---------------------------------------------------------------------
UnitedHealth Group Inc. 22,782 1,224,077
- ---------------------------------------------------------------------
WellPoint Inc.(a) 16,227 1,276,903
=====================================================================
3,697,169
=====================================================================
MOVIES & ENTERTAINMENT-2.16%
News Corp.-Class A 123,516 2,653,124
=====================================================================
MULTI-LINE INSURANCE-1.42%
Assurant, Inc. 31,462 1,738,275
=====================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-1.23%
JPMorgan Chase & Co. 31,344 1,513,915
=====================================================================
</Table>
AIM V.I. Large Cap Growth Fund
<Table>
<Caption>
SHARES VALUE
- ---------------------------------------------------------------------
PHARMACEUTICALS-2.01%
Forest Laboratories, Inc.(a) 19,000 $ 961,400
- ---------------------------------------------------------------------
Merck & Co. Inc. 34,676 1,511,874
=====================================================================
2,473,274
=====================================================================
PROPERTY & CASUALTY INSURANCE-3.05%
Ambac Financial Group, Inc. 12,666 1,128,161
- ---------------------------------------------------------------------
Chubb Corp. (The) 31,251 1,653,490
- ---------------------------------------------------------------------
SAFECO Corp. 15,359 960,705
=====================================================================
3,742,356
=====================================================================
PUBLISHING-0.96%
McGraw-Hill Cos., Inc. (The) 17,300 1,176,746
=====================================================================
SOFT DRINKS-1.39%
PepsiCo, Inc. 27,205 1,701,673
=====================================================================
SPECIALTY STORES-1.45%
Office Depot, Inc.(a) 46,686 1,782,005
=====================================================================
SYSTEMS SOFTWARE-6.26%
BMC Software, Inc.(a) 40,229 1,295,374
- ---------------------------------------------------------------------
Microsoft Corp. 83,736 2,500,357
- ---------------------------------------------------------------------
Oracle Corp.(a) 170,953 2,930,134
- ---------------------------------------------------------------------
Symantec Corp.(a) 46,000 959,100
=====================================================================
7,684,965
=====================================================================
TOBACCO-1.26%
UST Inc. 26,537 1,544,453
=====================================================================
Total Domestic Common Stocks (Cost
$85,193,589) 102,930,627
=====================================================================
FOREIGN COMMON STOCKS & OTHER EQUITY
INTERESTS-14.69%
HONG KONG-1.16%
China Mobile Ltd.
(Wireless Telecommunication Services)(b) 164,500 1,421,873
=====================================================================
</Table>
<Table>
SHARES VALUE
- ---------------------------------------------------------------------
<Caption>
MEXICO-3.61%
America Movil S.A. de C.V.-Series L-ADR
(Wireless Telecommunication Services) 77,075 $ 3,485,332
- ---------------------------------------------------------------------
Grupo Televisa S.A.-ADR (Broadcasting & Cable
TV) 35,000 945,350
=====================================================================
4,430,682
=====================================================================
SWITZERLAND-4.43%
ABB Ltd. (Heavy Electrical Equipment)(b) 147,471 2,642,947
- ---------------------------------------------------------------------
Roche Holding A.G. (Pharmaceuticals)(b) 8,745 1,564,665
- ---------------------------------------------------------------------
Syngenta A.G. (Fertilizers & Agricultural
Chemicals)(b) 6,611 1,229,662
=====================================================================
5,437,274
=====================================================================
UNITED KINGDOM-5.49%
AstraZeneca PLC-ADR (Pharmaceuticals) 41,515 2,223,128
- ---------------------------------------------------------------------
Diageo PLC (Distillers & Vintners)(b) 89,170 1,750,557
- ---------------------------------------------------------------------
Rio Tinto PLC-ADR (Diversified Metals &
Mining) 8,573 1,821,677
- ---------------------------------------------------------------------
Shire PLC (Pharmaceuticals)(b) 45,691 944,108
=====================================================================
6,739,470
=====================================================================
Total Foreign Common Stocks & Other
Equity Interests (Cost $14,530,944) 18,029,299
=====================================================================
MONEY MARKET FUNDS-1.41%
Liquid Assets Portfolio-Institutional
Class(c) 868,402 868,402
- ---------------------------------------------------------------------
Premier Portfolio-Institutional Class(c) 868,402 868,402
=====================================================================
Total Money Market Funds
(Cost $1,736,804) 1,736,804
=====================================================================
TOTAL INVESTMENTS-99.94%
(Cost $101,461,337) 122,696,730
=====================================================================
OTHER ASSETS LESS LIABILITIES-0.06% 76,565
=====================================================================
NET ASSETS-100.00% $122,773,295
_____________________________________________________________________
=====================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</Table>
Notes to Schedule of Investments:
(a) Non-income producing security.
(b) In accordance with the procedures established by the Board of Trustees, the
foreign security is fair valued using adjusted closing market prices. The
aggregate value of these securities at December 31, 2006 was $9,553,812,
which represented 7.78% 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. Large Cap Growth Fund
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2006
<Table>
ASSETS:
Investments, at value (cost $99,724,533) $120,959,926
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $1,736,804) 1,736,804
=============================================================
Total investments (cost $101,461,337) 122,696,730
=============================================================
Foreign currencies, at value (cost $74) 77
- -------------------------------------------------------------
Receivables for:
Investments sold 577,804
- -------------------------------------------------------------
Fund shares sold 16,290
- -------------------------------------------------------------
Dividends 94,079
- -------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 34,419
=============================================================
Total assets 123,419,399
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 359,427
- -------------------------------------------------------------
Fund shares reacquired 114,424
- -------------------------------------------------------------
Trustee deferred compensation and retirement
plans 41,131
- -------------------------------------------------------------
Fund expenses advanced 15,308
- -------------------------------------------------------------
Accrued administrative services fees 75,185
- -------------------------------------------------------------
Accrued distribution fees-Series II 1,276
- -------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 3,605
- -------------------------------------------------------------
Accrued transfer agent fees 659
- -------------------------------------------------------------
Accrued operating expenses 35,089
=============================================================
Total liabilities 646,104
=============================================================
Net assets applicable to shares outstanding $122,773,295
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $116,158,241
- -------------------------------------------------------------
Undistributed net investment income (loss) (132,060)
- -------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities and foreign currencies (14,488,435)
- -------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 21,235,549
=============================================================
$122,773,295
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $120,824,686
_____________________________________________________________
=============================================================
Series II $ 1,948,609
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 8,811,587
_____________________________________________________________
=============================================================
Series II 142,680
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 13.71
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 13.66
_____________________________________________________________
=============================================================
</Table>
STATEMENT OF OPERATIONS
For the year ended December 31, 2006
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of
$5,499) $ 659,168
- ------------------------------------------------------------
Dividends from affiliated money market funds 78,966
- ------------------------------------------------------------
Interest 26,260
============================================================
Total investment income 764,394
============================================================
EXPENSES:
Advisory fees 534,625
- ------------------------------------------------------------
Administrative services fees 221,467
- ------------------------------------------------------------
Custodian fees 27,705
- ------------------------------------------------------------
Distribution fees-Series II 3,477
- ------------------------------------------------------------
Transfer agent fees 5,060
- ------------------------------------------------------------
Trustees' and officer's fees and benefits 17,698
- ------------------------------------------------------------
Professional services fees 62,216
- ------------------------------------------------------------
Other 4,791
============================================================
Total expenses 877,039
============================================================
Less: Fees waived and expense offset
arrangements (152,092)
============================================================
Net expenses 724,947
============================================================
Net investment income 39,447
============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND FOREIGN CURRENCIES:
Net realized gain (loss) from:
Investment securities (1,585,606)
- ------------------------------------------------------------
Foreign currencies 18,174
============================================================
(1,567,432)
============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities 15,090,005
- ------------------------------------------------------------
Foreign currencies (467)
============================================================
15,089,538
============================================================
Net gain from investment securities and foreign
currencies 13,522,106
============================================================
Net increase in net assets resulting from
operations $13,561,553
____________________________________________________________
============================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. Large Cap Growth Fund
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2006 and 2005
<Table>
<Caption>
2006 2005
- ----------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ 39,447 $ (2,758)
- ----------------------------------------------------------------------------------------
Net realized gain (loss) from investment securities and
foreign currencies (1,567,432) (43,281)
- ----------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities and foreign currencies 15,089,538 316,169
========================================================================================
Net increase in net assets resulting from operations 13,561,553 270,130
========================================================================================
Distributions to shareholders from net investment
income-Series 1 (201,184) --
========================================================================================
Distributions to shareholders from net realized gains:
Series I -- (5,480)
- ----------------------------------------------------------------------------------------
Series II -- (828)
========================================================================================
Total distributions from net realized gains -- (6,308)
========================================================================================
Decrease in net assets resulting from distributions (201,184) (6,308)
========================================================================================
Share transactions-net:
Series I 103,311,208 3,533,583
- ----------------------------------------------------------------------------------------
Series II 1,113,671 828
========================================================================================
Net increase in net assets resulting from share
transactions 104,424,879 3,534,411
========================================================================================
Net increase in net assets 117,785,248 3,798,233
========================================================================================
NET ASSETS:
Beginning of year 4,988,047 1,189,814
========================================================================================
End of year (including undistributed net investment income
(loss) of $(132,060) and $(4,582), respectively) $122,773,295 $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
December 31, 2006
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-one 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.
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 or official closing price as of the close of
the customary trading session on the exchange where the security is
principally traded, or lacking any sales or official closing price on a
particular day, the security may be valued at the closing bid price on that
day. Securities traded in the over-the-counter market 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. 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 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 open-end and closed-end registered
investment companies that trade on an exchange are valued at the last sales
price or official closing price as of the close of the customary trading
session on the exchange where the security is principally traded.
Debt obligations (including convertible bonds) and unlisted equities 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.
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. If market quotations are available and reliable for
foreign exchange traded equity securities, the securities will be valued at
the market quotations. Because trading hours for certain foreign securities
end before the close of the NYSE, closing market quotations may become
unreliable. If between the time trading ends on a particular security and
the close of the customary trading session on the NYSE, events occur that
are significant and may make the closing price unreliable, the Fund may
fair value the security. 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 prices are not provided by any of the above
methods may be valued based upon quotes furnished by independent sources
and are valued at the last bid price in the case of equity securities and
in the case of debt obligations, the mean between the last bid and asked
prices.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
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
AIM V.I. Large Cap Growth Fund
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 the 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 to distribute substantially all of the
Fund's taxable earnings to shareholders. As such, the Fund will not be
subject to federal income taxes on otherwise taxable income (including net
realized capital gain) that 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. ACCOUNTING ESTIMATES -- 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.
H. INDEMNIFICATIONS -- 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.
I. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in
foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from (i) sales
of foreign currencies, (ii) currency gains or losses realized between the
trade and settlement dates on securities transactions, and (iii) the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
The Fund may invest in foreign securities which may be subject to foreign
taxes on income, gains on investments or currency repatriation, a portion
of which may be recoverable. Taxes are accrued based on the Fund's current
interpretation of tax regulations and rates that exist in the foreign
markets in which the Fund invests.
J. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security.
Fluctuations in the value of these contracts are recorded as unrealized
appreciation (depreciation) until the contracts are closed. When these
contracts are closed, realized gains (losses) are recorded. Realized and
unrealized gains and losses on these contracts are included in the
Statement of Operations. The Fund could be exposed to risk, which may be in
excess of the amount reflected in the Statement of Assets and Liabilities,
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 $350 million 0.75%
- --------------------------------------------------------------------
Over $350 million 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 at least 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. In addition, the Fund may also benefit from a one time credit to be used
to offset future custodian expenses. These credits are used to pay certain
expenses incurred by the Fund. AIM did not waive fees and/or reimburse expenses
during the period under this expense limitation.
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in
the amount of 25% of the advisory fee AIM receives from the affiliated money
market funds on investments by the Fund in such affiliated money market funds.
Voluntary fee waivers or reimbursements may be modified or discontinued at any
time upon consultation with the Board of Trustees without further notice to
investors.
For the year ended December 31, 2006, AIM waived advisory fees of $148,589.
At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the year ended December 31, 2006, AMVESCAP did not
reimburse any such expenses.
The Trust has entered into a master administrative services agreement with
AIM pursuant to which the Fund 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. The
Fund may reimburse AIM for up to 0.25% of average daily assets invested by each
insurance company providing administrative services to the Fund. Pursuant to
such agreement, for the year ended December 31, 2006, AIM was paid $50,000 for
accounting and fund administrative services and reimbursed $171,467 for services
provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with AIM
Investment Services, Inc. ("AIS") pursuant to which the Fund has agreed to pay
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 year ended December 31, 2006, expenses incurred under the
agreement are shown in the Statement of Operations as transfer agent fees.
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 Plan payments, 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. For the year ended December 31, 2006, expenses
incurred under the Plan are shown in the Statement of Operations as distribution
fees.
Certain officers and trustees of the Trust are officers and directors of
AIM, AIS and/or ADI.
AIM V.I. Large Cap Growth Fund
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to 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 year ended December 31, 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) 12/31/06 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-Institutional
Class $ -- $10,149,786 $ (9,281,384) $ -- $ 868,402 $39,517 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
Premier
Portfolio-Institutional
Class -- 10,149,786 (9,281,384) -- 868,402 39,449 --
==================================================================================================================================
Total
Investments
in
Affiliates $ -- $20,299,572 $(18,562,768) $ -- $1,736,804 $78,966 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</Table>
NOTE 4--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) custodian credits which
result from periodic overnight cash balances at the custodian and (ii) a one
time custodian fee credit to be used to offset future custodian fees. For the
year ended December 31, 2006, the Fund received credits from these arrangements,
which resulted in the reduction of the Fund's total expenses of $3,503.
NOTE 5--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to each Trustee and Officer of the Fund who is not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Fund, and "Trustees' and Officer's Fees and Benefits" also
include amounts accrued by the Fund to fund such deferred compensation amounts.
Those Trustees who defer compensation have the option to select various AIM
Funds in which their deferral accounts shall be deemed to be invested. Finally,
current Trustees are eligible to participate in a retirement plan that provides
for benefits to be paid upon retirement to Trustees over a period of time based
on the number of years of service. The Fund may have certain former Trustees who
also participate in a retirement plan and receive benefits under such plan.
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to fund such retirement benefits. Obligations under the deferred compensation
and retirement plans represent unsecured claims against the general assets of
the Fund.
During the year ended December 31, 2006, the Fund paid legal fees of $3,925
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 Securities and Exchange Commission, 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 exceed
10% of the Fund's total assets. To the extent that the loan is required to be
secured by collateral, the collateral is marked to market daily to ensure that
the market value is at least 102% of the outstanding principal value of the
loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended December 31, 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 bank 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 contractually agreed upon rate.
AIM V.I. Large Cap Growth Fund
NOTE 7--DISTRIBUTION TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended December 31, 2006
and 2005 was as follows:
<Table>
<Caption>
2006 2005
- --------------------------------------------------------------------------------
Distributions paid from:
Ordinary income $201,184 $ 459
- --------------------------------------------------------------------------------
Long-term capital gain -- 5,849
================================================================================
Total distributions $201,184 $6,308
________________________________________________________________________________
================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2006, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2006
- --------------------------------------------------------------------------
Unrealized appreciation-investments $ 20,147,588
- --------------------------------------------------------------------------
Temporary book/tax differences (36,002)
- --------------------------------------------------------------------------
Capital loss carryover (13,106,061)
- --------------------------------------------------------------------------
Post-October Capital loss deferral (294,413)
- --------------------------------------------------------------------------
Post-October PFIC loss deferral (96,058)
- --------------------------------------------------------------------------
Shares of beneficial interest 116,158,241
==========================================================================
Total net assets $122,773,295
__________________________________________________________________________
==========================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales. The tax-basis unrealized appreciation on investments amount includes
appreciation on foreign currencies of $156.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan benefits.
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, 2006 to utilizing $12,019,235 of capital loss carryforward in the fiscal
year ended December 31, 2007.
The Fund has a capital loss carryforward as of December 31, 2006 which
expires as follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- ---------------------------------------------------------------------------
December 31, 2009 $ 7,793,745
- ---------------------------------------------------------------------------
December 31, 2010 3,544,700
- ---------------------------------------------------------------------------
December 31, 2013 10,284
- ---------------------------------------------------------------------------
December 31, 2014 1,757,332
===========================================================================
Total capital loss carryforward $13,106,061
___________________________________________________________________________
===========================================================================
</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 June 12, 2006, the date of the
reorganization of AIM V.I. Blue Chip 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. Large Cap Growth Fund
NOTE 8--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities,
U.S. Treasury obligations and money market funds, if any) purchased and sold by
the Fund during the year ended December 31, 2006 was $97,491,172 and
$29,872,762, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $21,010,934
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (863,502)
===============================================================================
Net unrealized appreciation of investment securities $20,147,432
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $102,549,298.
</Table>
NOTE 9--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of passive foreign
investment companies, foreign currency transactions and expenses related to the
plan of reorganization, on December 31, 2006, undistributed net investment
income was increased by $60,662, undistributed net realized gain (loss) was
decreased by $45,366 and shares of beneficial interest decreased by $15,296.
Further as a result of tax deferrals acquired in the reorganization of AIM V.I.
Blue Chip Fund into the Fund on June 12, 2006, undistributed net investment
income was decreased by $26,403, undistributed net realized gain (loss) was
decreased by $12,832,387 and shares of beneficial interest increased by
$12,858,790. These reclassifications had no effect on the net assets of the
Fund.
NOTE 10--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- -----------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------
2006(A) 2005
-------------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
- -----------------------------------------------------------------------------------------------------------------
Sold:
Series I 2,493,288 $ 31,035,114 330,217 $3,990,691
- -----------------------------------------------------------------------------------------------------------------
Series II 2,883 35,815 -- --
=================================================================================================================
Issued as reinvestment of dividends:
Series I 14,674 201,184 423 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 (3,205,686) (40,513,941) (38,554) (462,588)
- -----------------------------------------------------------------------------------------------------------------
Series II (14,623) (196,285) -- --
=================================================================================================================
8,561,744 $104,424,879 292,150 $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 88% of
the outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with
these entities whereby these entities sell units of interest in separate
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.
(b) As of the opening of business on June 12, 2006, the Fund acquired all
the net assets of AIM V.I. Blue Chip Fund pursuant to the plan of
reorganization approved by the Trustees of the Fund on November 14, 2005
and by the 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 outstanding of AIM V.I. Blue Chip Fund
as of the close of business on June 9, 2006. Each class of shares of AIM
V.I. Blue Chip Fund was exchanged for the like class of shares of the
Fund based on the relative net asset value of AIM V.I. Blue Chip Fund to
the net asset value of the Fund on the close of business, June 9, 2006.
AIM V.I. Blue Chip Fund's net assets as of the close of business on June
9, 2006 of $113,862,992 including $5,643,661 of unrealized appreciation
as of the close of business on June 9, 2006 were combined with the net
assets of the Fund immediately before the acquisition of $9,848,334. The
combined aggregate net assets of the Fund subsequent to the
reorganization were $123,711,326.
AIM V.I. Large Cap Growth 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 for 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
currently intends for the Fund to adopt FIN 48 provisions during the fiscal year
ending December 31, 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
(DATE OPERATIONS
YEAR ENDED DECEMBER 31, COMMENCED) TO
------------------------------- 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) 0.02 (0.01)(a) (0.04)(b) (0.03)
- -----------------------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 1.00 0.88 1.03 0.95
=================================================================================================================
Total from investment operations 1.02 0.87 0.99 0.92
=================================================================================================================
Less distributions:
Dividends from net investment income (0.02) -- -- (0.02)
- -----------------------------------------------------------------------------------------------------------------
Distributions from net realized gains -- (0.02) (0.03) --
=================================================================================================================
Total distributions (0.02) (0.02) (0.03) (0.02)
=================================================================================================================
Net asset value, end of period $ 13.71 $12.71 $11.86 $10.90
_________________________________________________________________________________________________________________
=================================================================================================================
Total return(c) 8.05% 7.30% 9.08% 9.16%
_________________________________________________________________________________________________________________
=================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $120,825 $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 1.23%(d) 7.30% 9.88% 14.54%(e)
_________________________________________________________________________________________________________________
=================================================================================================================
Ratio of net investment income (loss) to average net assets 0.06%(d) (0.06)% (0.35)%(b) (0.73)%(e)
_________________________________________________________________________________________________________________
=================================================================================================================
Portfolio turnover rate(f) 76% 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 are $(0.06) and (0.51)%, respectively.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(d) Ratios are based on average daily net assets of $69,892,709.
(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 12--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
SERIES II
-------------------------------------------------
AUGUST 29, 2003
(DATE OPERATIONS
YEAR ENDED DECEMBER 31, COMMENCED) TO
----------------------------- 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) (0.01) (0.03)(a) (0.06)(b) (0.03)
- ---------------------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 1.00 0.88 1.03 0.94
===============================================================================================================
Total from investment operations 0.99 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 $13.66 $12.67 $11.84 $10.90
_______________________________________________________________________________________________________________
===============================================================================================================
Total return(c) 7.81% 7.15% 8.89% 9.11%
_______________________________________________________________________________________________________________
===============================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $1,949 $ 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 1.48%(d) 7.55% 10.13% 14.79%(e)
_______________________________________________________________________________________________________________
===============================================================================================================
Ratio of net investment income (loss) to average net assets (0.19)%(d) (0.26)% (0.50)%(b) (0.88)%(e)
_______________________________________________________________________________________________________________
===============================================================================================================
Portfolio turnover rate(f) 76% 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 are $(0.08) and (0.66)%, respectively.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(d) Ratios are based on average daily net assets of $1,390,637.
(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. 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 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
AIM V.I. Large Cap Growth Fund
NOTE 13--LEGAL PROCEEDINGS--(CONTINUED)
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; 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. On September 15, 2006, the
MDL Court granted the AMVESCAP defendants' motion to dismiss the Amended Class
Action Complaint for Violations of ERISA and dismissed such Complaint. The
plaintiff has commenced an appeal from that decision.
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.
AIM V.I. Large Cap Growth Fund
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V.I. Large Cap Growth Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM V.I. Large Cap Growth Fund,
(one of the funds constituting AIM Variable Insurance Funds, hereafter referred
to as the "Fund") at December 31, 2006, the results of its operations for the
year then ended, the changes in its net assets and the financial highlights for
each of the two years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2006 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion. The financial highlights for each of the periods ended on or before
December 31, 2004 were audited by another independent registered public
accounting firm whose report dated February 4, 2005 expressed an unqualified
opinion on those statements.
PRICEWATERHOUSECOOPERS LLP
February 14, 2007
Houston, Texas
AIM V.I. Large Cap Growth Fund
TAX INFORMATION
Form 1099-DIV, Form 1042-S and other year-end tax information provide
shareholders with actual calendar year amounts that should be included in their
tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the
Internal Revenue Code or to meet a specific state's requirement.
The Fund designates the following amounts or, if subsequently determined to be
different, the maximum amount allowable for its fiscal year ended December 31,
2006:
FEDERAL AND STATE INCOME TAX
<Table>
Corporate Dividends Received Deduction* 100%
</Table>
* The above percentage is based on ordinary income dividends paid to
shareholders during the fund's fiscal year.
AIM V.I. Large Cap Growth Fund
TRUSTEES AND OFFICERS
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management None
Trustee and Vice Chair Group Inc. (financial services holding
company); Director and Vice Chairman,
AMVESCAP PLC; Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm) and
Trustee and Vice Chair of The AIM Family
of Funds--Registered Trademark--
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer);
Chief Executive Officer, AMVESCAP
PLC -- Managed Products; and President
and Principal Executive Officer of The
AIM Family of Funds--Registered
Trademark--
- -------------------------------------------------------------------------------------------------------------------------------
Philip A. Taylor(2) -- 1954 2006 Director, Chief Executive Officer and None
Trustee, President and President, A I M Management Group Inc.,
Principal AIM Mutual Fund Dealer Inc. (registered
Executive Officer broker dealer), AIM Funds Management
Inc. (registered investment advisor) and
1371 Preferred Inc. (holding company);
Director and President, A I M Advisors,
Inc., INVESCO Funds Group, Inc.
(registered investment advisor and
register transfer agent) and AIM GP
Canada Inc. (general partner for a
limited partnership); Director, A I M
Capital Management, Inc. and A I M
Distributors, Inc.; Director and
Chairman, AIM Investment Services, Inc.,
Fund Management Company and INVESCO
Distributors, Inc. (registered broker
dealer); Director, President and
Chairman, AVZ Callco Inc. (holding
company); AMVESCAP Inc. (holding
company) and AIM Canada Holdings Inc.
(holding company); Director and Chief
Executive Officer, AIM Trimark Corporate
Class Inc. (formerly AIM Trimark Global
Fund Inc.) (corporate mutual fund
company) and AIM Trimark Canada Fund
Inc. (corporate mutual fund company);
Trustee, President and Principal
Executive Officer of The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); Trustee and
Executive Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); and Manager,
Powershares Capital Management LLC
Formerly: President and Principal
Executive Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); Chairman, AIM
Canada Holdings, Inc.; Executive Vice
President and Chief Operations Officer,
AIM Funds Management Inc.; President,
AIM Trimark Global Fund Inc. and AIM
Trimark Canada Fund Inc.; and Director,
Trimark Trust (federally regulated
Canadian Trust Company)
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company
Formerly: Partner, law firm of Baker & (2 portfolios))
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Founder, Green, Manning & Bunch Ltd., None
Trustee (investment banking firm); and Director,
Policy Studies, Inc. and Van Gilder
Insurance Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and None
Trustee private business corporations, including
the Boss Group Ltd. (private investment
and management); Cortland Trust, Inc.
(Chairman) (registered investment
company (3 portfolios)); Annuity and
Life Re (Holdings), Ltd. (insurance
company); CompuDyne Corporation
(provider of products and services to
the public security market); and
Homeowners of America Holding
Corporation (property casualty company)
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and Director of various
affiliated Volvo companies; and
Director, Magellan Insurance Company
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund
company); and Owner, Dos Angelos Ranch, (non-profit)
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- -------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company
(3 portfolios))
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired Director, Mainstay VP Series
Trustee Formerly: Partner, Deloitte & Touche Funds, Inc. (21 portfolios)
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
(2) Mr. Taylor is considered an interested person of the Trust because he is an
officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
TRUSTEES AND OFFICERS--(CONTINUED)
AIM V.I. Large Cap Growth Fund
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Senior Vice President and Senior Officer N/A
Senior Vice President and of The AIM Family of Funds--Registered
Senior Officer Trademark--
Formerly: Director of Compliance and
Assistant General Counsel, ICON
Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
John M. Zerr -- 1962 2006 Director, Senior Vice President, N/A
Senior Vice President, Chief Secretary and General Counsel, A I M
Legal Officer and Secretary Management Group Inc. and A I M
Advisors, Inc.; Director, Vice President
and Secretary, INVESCO Distributors,
Inc.; Vice President and Secretary,
A I M Capital Management, Inc., AIM
Investment Services, Inc., and Fund
Management Company; Senior Vice
President and Secretary, A I M
Distributors, Inc.; Director and Vice
President, INVESCO Funds Group Inc.;
Senior Vice President, Chief Legal
Officer and Secretary of The AIM Family
of Funds--Registered Trademark--; and
Manager, Powershares Capital Management
LLC
Formerly: Chief Operating Officer,
Senior Vice President, General Counsel,
and Secretary, Liberty Ridge Capital,
Inc. (an investment adviser); Vice
President and Secretary, PBHG Funds (an
investment company); Vice President and
Secretary, PBHG Insurance Series Fund
(an investment company); General Counsel
and Secretary, Pilgrim Baxter Value
Investors (an investment adviser); Chief
Operating Officer, General Counsel and
Secretary, Old Mutual Investment
Partners (a broker-dealer); General
Counsel and Secretary, Old Mutual Fund
Services (an administrator); General
Counsel and Secretary, Old Mutual
Shareholder Services (a shareholder
servicing center); Executive Vice
President, General Counsel and
Secretary, Old Mutual Capital, Inc. (an
investment adviser); and Vice President
and Secretary, Old Mutual Advisors Funds
(an investment company)
- ------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Global Compliance Director, AMVESCAP N/A
Vice President PLC; and Vice President of The AIM
Family of Funds--Registered Trademark--
Formerly: Senior Vice President, A I M
Management Group Inc. (financial
services holding company); Senior Vice
President and Chief Compliance Officer,
A I M Advisors, Inc. and The AIM Family
of Funds--Registered Trademark--; Vice
President and Chief Compliance Officer,
A I M Capital Management, Inc. and A I M
Distributors, Inc.; Vice President, AIM
Investment Services, Inc. and Fund
Management Company; Senior Vice
President and Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; and Senior Vice President
and Compliance Director, Delaware
Investments Family of Funds
- ------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Senior Vice President and General
Vice President Counsel, AMVESCAP PLC; Director, INVESCO
Funds Group, Inc.; and Vice President of
The AIM Family of Funds--Registered
Trademark--
Formerly: Director, Vice President and N/A
General Counsel, Fund Management
Company; Director, Senior Vice
President, Secretary and General
Counsel, A I M Management Group Inc. and
A I M Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Senior Vice President, A I M
Distributors, Inc.; Vice President,
A I M Capital Management, Inc. and AIM
Investment Services, Inc.; Senior Vice
President, Chief Legal Officer and
Secretary of The AIM Family of
Funds--Registered Trademark--; Chief
Executive Officer and President, INVESCO
Funds Group, Inc.; and Senior Vice
President, and General Counsel, Liberty
Financial Companies, Inc. and Senior
Vice President and General Counsel
Liberty Funds Group, LLC
- ------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President, Principal Advisors, Inc.; and Vice President,
Financial Officer and Treasurer and Principal Officer of The
Treasurer AIM Family of Funds--Registered
Trademark--
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
J. Philip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment Officer, A I M Advisors Inc.;
Director, Chairman, Chief Executive
Officer, President and Chief Investment
Officer, A I M Capital Management, Inc.;
Executive Vice President, A I M
Management Group Inc. and Vice President
of The AIM Family of Funds--Registered
Trademark--
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; and
Chief Equity Officer, Senior Vice
President and Senior Investment Officer,
A I M Capital Management, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc. and The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); and
President and Principal Executive
Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust Only)
Formerly: Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only)
- ------------------------------------------------------------------------------------------------------------------------------
Lance A. Rejsek -- 1967 2005 Anti-Money Laundering Compliance N/A
Anti-Money Laundering Officer, A I M Advisors, Inc., A I M
Compliance Officer Capital Management, Inc., A I M
Distributors, Inc., AIM Investment
Services, Inc., AIM Private Asset
Management, Inc., Fund Management
Company and The AIM Family of
Funds--Registered Trademark--
Formerly: Manager of the Fraud
Prevention Department, AIM Investment
Services, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
Todd L. Spillane -- 1958 2006 Senior Vice President, A I M Management N/A
Chief Compliance Officer Group Inc.; Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc.; and Vice President,
A I M Distributors, Inc., AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Global Head of Product
Development, AIG-Global Investment
Group, Inc.; Chief Compliance Officer
and Deputy General Counsel,
AIG-SunAmerica Asset Management; and
Chief Compliance Officer, Chief
Operating Officer and Deputy General
Counsel, American General Investment
Management
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers
Suite 100 11 Greenway Plaza Inc. LLP
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Ballard Spahr INDEPENDENT TRUSTEES AIM Investment State Street Bank and
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis Services, Inc. Trust Company
1735 Market Street, 51st & Frankel LLP P.O. Box 4739 225 Franklin Street
Floor 1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Philadelphia, PA 19103-7599 Americas
New York, NY 10036-2714
</Table>
SECTOR EQUITY AIM V.I. Leisure Fund
Annual Report to Shareholders - December 31, 2006
Sectors
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 [COVER GLOBE IMAGE]
Public Reference Room in Washington,
D.C.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 AIM V.I. LEISURE FUND seeks capital growth.
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 UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT
June 30, 2006, is available at our Web IS AS OF DECEMBER 31, 2006, AND IS BASED ON TOTAL NET ASSETS.
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
[AIM INVESTMENTS LOGO] INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ EACH
-- Registered Trademark -- CAREFULLY BEFORE INVESTING.
================================================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
AIM V.I. LEISURE FUND
Management's discussion of Fund performance related stocks, including those of cable
====================================================================================== television companies, satellite
PERFORMANCE SUMMARY programming companies, publishers, cruise
lines, advertising agencies, hotels,
We are pleased to report that for the year ended December 31, 2006, and excluding casinos, electronic game and toy
variable product issuer charges, AIM V.I. Leisure Fund delivered positive returns to manufacturers and entertainment
shareholders that exceeded those of the Fund's broad market and style-specific index, companies.
the S&P 500 --REGISTERED TRADEMARK-- Index. Relative to the S&P 500 Index, the Fund
benefited from strong stock selection and overweight positions in media stocks as well We consider selling or trimming a
as stocks in the hotels, restaurants and leisure industry. stock when:
Your Fund's long-term performance appears on pages 4-5. - There is a change in the company's
fundamental business prospects.
FUND VS. INDEXES
- A stock's valuation rises so that it is
Total returns, 12/31/05 - 12/31/06, excluding variable product issuer charges. If no longer attractive relative to other
variable product issuer charges were included, returns would be lower. investment opportunities.
Series I Shares 24.61% MARKET CONDITIONS AND YOUR FUND
Series II Shares 24.28
S&P 500 Index (Board Market Index / Style-Specific Index) 15.78 The year started off on a positive note
as the markets were encouraged by strong
Source: Lipper Inc. economic data. However, tensions in the
================================================================================ Middle East escalated with the
HOW WE INVEST ding financial goals. We then evaluate Israel-Lebanon conflict, residential
whether the company has the right housing markets showed signs of cooling
We focus on companies that profit from management in place, appropriate and rising energy prices heightened
consumer spending on leisure activities competitive position and adequate inflation concerns. These factors led to
(products and/or services purchased with resources to realize their vision. a slight sell-off in the markets mid way
consumers' discretionary dollars) and through the year as investors became
that are growing their market share, cash - Valuation analysis involves using concerned about an economic downturn.
flow and earnings at rates greater than financial models for each company in an
the broad market. effort to estimate its fair valuation However, the markets staged a rally
over the next two to three years based beginning in August after the Fed held
We perform both fundamental and primarily on our expectations for free interest rates steady after 17
valuation analysis: cash flow growth. consecutive increases. Also contributing
to the rally was a series of solid
- - Fundamental research includes Just as we look for managements with economic reports that indicated the
interviews with company managements, long-term visions, we maintain a economy, while slowing, continued to
buyers, customers and competitors. We ask long-term investment horizon, resulting expand and inflation remained within
company management teams to detail their in relatively low portfolio turnover. We manageable levels.
three- to five-year strategic plan and manage risk by diversifying the Fund's
their correspon holdings across a variety of leisure- Against this backdrop,
telecommunication services and energy
were the best-performing sectors of the
S&P 500 Index, while health care
========================================= ========================================= ==========================================
PORTFOLIO COMPOSITION TOP FIVE INDUSTRIES* TOP 10 EQUITY HOLDINGS*
By sector 1. Hotels, Resorts & Cruise Lines 16.1% 1. Omnicom Group Inc. 5.9%
Consumer Discretionary 82.9% 2. Broadcasting & Cable TV 14.3 2. News Corp.-Class A 5.2
Consumer Staples 9.3 3. Movies & Entertainment 11.0 3. Harrah's Entertainment, Inc. 5.0
Financials 6.3 4. Advertising 9.1 4. Hilton Hotels Corp. 3.8
Information Technology 0.3 5. Casinos & Gaming 8.8 5. Starwood Hotels & Resorts
Money Market Funds Plus Other Total Net Assets $52.83 million Worldwide, Inc. 3.1
Assets Less Liabilities 1.2 Total Number of Holdings* 77 6. Polo Ralph Lauren Corp. 2.6
7. Walt Disney Co. (The) 2.6
8. Comcast Corp.-Class A 2.6
9. Time Warner Inc. 2.6
10. Groupe Bruxelles Lambert S.A.
(Belgium) 2.5
The Fund's portfolio is subject to change, and there is no assurance that the Fund will
continue to hold any particular security.
*Excluding money market fund holdings.
========================================= ========================================= ==========================================
2
AIM V.I. Leisure Fund
and information technology trailed the company, performed well during the year as THE VIEWS AND OPINIONS EXPRESSED IN
index. The Fund is most closely correlated the market recognized compelling MANAGEMENT'S DISCUSSION OF FUND
to the consumer discretionary sector of valuations and management's ability to PERFORMANCE ARE THOSE OF A I M ADVISORS,
the S&P 500 Index, which outperformed the increase earnings. INC. THESE VIEWS AND OPINIONS ARE SUBJECT
index as a whole for the year. The sector TO CHANGE AT ANY TIME BASED ON FACTORS
was strong despite evidence that On the other hand, Fund holdings Yahoo! SUCH AS MARKET AND ECONOMIC CONDITIONS.
historically high energy and gasoline and Carnival underperformed during the THESE VIEWS AND OPINIONS MAY NOT BE RELIED
prices caused consumers to reduce their year. Shares of Yahoo! declined after the UPON AS INVESTMENT ADVICE OR
discretionary spending, therefore hurting company delayed the release of its new RECOMMENDATIONS, OR AS AN OFFER FOR A
the profits of many consumer discretionary search platform and lowered its guidance PARTICULAR SECURITY. THE INFORMATION IS
companies. on advertising-related sales. The entrance NOT A COMPLETE ANALYSIS OF EVERY ASPECT OF
of Google (not a Fund holding) into areas ANY MARKET, COUNTRY, INDUSTRY, SECURITY OR
It is important to emphasize that we do other than search functions, such as THE FUND. STATEMENTS OF FACT ARE FROM
not make investments or position the Fund e-mail and instant messaging, also created SOURCES CONSIDERED RELIABLE, BUT A I M
on the basis of short-term outlooks for uncertainty around Yahoo!'s competitive ADVISORS, INC. MAKES NO REPRESENTATION OR
such economic factors as changes in energy positioning. We sold our position in WARRANTY AS TO THEIR COMPLETENESS OR
prices. We remind shareholders that our Yahoo! due to these developments. ACCURACY. ALTHOUGH HISTORICAL PERFORMANCE
time horizon for the stocks in the Fund is IS NO GUARANTEE OF FUTURE RESULTS, THESE
two to three years. Carnival, the world's largest cruise INSIGHTS MAY HELP YOU UNDERSTAND OUR
operator, also detracted from Fund INVESTMENT MANAGEMENT PHILOSOPHY.
For the year, the Fund's media holdings performance over the year. The company cut
were among the top contributors to its earnings outlook during the year Mark D. Greenberg Chartered
performance. NEWS CORP., CABLEVISION AND citing accounting changes, higher fuel [GREENBERG Financial Analyst, senior
OMNICOM GROUP -- all long-term Fund costs and lower bookings for its Caribbean PHOTO] portfolio manager, is manager
holdings -- were strong contributors. As a voyages. However, the company received a of AIM V.I. Leisure Fund.
group, media stocks were fairly flat for reprieve as oil prices fell from their Mr. Greenberg began his career in 1980,
the first half of the year as investors July highs and as the 2006 hurricane and media and entertainment stocks became
worried that broadcast advertising season was uneventful. We continued to his focus in 1983. He joined the Fund's
revenues might weaken, given economic hold this stock because we remained advisor in 1996. Mr. Greenberg attended
uncertainty and a continued shift from optimistic regarding the company's City University in London, England, and
traditional advertising to online management and its ability to prosper from earned his B.S.B.A. in economics with a
advertising. However, media staged a rally demographic and economic trends. specialization in finance from Marquette
in the second half, with many media stocks University.
posting significant returns for the year. Portfolio changes are usually the
result of insight that comes from our
========================================== bottom-up investment process and long-term
The Fund is most investment horizon. This long-term
closely correlated investment horizon is one reason for the
to the consumer Fund's low portfolio turnover rate
discretionary sector of relative to other domestic equity funds.
the S&P 500 Index, During the year, we took profits and sold
which outperformed our position in CBRL GROUP and trimmed our
the index as a whole position in HARRAH'S ENTERTAINMENT. We
for the year. used the proceeds to initiate positions in
========================================== KOHL'S, ABERCROMBIE & FITCH and COACH --
three stocks in which we saw strong
News Corp., in particular, was a fundamentals and attractive valuations.
standout performer as its MySpace.com Web
site and its motion pictures were well At the close of the year, we were
received and continued to generate solid comfortable with the quality of the
revenue growth. companies that we had selected for
inclusion in AIM V.I. Leisure Fund. The
Cablevision operates some of the most Fund was positioned in line with its
attractive cable assets in the country and mandate and had exposure to a variety of
the company issued a $10 per-share leisure-related industries based on our
dividend in April. Our largest holding, bottom-up, stock-by-stock approach to
Omnicom Group, a diversified advertising, investing.
marketing and communications
IN CLOSING
For a discussion of the risks of investing
As always, we thank you for your continued in your Fund, indexes used in this report
investment and welcome any new investors and your Fund's long-term performance,
to AIM V.I. Leisure Fund. please see pages 4 - 5.
3
AIM V.I. LEISURE FUND
YOUR FUND'S LONG-TERM PERFORMANCE
=========================================
AVERAGE ANNUAL TOTAL RETURNS TO REFLECT THE RULE 12B-1 FEES APPLICABLE FIGURES GIVEN REPRESENT THE FUND AND ARE
TO THE SERIES II SHARES. THE INCEPTION NOT INTENDED TO REFLECT ACTUAL VARIABLE
As of 12/31/06 DATE OF SERIES I SHARES IS APRIL 30, PRODUCT VALUES. THEY DO NOT REFLECT SALES
SERIES I SHARES 2002. THE PERFORMANCE OF THE FUND'S CHARGES, EXPENSES AND FEES ASSESSED IN
Inception (4/30/02) 9.54% SERIES I AND SERIES II SHARE CLASSES WILL CONNECTION WITH A VARIABLE PRODUCT. SALES
1 Year 24.61 DIFFER PRIMARILY DUE TO DIFFERENT CLASS CHARGES, EXPENSES AND FEES, WHICH ARE
SERIES II SHARES EXPENSES. DETERMINED BY THE VARIABLE PRODUCT
Inception 9.30% ISSUERS, WILL VARY AND WILL LOWER THE
1 Year 24.28 THE PERFORMANCE DATA QUOTED REPRESENT TOTAL RETURN.
========================================= PAST PERFORMANCE AND CANNOT GUARANTEE
COMPARABLE FUTURE RESULTS; CURRENT PER NASD REQUIREMENTS, THE MOST RECENT
========================================= PERFORMANCE MAY BE LOWER OR HIGHER. MONTH-END PERFORMANCE DATA AT THE FUND
PLEASE CONTACT YOUR VARIABLE PRODUCT LEVEL, EXCLUDING VARIABLE PRODUCT
CUMULATIVE TOTAL RETURNS ISSUER OR FINANCIAL ADVISOR FOR THE MOST CHARGES, IS AVAILABLE ON THIS AIM
RECENT MONTH-END VARIABLE PRODUCT AUTOMATED INFORMATION LINE, 866-702-4402.
6 months ended 12/31/06 PERFORMANCE. PERFORMANCE FIGURES REFLECT AS MENTIONED ABOVE, FOR THE MOST RECENT
FUND EXPENSES, REINVESTED DISTRIBUTIONS MONTH-END PERFORMANCE INCLUDING VARIABLE
Series I Shares 17.67% AND CHANGES IN NET ASSET VALUE. PRODUCT CHARGES, PLEASE CONTACT YOUR
Series II Shares 17.53 INVESTMENT RETURN AND PRINCIPAL VALUE VARIABLE PRODUCT ISSUER OR FINANCIAL
WILL FLUCTUATE SO THAT YOU MAY HAVE A ADVISOR.
SERIES II SHARES' INCEPTION DATE IS APRIL GAIN OR LOSS WHEN YOU SELL SHARES.
30, 2004. RETURNS SINCE THAT DATE ARE HAD THE ADVISOR NOT WAIVED FEES AND/OR
HISTORICAL. ALL OTHER RETURNS ARE THE AIM V.I. LEISURE FUND, A SERIES REIMBURSED EXPENSES, PERFORMANCE WOULD
BLENDED RETURNS OF THE HISTORICAL PORTFOLIO OF AIM VARIABLE INSURANCE HAVE BEEN LOWER.
PERFORMANCE OF SERIES II SHARES SINCE FUNDS, IS CURRENTLY OFFERED THROUGH
THEIR INCEPTION AND THE RESTATED INSURANCE COMPANIES ISSUING VARIABLE
HISTORICAL PERFORMANCE OF SERIES I SHARES PRODUCTS. YOU CANNOT PURCHASE SHARES OF
(FOR PERIODS PRIOR TO INCEPTION OF SERIES THE FUND DIRECTLY. PERFORMANCE
II SHARES) ADJUSTED
====================================================================================================================================
PRINCIPAL RISKS OF INVESTING IN THE FUND investing in more established companies, A direct investment cannot be made in
such as business risk, stock price an index. Unless otherwise indicated,
Foreign securities have additional risks, fluctuations and illiquidity. index results include reinvested
including exchange rate changes, dividends, and they do not reflect sales
political and economic upheaval, the The Fund may use enhanced investment charges. Performance of an index of funds
relative lack of information about these techniques such as derivatives. The reflects fund expenses; performance of a
companies, relatively low market principal risk of investments in market index does not.
liquidity and the potential lack of derivatives is that the fluctuations in
strict financial and accounting controls their values may not correlate perfectly OTHER INFORMATION
and standards. with the overall securities markets.
Derivatives are subject to counter party The returns shown in the management's
Investing in emerging markets involves risk -- the risk that the other party discussion of Fund performance are based
greater risk than investing in more will not complete the transaction with on net asset values calculated for
established markets. The risks include the Fund. shareholder transactions. Generally
the relatively smaller size and lesser accepted accounting principles require
liquidity of these markets, high The prices of securities held by the adjustments to be made to the net assets
inflation rates, adverse political Fund may decline in response to market of the Fund at period end for financial
developments and lack of timely risks. reporting purposes, and as such, the net
information. asset values for shareholder transactions
ABOUT INDEXES USED IN THIS REPORT and the returns based on those net asset
If the seller of a repurchase values may differ from the net asset
agreement in which the Fund invests THE UNMANAGED STANDARD & POOR'S COMPOSITE values and returns reported in the
defaults on its obligation or declares INDEX OF 500 STOCKS (the S&P 500 Index) Financial Highlights. Additionally, the
bankruptcy, the Fund may experience is an index of common stocks frequently returns and net asset values shown
delays in selling the securities used as a general measure of U.S. stock throughout this report are at the Fund
underlying the repurchase agreement. market performance. level only and do not include variable
product issuer charges. If such charges
There is no guarantee that the The fund is not managed to track the were included, the total returns would be
investment techniques and risk analyses performance of any particular index, lower.
used by the Fund's portfolio managers including the index defined here, and
will produce the desired results. consequently, the performance of the Fund
may deviate significantly from the
Investing in a fund that invests in performance of the index. Continued on page 5
smaller companies involves risks not
associated with
4
AIM V.I. LEISURE FUND
Past performance cannot guarantee comparable future results.
====================================================================================================================================
Continued from page 4
Industry classifications used in this
report are generally according to the
Global Industry Classification Standard,
which was developed by and is the
exclusive property and a service mark of
Morgan Stanley Capital International Inc.
and Standard & Poor's.
The Chartered Financial Analyst
- --Registered Trademark-- (CFA
- --Registered Trademark--) designation
is a globally recognized standard for
measuring the competence and integrity of
investment professionals.
5
====================================================================================================================================
[MOUNTAIN CHART]
RESULTS OF A $10,000 INVESTMENT
Fund and index data from 4/30/02
DATE AIM V.I. LEISURE FUND-SERIES I SHARES S&P 500 INDEX
4/30/02 $ 10000 $ 10000
5/02 10030 9927
6/02 9010 9220
7/02 8400 8501
8/02 8610 8557
9/02 8110 7628
10/02 8320 8299
11/02 8950 8786
12/02 8520 8271
1/03 8320 8054
2/03 8039 7933
3/03 8260 8010
4/03 8959 8670
5/03 9479 9126
6/03 9509 9242
7/03 9649 9406
8/03 9969 9589
9/03 9699 9487
10/03 10229 10023
11/03 10478 10112
12/03 10958 10641
1/04 11068 10837
2/04 11278 10987
3/04 11258 10822
4/04 11088 10652
5/04 11098 10798
6/04 11118 11008
7/04 10477 10643
8/04 10418 10686
9/04 10888 10802
10/04 11268 10967
11/04 11838 11410
12/04 12426 11799
1/05 12054 11511
2/05 12245 11753
3/05 12104 11545
4/05 11662 11326
5/05 11983 11686
6/05 12164 11703
7/05 12424 12138
8/05 12203 12028
9/05 12053 12125
10/05 11582 11923
11/05 12053 12373
12/05 12276 12378
1/06 12524 12705
2/06 12545 12740
3/06 12897 12898
4/06 13311 13071
5/06 13072 12696
6/06 13000 12712
7/06 12525 12791
8/06 12959 13095
9/06 13466 13432
10/06 14274 13869
11/06 14771 14133
12/06 15303 14331
====================================================================================================================================
SOURCE: LIPPER INC.
CALCULATING YOUR ONGOING FUND EXPENSES AIM V.I. LEISURE FUND
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 (12b-1) fees; 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 of investing in the Fund and other funds.
intended to help you understand your divided by $1,000 = 8.6), then multiply To do so, compare this 5% hypothetical
ongoing costs (in dollars) of investing the result by the number in the table example with the 5% hypothetical examples
in the Fund and to compare these costs under the heading entitled "Actual that appear in the shareholder reports of
with ongoing costs of investing in other Expenses Paid During Period" to estimate the other funds.
mutual funds. The example is based on an the expenses you paid on your account
investment of $1,000 invested at the during this period. Please note that the expenses shown in
beginning of the period and held for the the table are meant to highlight your
entire period July 1, 2006, through HYPOTHETICAL EXAMPLE FOR COMPARISON ongoing costs. Therefore, the
December 31, 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 December 31,
2006, appear in the table "Cumulative
The table below provides information Total Returns" on page 4.
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 (7/1/06) (12/31/06)(1) PERIOD (2) (12/31/06) PERIOD(2) RATIO
==========================================================================================================
Series I $ 1,000.00 $ 1,176.70 $ 5.60 $ 1,020.06 $ 5.19 1.02%
Series II 1,000.00 1,175.30 6.96 1,018.80 6.46 1.27
(1) The actual ending account value is based on the actual total return of the
Fund for the period July 1, 2006, through December 31, 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 December 31, 2006, appear in
the table "Cumulative Total Returns" on page 4.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above
multiplied by the average account value over the period, multiplied by
184/365 to reflect the most recent fiscal half year.
6
APPROVAL OF INVESTMENT ADVISORY AGREEMENT AIM V.I. LEISURE FUND
The Board of Trustees of AIM Variable services to be provided by AIM under the for the Fund, the Board concluded that no
Insurance Funds (the "Board") oversees Advisory Agreement was appropriate and changes should be made to the Fund and
the management of AIM V.I. Leisure Fund that AIM currently is providing services that it was not necessary to change the
(the "Fund") and, as required by law, in accordance with the terms of the Fund's portfolio management team at this
determines annually whether to approve Advisory Agreement. 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. - The quality of services to be provided concluded that it would be appropriate
("AIM"). Based upon the recommendation of by AIM. The Board reviewed the for the Board to continue to closely
the Investments Committee of the Board, credentials and experience of the monitor and review the performance of the
at a meeting held on June 27, 2006, the officers and employees of AIM who will Fund. Although the independent written
Board, including all of the independent provide investment advisory services to evaluation of the Fund's Senior Officer
trustees, approved the continuance of the the Fund. In reviewing the qualifications (discussed below) only considered Fund
advisory agreement (the "Advisory of AIM to provide investment advisory performance through the most recent
Agreement") between the Fund and AIM for services, the Board considered such calendar year, the Board also reviewed
another year, effective July 1, 2006. issues as AIM's portfolio and product more recent Fund performance, which did
review process, various back office not change their conclusions.
The Board considered the factors support functions provided by AIM and
discussed below in evaluating the AIM's equity and fixed income trading - Meetings with the Fund's portfolio
fairness and reasonableness of the operations. Based on the review of these managers and investment personnel. With
Advisory Agreement at the meeting on June and other factors, the Board concluded respect to the Fund, the Board is meeting
27, 2006 and as part of the Board's that the quality of services to be periodically with such Fund's portfolio
ongoing oversight of the Fund. In their provided by AIM was appropriate and that managers and/or other investment
deliberations, the Board and the AIM currently is providing satisfactory personnel and believes that such
independent trustees did not identify any services in accordance with the terms of individuals are competent and able to
particular factor that was controlling, the Advisory Agreement. continue to carry out their
and each trustee attributed different responsibilities under the Advisory
weights to the various factors. - The performance of the Fund relative to Agreement.
comparable funds. The Board reviewed the
One responsibility of the independent performance of the Fund during the past - Overall performance of AIM. The Board
Senior Officer of the Fund is to manage one and three calendar years against the considered the overall performance of AIM
the process by which the Fund's proposed performance of funds advised by other in providing investment advisory and
management fees are negotiated to ensure advisors with investment strategies portfolio administrative services to the
that they are negotiated in a manner comparable to those of the Fund. The Fund and concluded that such performance
which is at arms' length and reasonable. Board noted that the Fund's performance was satisfactory.
To that end, the Senior Officer must was above the median performance of such
either supervise a competitive bidding comparable funds for the one year period - Fees relative to those of clients of
process or prepare an independent written and below such median performance for the AIM with comparable investment
evaluation. The Senior Officer has three year period. The Board also noted strategies. The Board reviewed the
recommended an independent written that AIM began serving as investment effective advisory fee rate (before
evaluation in lieu of a competitive advisor to the Fund in April 2004. Based waivers) for the Fund under the Advisory
bidding process and, upon the direction on this review and after taking account Agreement. The Board noted that this rate
of the Board, has prepared such an of all of the other factors that the was (i) above the effective advisory fee
independent written evaluation. Such Board considered in determining whether rate (before waivers) for one mutual fund
written evaluation also considered to continue the Advisory Agreement for advised by AIM with investment strategies
certain of the factors discussed below. the Fund, the Board concluded that no comparable to those of the Fund; (ii) the
In addition, as discussed below, the changes should be made to the Fund and same as the effective advisory fee rates
Senior Officer made a recommendation to that it was not necessary to change the (before waivers) for three variable
the Board in connection with such written Fund's portfolio management team at this insurance funds advised by AIM and
evaluation. time. However, due to the Fund's offered to insurance company separate
under-performance, the Board also accounts with investment strategies
The discussion below serves as a concluded that it would be appropriate comparable to those of the Fund; and
summary of the Senior Officer's for the Board to continue to closely (iii) above the effective sub-advisory
independent written evaluation and monitor and review the performance of the fee rates for two offshore funds advised
recommendation to the Board in connection Fund. Although the independent written and sub-advised by AIM affiliates with
therewith, as well as a discussion of the evaluation of the Fund's Senior Officer investment strategies comparable to those
material factors and the conclusions with (discussed below) only considered Fund of the Fund, although the total advisory
respect thereto that formed the basis for performance through the most recent fees for one such offshore fund were
the Board's approval of the Advisory calendar year, the Board also reviewed above those for the Fund and the total
Agreement. After consideration of all of more recent Fund performance, which did advisory fees for the other offshore fund
the factors below and based on its not change their conclusions. were comparable to those for the Fund.
informed business judgment, the Board The Board noted that AIM has agreed to
determined that the Advisory Agreement is - The performance of the Fund relative to waive advisory fees of the Fund and to
in the best interests of the Fund and its indices. The Board reviewed the limit the Fund's total operating
shareholders and that the compensation to performance of the Fund during the past expenses, as discussed below. Based on
AIM under the Advisory Agreement is fair one and three calendar years against the this review, the Board concluded that the
and reasonable and would have been performance of the S&P 500 Index. The advisory fee rate for the Fund under the
obtained through arm's length Board noted that the Fund's performance Advisory Agreement was fair and
negotiations. was below the performance of such Index reasonable.
for the one year period and comparable to
Unless otherwise stated, information such Index for the three year period. The - Fees relative to those of comparable
presented below is as of June 27, 2006 Board also noted that the performance of funds with other advisors. The Board
and does not reflect any changes that may such Index does not reflect fees, while reviewed the advisory fee rate for the
have occurred since June 27, 2006, the performance of the Fund does reflect Fund under the Advisory Agreement. The
including but not limited to changes to fees. The Board also noted that AIM began Board compared effective contractual
the Fund's performance, advisory fees, serving as investment advisor to the Fund advisory fee rates at a common asset
expense limitations and/or fee waivers. in April 2004. Based on this review and level at the end of the past calendar
after taking account of all of the other year and noted that the Fund's rate was
- - The nature and extent of the advisory factors that the Board considered in below the median rate of the funds
services to be provided by AIM. The Board determining whether to continue the advised by other advisors with investment
reviewed the services to be provided by Advisory Agreement strategies comparable to those of the
AIM under the Advisory Agreement. Based Fund that the Board reviewed. The Board
on such review, the Board concluded that noted that AIM has
the range of
(continued)
7
AIM V.I. Leisure Fund
agreed to waive advisory fees of the Fund advised by AIM pursuant to the terms of - Benefits of soft dollars to AIM. The
and to limit the Fund's total operating an SEC exemptive order. The Board found Board considered the benefits realized by
expenses, as discussed below. Based on that the Fund may realize certain AIM as a result of brokerage transactions
this review, the Board concluded that the benefits upon investing cash balances in executed through "soft dollar"
advisory fee rate for the Fund under the AIM advised money market funds, including arrangements. Under these arrangements,
Advisory Agreement was fair and a higher net return, increased liquidity, brokerage commissions paid by the Fund
reasonable. increased diversification or decreased and/or other funds advised by AIM are
transaction costs. The Board also found used to pay for research and execution
- - Expense limitations and fee waivers. that the Fund will not receive reduced services. This research may be used by
The Board noted that AIM has services if it invests its cash balances AIM in making investment decisions for
contractually agreed to waive advisory in such money market funds. The Board the Fund. The Board concluded that such
fees of the Fund through April 30, 2008 noted that, to the extent the Fund arrangements were appropriate.
to the extent necessary so that the invests uninvested cash in affiliated
advisory fees payable by the Fund do not money market funds, AIM has voluntarily - AIM's financial soundness in light of
exceed a specified maximum advisory fee agreed to waive a portion of the advisory the Fund's needs. The Board considered
rate, which maximum rate includes fees it receives from the Fund whether AIM is financially sound and has
breakpoints and is based on net asset attributable to such investment. The the resources necessary to perform its
levels. The Board considered the Board further determined that the obligations under the Advisory Agreement,
contractual nature of this fee waiver and proposed securities lending program and and concluded that AIM has the financial
noted that it remains in effect until related procedures with respect to the resources necessary to fulfill its
April 30, 2008. The Board noted that AIM lending Fund is in the best interests of obligations under the Advisory Agreement.
has contractually agreed to waive fees the lending Fund and its respective
and/or limit expenses of the Fund through shareholders. The Board therefore - Historical relationship between the
April 30, 2008 in an amount necessary to concluded that the investment of cash Fund and AIM. In determining whether to
limit total annual operating expenses to collateral received in connection with continue the Advisory Agreement for the
a specified percentage of average daily the securities lending program in the Fund, the Board also considered the prior
net assets for each class of the Fund. money market funds according to the relationship between AIM and the Fund, as
The Board considered the contractual procedures is in the best interests of well as the Board's knowledge of AIM's
nature of this fee waiver/expense the lending Fund and its respective operations, and concluded that it was
limitation and noted that it remains in shareholders. beneficial to maintain the current
effect until April 30, 2008. The Board relationship, in part, because of such
considered the effect these fee - Independent written evaluation and knowledge. The Board also reviewed the
waivers/expense limitations would have on recommendations of the Fund's Senior general nature of the non-investment
the Fund's estimated expenses and Officer. The Board noted that, upon their advisory services currently performed by
concluded that the levels of fee direction, the Senior Officer of the AIM and its affiliates, such as
waivers/expense limitations for the Fund Fund, who is independent of AIM and AIM's administrative, transfer agency and
were fair and reasonable. affiliates, had prepared an independent distribution services, and the fees
written evaluation in order to assist the received by AIM and its affiliates for
- - Breakpoints and economies of scale. The Board in determining the reasonableness performing such services. In addition to
Board reviewed the structure of the of the proposed management fees of the reviewing such services, the trustees
Fund's advisory fee under the Advisory AIM Funds, including the Fund. The Board also considered the organizational
Agreement, noting that it does not noted that the Senior Officer's written structure employed by AIM and its
include any breakpoints. The Board evaluation had been relied upon by the affiliates to provide those services.
considered whether it would be Board in this regard in lieu of a Based on the review of these and other
appropriate to add advisory fee competitive bidding process. In factors, the Board concluded that AIM and
breakpoints for the Fund or whether, due determining whether to continue the its affiliates were qualified to continue
to the nature of the Fund and the Advisory Agreement for the Fund, the to provide non-investment advisory
advisory fee structures of comparable Board considered the Senior Officer's services to the Fund, including
funds, it was reasonable to structure the written evaluation and the recommendation administrative, transfer agency and
advisory fee without breakpoints. Based made by the Senior Officer to the Board distribution services, and that AIM and
on this review, the Board concluded that that the Board consider whether the its affiliates currently are providing
it was not necessary to add advisory fee advisory fee waivers for certain equity satisfactory non-investment advisory
breakpoints to the Fund's advisory fee AIM Funds, including the Fund, should be services.
schedule. The Board reviewed the level of simplified. The Board concluded that it
the Fund's advisory fees, and noted that would be advisable to consider this issue - Other factors and current trends. The
such fees, as a percentage of the Fund's and reach a decision prior to the Board considered the steps that AIM and
net assets, would remain constant under expiration date of such advisory fee its affiliates have taken over the last
the Advisory Agreement because the waivers. several years, and continue to take, in
Advisory Agreement does not include any order to improve the quality and
breakpoints. The Board noted that AIM has - Profitability of AIM and its efficiency of the services they provide
contractually agreed to waive advisory affiliates. The Board reviewed to the Funds in the areas of investment
fees of the Fund through April 30, 2008 information concerning the profitability performance, product line
to the extent necessary so that the of AIM's (and its affiliates') investment diversification, distribution, fund
advisory fees payable by the Fund do not advisory and other activities and its operations, shareholder services and
exceed a specified maximum advisory fee financial condition. The Board considered compliance. The Board concluded that
rate, which maximum rate includes the overall profitability of AIM, as well these steps taken by AIM have improved,
breakpoints and is based on net asset as the profitability of AIM in connection and are likely to continue to improve,
levels. The Board concluded that the with managing the Fund. The Board noted the quality and efficiency of the
Fund's fee levels under the Advisory that AIM's operations remain profitable, services AIM and its affiliates provide
Agreement therefore would not reflect although increased expenses in recent to the Fund in each of these areas, and
economies of scale, although the advisory years have reduced AIM's profitability. support the Board's approval of the
fee waiver reflects economies of scale. Based on the review of the profitability continuance of the Advisory Agreement for
of AIM's and its affiliates' investment the Fund.
- - Investments in affiliated money market advisory and other activities and its
funds. The Board also took into account financial condition, the Board concluded
the fact that uninvested cash and cash that the compensation to be paid by the
collateral from securities lending Fund to AIM under its Advisory Agreement
arrangements, if any (collectively, "cash was not excessive.
balances") of the Fund may be invested in
money market funds
9
AIM V.I. Leisure Fund
SCHEDULE OF INVESTMENTS
December 31, 2006
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------
DOMESTIC COMMON STOCKS AND OTHER EQUITY
INTERESTS-78.77%
ADVERTISING-6.49%
Harte-Hanks, Inc. 10,777 $ 298,631
- --------------------------------------------------------------------
Omnicom Group Inc. 29,924 3,128,255
====================================================================
3,426,886
====================================================================
APPAREL RETAIL-1.25%
Abercrombie & Fitch Co.-Class A 9,462 658,839
====================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-4.32%
Carter's, Inc.(a) 23,097 588,973
- --------------------------------------------------------------------
Coach, Inc.(a) 7,586 325,895
- --------------------------------------------------------------------
Polo Ralph Lauren Corp.(a) 17,577 1,365,030
====================================================================
2,279,898
====================================================================
BREWERS-1.14%
Anheuser-Busch Cos., Inc. 12,233 601,863
====================================================================
BROADCASTING & CABLE TV-12.76%
Cablevision Systems Corp.-Class A 43,670 1,243,722
- --------------------------------------------------------------------
CBS Corp.-Class A 4,181 130,531
- --------------------------------------------------------------------
CBS Corp.-Class B 4,181 130,363
- --------------------------------------------------------------------
Clear Channel Communications, Inc. 23,315 828,615
- --------------------------------------------------------------------
Comcast Corp.-Class A(a) 32,038 1,356,168
- --------------------------------------------------------------------
EchoStar Communications Corp.-Class A(a) 19,140 727,894
- --------------------------------------------------------------------
Liberty Global, Inc.-Class A(a) 5,172 150,764
- --------------------------------------------------------------------
Liberty Global, Inc.-Series C(a) 7,903 221,284
- --------------------------------------------------------------------
Liberty Media Holding Corp.-Capital-Series
A(a) 6,389 625,994
- --------------------------------------------------------------------
NTL Inc. 9,075 229,053
- --------------------------------------------------------------------
Scripps Co. (E.W.) (The)-Class A 8,650 431,981
- --------------------------------------------------------------------
Sinclair Broadcast Group, Inc.-Class A 30,338 318,549
- --------------------------------------------------------------------
Spanish Broadcasting System, Inc.-Class A(a) 16,433 67,540
- --------------------------------------------------------------------
Univision Communications Inc.-Class A(a) 7,914 280,314
====================================================================
6,742,772
====================================================================
CASINOS & GAMING-8.78%
Aztar Corp.(a) 4,900 266,658
- --------------------------------------------------------------------
Harrah's Entertainment, Inc. 31,976 2,645,055
- --------------------------------------------------------------------
International Game Technology 19,070 881,034
- --------------------------------------------------------------------
MGM Mirage(a) 14,778 847,518
====================================================================
4,640,265
====================================================================
CATALOG RETAIL-1.23%
Liberty Media Holding
Corp.-Interactive-Series A(a) 30,148 650,292
====================================================================
DEPARTMENT STORES-0.69%
Kohl's Corp.(a) 5,311 363,432
====================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------
FOOTWEAR-2.38%
Crocs, Inc.(a) 18,432 $ 796,263
- --------------------------------------------------------------------
NIKE, Inc.-Class B 4,677 463,163
====================================================================
1,259,426
====================================================================
GENERAL MERCHANDISE STORES-0.98%
Target Corp. 9,120 520,296
====================================================================
HOME ENTERTAINMENT SOFTWARE-0.35%
Electronic Arts Inc.(a) 3,722 187,440
====================================================================
HOME IMPROVEMENT RETAIL-2.05%
Home Depot, Inc. (The) 23,625 948,780
- --------------------------------------------------------------------
Lowe's Cos., Inc. 4,300 133,945
====================================================================
1,082,725
====================================================================
HOTELS, RESORTS & CRUISE LINES-11.96%
Carnival Corp.(b) 21,916 1,074,980
- --------------------------------------------------------------------
Hilton Hotels Corp. 57,543 2,008,251
- --------------------------------------------------------------------
Marriott International, Inc.-Class A 25,197 1,202,401
- --------------------------------------------------------------------
Royal Caribbean Cruises Ltd. 9,786 404,944
- --------------------------------------------------------------------
Starwood Hotels & Resorts Worldwide, Inc. 26,067 1,629,187
====================================================================
6,319,763
====================================================================
HYPERMARKETS & SUPER CENTERS-0.43%
Wal-Mart Stores, Inc. 4,893 225,959
====================================================================
INTERNET RETAIL-1.42%
Blue Nile, Inc.(a) 11,852 437,220
- --------------------------------------------------------------------
Expedia, Inc.(a) 14,955 313,756
====================================================================
750,976
====================================================================
INVESTMENT COMPANIES-EXCHANGE TRADED
FUNDS-2.33%
iShares Russell 3000 Index Fund 5,000 409,750
- --------------------------------------------------------------------
iShares S&P 500 Index Fund 2,859 405,978
- --------------------------------------------------------------------
S&P 500 Depositary Receipts Trust-Series 1 2,920 413,735
====================================================================
1,229,463
====================================================================
MOVIES & ENTERTAINMENT-10.96%
News Corp.-Class A 127,279 2,733,953
- --------------------------------------------------------------------
Time Warner Inc. 62,160 1,353,845
- --------------------------------------------------------------------
Viacom Inc.-Class A(a) 4,181 171,463
- --------------------------------------------------------------------
Viacom Inc.-Class B(a) 4,181 171,546
- --------------------------------------------------------------------
Walt Disney Co. (The) 39,677 1,359,731
====================================================================
5,790,538
====================================================================
PUBLISHING-3.55%
Belo Corp.-Class A 20,516 376,879
- --------------------------------------------------------------------
Gannett Co., Inc. 6,421 388,213
- --------------------------------------------------------------------
</Table>
AIM V.I. Leisure Fund
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------
PUBLISHING-(CONTINUED)
McClatchy Co. (The)-Class A 8,696 $ 376,537
- --------------------------------------------------------------------
McGraw-Hill Cos., Inc. (The) 10,798 734,480
====================================================================
1,876,109
====================================================================
RESTAURANTS-2.59%
Burger King Holdings Inc.(a) 9,818 207,160
- --------------------------------------------------------------------
McDonald's Corp. 9,700 430,001
- --------------------------------------------------------------------
Ruth's Chris Steak House, Inc.(a) 18,622 340,410
- --------------------------------------------------------------------
Yum! Brands, Inc. 6,659 391,549
====================================================================
1,369,120
====================================================================
SOFT DRINKS-1.05%
PepsiCo, Inc. 8,900 556,695
====================================================================
SPECIALIZED REIT'S-0.48%
Felcor Lodging, Inc. 11,565 252,580
====================================================================
SPECIALTY STORES-1.58%
PetSmart, Inc. 28,859 832,871
====================================================================
Total Domestic Common Stocks and Other
Equity Interests (Cost $32,167,509) 41,618,208
====================================================================
FOREIGN COMMON STOCKS & OTHER EQUITY
INTERESTS-20.01%
BELGIUM-3.87%
Compagnie Nationale a Portfeuille
(Multi-Sector Holdings)(c) 1,572 101,303
- --------------------------------------------------------------------
Groupe Bruxelles Lambert S.A. (Multi-Sector
Holdings)(c) 11,084 1,328,345
- --------------------------------------------------------------------
InBev N.V. (Brewers)(c) 9,369 617,621
====================================================================
2,047,269
====================================================================
BRAZIL-1.30%
Companhia de Bebidas das Americas-ADR
(Brewers) 15,666 687,737
====================================================================
DENMARK-1.29%
Carlsberg A.S.-Class B (Brewers)(c) 6,860 679,886
====================================================================
FRANCE-3.74%
Accor S.A. (Hotels, Resorts & Cruise
Lines)(c) 13,623 1,055,199
- --------------------------------------------------------------------
JC Decaux S.A. (Advertising)(a)(c) 13,923 396,193
- --------------------------------------------------------------------
Pernod Ricard S.A. (Distillers & Vintners)(c) 2,300 526,824
====================================================================
1,978,216
====================================================================
</Table>
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------
HONG KONG-0.16%
Television Broadcasts Ltd.-ADR (Broadcasting
& Cable TV)(d) 6,976 $ 85,213
====================================================================
JAPAN-0.34%
Sony Corp.-ADR (Consumer Electronics) 4,141 177,359
====================================================================
NETHERLANDS-1.39%
Jetix Europe N.V. (Broadcasting & Cable
TV)(a)(c) 29,033 732,042
====================================================================
SWEDEN-0.04%
REZIDOR HOTEL GROUP (Hotels, Resorts & Cruise
Lines)(a) 2,734 23,561
====================================================================
SWITZERLAND-2.12%
Compagnie Financiere Richemont A.G.-Class A
(Apparel, Accessories & Luxury Goods)(c) 12,214 709,426
- --------------------------------------------------------------------
Pargesa Holding S.A. (Multi-Sector
Holdings)(c) 3,600 408,992
====================================================================
1,118,418
====================================================================
UNITED KINGDOM-5.76%
Diageo PLC (Distillers & Vintners)(c) 50,773 996,759
- --------------------------------------------------------------------
InterContinental Hotels Group PLC (Hotels,
Resorts & Cruise Lines)(c) 44,000 1,082,990
- --------------------------------------------------------------------
WPP Group PLC (Advertising)(c) 71,007 961,851
====================================================================
3,041,600
====================================================================
Total Foreign Stocks & Other Equity
Interests (Cost $6,278,109) 10,571,301
====================================================================
MONEY MARKET FUNDS-0.83%
Liquid Assets Portfolio-Institutional
Class(e) 220,127 220,127
- --------------------------------------------------------------------
Premier Portfolio-Institutional Class 220,127 220,127
====================================================================
Total Money Market Funds (Cost $440,254) 440,254
====================================================================
TOTAL INVESTMENTS-99.61% (Cost $38,885,872) 52,629,763
====================================================================
OTHER ASSETS LESS LIABILITIES-0.39% 203,574
====================================================================
NET ASSETS-100.00% $52,833,337
____________________________________________________________________
====================================================================
</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) 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 December 31, 2006 was $9,597,431,
which represented 18.17% 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 December 31, 2006 represented
0.16% 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
December 31, 2006
<Table>
ASSETS:
Investments, at value (cost $38,445,618) $52,189,509
- ------------------------------------------------------------
Investments in affiliated money market funds
(cost $440,254) 440,254
============================================================
Total investments (cost $38,885,872) 52,629,763
============================================================
Foreign currencies, at value (cost $193,576) 194,669
- ------------------------------------------------------------
Receivables for:
Investments sold 243,165
- ------------------------------------------------------------
Dividends 73,507
- ------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 8,354
============================================================
Total assets 53,149,458
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 235,012
- ------------------------------------------------------------
Fund shares reacquired 4,369
- ------------------------------------------------------------
Trustee deferred compensation and retirement
plans 10,110
- ------------------------------------------------------------
Fund expenses advanced 3,857
- ------------------------------------------------------------
Accrued administrative services fees 32,329
- ------------------------------------------------------------
Accrued distribution fees -- Series II 8
- ------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 3,407
- ------------------------------------------------------------
Accrued transfer agent fees 86
- ------------------------------------------------------------
Accrued operating expenses 26,943
============================================================
Total liabilities 316,121
============================================================
Net assets applicable to shares outstanding $52,833,337
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $36,532,176
- ------------------------------------------------------------
Undistributed net investment income (61,783)
- ------------------------------------------------------------
Undistributed net realized gain from investment
securities and foreign currencies 2,617,214
- ------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 13,745,730
============================================================
$52,833,337
____________________________________________________________
============================================================
NET ASSETS:
Series I $52,819,611
____________________________________________________________
============================================================
Series II $ 13,726
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 3,821,632
____________________________________________________________
============================================================
Series II 996
____________________________________________________________
============================================================
Series I:
Net asset value per share $ 13.82
____________________________________________________________
============================================================
Series II:
Net asset value per share $ 13.78
____________________________________________________________
============================================================
</Table>
STATEMENT OF OPERATIONS
For the year ended December 31, 2006
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of
$17,869) $ 752,675
- ------------------------------------------------------------
Dividends from affiliated money market funds 51,322
============================================================
Total investment income 803,997
============================================================
EXPENSES:
Advisory fees 389,712
- ------------------------------------------------------------
Administrative services fees 179,720
- ------------------------------------------------------------
Custodian fees 18,466
- ------------------------------------------------------------
Distribution fees -- Series II 30
- ------------------------------------------------------------
Professional services fees 41,996
- ------------------------------------------------------------
Transfer agent fees 1,035
- ------------------------------------------------------------
Trustees' and officer's fees and benefits 16,431
- ------------------------------------------------------------
Other 9,725
============================================================
Total expenses 657,115
============================================================
Less: Fees waived and expense offset
arrangements (132,394)
============================================================
Net expenses 524,721
============================================================
Net investment income 279,276
============================================================
REALIZED AND UNREALIZED GAIN FROM INVESTMENT
SECURITIES AND FOREIGN CURRENCIES:
Net realized gain from:
Investment securities (includes net gains
from securities sold to affiliates of
$21,723) 3,634,002
- ------------------------------------------------------------
Foreign currencies 6,934
============================================================
3,640,936
============================================================
Change in net unrealized appreciation of:
Investment securities 7,346,421
- ------------------------------------------------------------
Foreign currencies 2,167
============================================================
7,348,588
============================================================
Net gain from investment securities and foreign
currencies 10,989,524
============================================================
Net increase in net assets resulting from
operations $11,268,800
____________________________________________________________
============================================================
</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 years ended December 31, 2006 and 2005
<Table>
<Caption>
2006 2005
- ----------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 279,276 $ 178,719
- ----------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 3,640,936 2,638,687
- ----------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and foreign currencies 7,348,588 (3,487,830)
========================================================================================
Net increase (decrease) in net assets resulting from
operations 11,268,800 (670,424)
========================================================================================
Distributions to shareholders from net investment income:
Series I (576,999) (615,299)
- ----------------------------------------------------------------------------------------
Series II (129) (115)
========================================================================================
Total distributions from net investment income (577,128) (615,414)
========================================================================================
Distributions to shareholders from net realized gains:
Series I (2,816,331) (1,042,369)
- ----------------------------------------------------------------------------------------
Series II (731) (213)
========================================================================================
Total distributions from net realized gains (2,817,062) (1,042,582)
========================================================================================
Decrease in net assets resulting from distributions (3,394,190) (1,657,996)
========================================================================================
Share transactions-net:
Series I (9,244,726) 552,129
- ----------------------------------------------------------------------------------------
Series II 859 328
========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (9,243,867) 552,457
========================================================================================
Net increase (decrease) in net assets (1,369,257) (1,775,963)
========================================================================================
NET ASSETS:
Beginning of year 54,202,594 55,978,557
========================================================================================
End of year (including undistributed net investment income
of $(61,783) and $(475,257), respectively) $52,833,337 $54,202,594
________________________________________________________________________________________
========================================================================================
</Table>
NOTES TO FINANCIAL STATEMENTS
December 31, 2006
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-one 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.
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 or official closing price as of the close of
the customary trading session on the exchange where the security is
principally traded, or lacking any sales or official closing price on a
particular day, the security may be valued at the closing bid price on that
day. Securities traded in the over-the-counter market 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. 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").
AIM V.I. Leisure Fund
Investments in open-end 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 open-end and closed-end registered
investment companies that trade on an exchange are valued at the last sales
price or official closing price as of the close of the customary trading
session on the exchange where the security is principally traded.
Debt obligations (including convertible bonds) and unlisted equities 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.
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. If market quotations are available and reliable for
foreign exchange traded equity securities, the securities will be valued at
the market quotations. Because trading hours for certain foreign securities
end before the close of the NYSE, closing market quotations may become
unreliable. If between the time trading ends on a particular security and
the close of the customary trading session on the NYSE, events occur that
are significant and may make the closing price unreliable, the Fund may
fair value the security. 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 prices are not provided by any of the above
methods may be valued based upon quotes furnished by independent sources
and are valued at the last bid price in the case of equity securities and
in the case of debt obligations, the mean between the last bid and asked
prices.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
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 the 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 to distribute substantially all of the
Fund's taxable earnings to shareholders. As such, the Fund will not be
subject to federal income taxes on otherwise taxable income (including net
realized capital gain) that 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. ACCOUNTING ESTIMATES -- 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.
H. INDEMNIFICATIONS -- 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
AIM V.I. Leisure Fund
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.
I. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in
foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from (i) sales
of foreign currencies, (ii) currency gains or losses realized between the
trade and settlement dates on securities transactions, and (iii) the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
The Fund may invest in foreign securities which may be subject to foreign
taxes on income, gains on investments or currency repatriation, a portion
of which may be recoverable. Taxes are accrued based on the Fund's current
interpretation of tax regulations and rates that exist in the foreign
markets in which the Fund invests.
J. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security.
Fluctuations in the value of these contracts are recorded as unrealized
appreciation (depreciation) until the contracts are closed. When these
contracts are closed, realized gains (losses) are recorded. Realized and
unrealized gains and losses on these contracts are included in the
Statement of Operations. The Fund could be exposed to risk, which may be in
excess of the amount reflected in the Statement of Assets and Liabilities,
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 at least 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. In addition, the Fund may also benefit from a one time credit
to be used to offset future custodian expenses. These credits are used to pay
certain expenses incurred by the Fund.
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in
the amount of 25% of the advisory fee AIM receives from the affiliated money
market funds on investments by the Fund in such affiliated money market funds.
Voluntary fee waivers or reimbursements may be modified or discontinued at any
time upon consultation with the Board of Trustees without further notice to
investors.
For the year ended December 31, 2006, AIM waived advisory fees of $130,401.
At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the year ended December 31, 2006, AMVESCAP did not
reimburse any such expenses.
AIM V.I. Leisure Fund
The Trust has entered into a master administrative services agreement with
AIM pursuant to which the Fund 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. The
Fund may reimburse AIM for up to 0.25% of average daily assets invested by each
insurance company providing administrative services to the Fund. Pursuant to
such agreement, for the year ended December 31, 2006, AIM was paid $50,000 for
accounting and fund administrative services and reimbursed $129,720 for services
provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with AIM
Investment Services, Inc. ("AIS") pursuant to which the Fund has agreed to pay
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 year ended December 31, 2006, expenses incurred under the
agreement are shown in the Statement of Operations as transfer agent fees.
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 Plan payments, 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. For the year ended December 31, 2006, expenses
incurred under the Plan are shown in the Statement of Operations as distribution
fees.
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 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 year ended December 31, 2006.
<Table>
<Caption>
CHANGE IN
UNREALIZED REALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND GAIN
FUND 12/31/05 AT COST FROM SALES (DEPRECIATION) 12/31/06 INCOME (LOSS)
- -------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-Institutional
Class $ -- $ 3,474,539 $ (3,254,412) $ -- $220,127 $10,272 $ --
- -------------------------------------------------------------------------------------------------------------------------------
Premier
Portfolio-Institutional
Class 1,045,340 9,674,004 (10,499,217) -- 220,127 41,050 --
===============================================================================================================================
Total
Investments
in
Affiliates $1,045,340 $13,148,543 $(13,753,629) $ -- $440,254 $51,322 $ --
_______________________________________________________________________________________________________________________________
===============================================================================================================================
</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 year ended December 31, 2006, the Fund
engaged in securities sales of $46,240, which resulted in net realized gains of
$21,723, and securities purchases of $162,180.
NOTE 5--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) custodian credits which
result from periodic overnight cash balances at the custodian and (ii) a one
time custodian fee credit to be used to offset future custodian fees. For the
year ended December 31, 2006, the Fund received credits from these arrangements,
which resulted in the reduction of the Fund's total expenses of $1,993.
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.
AIM V.I. Leisure Fund
During the year ended December 31, 2006, the Fund paid legal fees of $3,961
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 Securities and Exchange Commission, the
Fund may participate in an interfund lending facility that AIM has established
for temporary borrowings by the AIM Funds. An interfund loan will be made under
this facility only if the loan rate (an average of the rate available on bank
loans and the rate available on investments in overnight repurchase agreements)
is favorable to both the lending fund and the borrowing fund. A loan will be
secured by collateral if the Fund's aggregate borrowings from all sources
exceeds 10% of the Fund's total assets. To the extent that the loan is required
to be secured by collateral, the collateral is marked to market daily to ensure
that the market value is at least 102% of the outstanding principal value of the
loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended December 31, 2006, the Fund did not borrow or lend
under the interfund lending facility or borrow under the uncommitted unsecured
revolving line of credit.
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 bank 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 contractually agreed upon rate.
NOTE 8--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years December 31, 2006 and
2005 was as follows:
<Table>
<Caption>
2006 2005
- --------------------------------------------------------------------------------------
Distributions paid from:
Ordinary income $ 808,707 $ 946,660
- --------------------------------------------------------------------------------------
Long-term capital gain 2,585,483 711,336
======================================================================================
Total distributions $3,394,190 $1,657,996
______________________________________________________________________________________
======================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2006, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2006
- ---------------------------------------------------------------------------
Undistributed ordinary income $ 973,261
- ---------------------------------------------------------------------------
Undistributed long-term gain 2,436,973
- ---------------------------------------------------------------------------
Unrealized appreciation -- investments 12,901,269
- ---------------------------------------------------------------------------
Temporary book/tax differences (8,533)
- ---------------------------------------------------------------------------
Post-October Currency loss deferral (1,809)
- ---------------------------------------------------------------------------
Shares of beneficial interest 36,532,176
===========================================================================
Total net assets $52,833,337
___________________________________________________________________________
===========================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales and the treatment of passive foreign investment companies. The
tax-basis unrealized appreciation on investments amount includes appreciation
(depreciation) on foreign currencies of $1,839.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan benefits.
The Fund does not have a capital loss carryforward as of December 31, 2006.
AIM V.I. Leisure Fund
NOTE 9--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities,
U.S. Treasury obligations and money market funds, if any) purchased and sold by
the Fund during the year ended December 31, 2006 was $7,154,129 and $18,586,075,
respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $13,746,813
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (847,383)
===============================================================================
Net unrealized appreciation of investment securities $12,899,430
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $39,730,333.
</Table>
NOTE 10--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions, passive foreign investment companies, and of partnership interests
on December 31, 2006, undistributed net investment income was increased by
$711,326, undistributed net realized gain was decreased by $710,579 and shares
of beneficial interest decreased by $747. This reclassification had no effect on
the net assets of the Fund.
NOTE 11--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
2006(A) 2005
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Series I 95,922 $ 1,166,490 1,039,602 $ 12,511,490
- ----------------------------------------------------------------------------------------------------------------------
Series II -- -- -- --
======================================================================================================================
Issued as reinvestment of dividends:
Series I 249,510 3,393,330 139,417 1,657,668
- ----------------------------------------------------------------------------------------------------------------------
Series II 63 859 28 328
======================================================================================================================
Reacquired:
Series I (1,093,508) (13,804,546) (1,128,588) (13,617,029)
======================================================================================================================
(748,013) $ (9,243,867) 50,459 $ 552,457
______________________________________________________________________________________________________________________
======================================================================================================================
</Table>
(a) There is one entity that is record owner of more than 5% of the
outstanding shares of the Fund and it owns 99% of the outstanding shares
of the Fund. The Fund and the Fund's principal underwriter or advisor,
are parties to participation agreements with this entity whereby this
entity sells units of interest in separate 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 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 for 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
currently intends for the Fund to adopt FIN 48 provisions during the fiscal year
ending December 31, 2007.
AIM V.I. Leisure 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
---------------------------------------------------------------
APRIL 30, 2002
(DATE OPERATIONS
YEAR ENDED DECEMBER 31, COMMENCED) TO
------------------------------------------- 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) 0.07 0.04 0.00 (0.00) (0.00)(a)
- -----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.83 (0.19) 1.47 2.44 (1.48)
=============================================================================================================================
Total from investment operations 2.90 (0.15) 1.47 2.44 (1.48)
=============================================================================================================================
Less distributions:
Dividends from net investment income (0.16) (0.14) (0.04) -- --
- -----------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.78) (0.23) (0.01) -- --
=============================================================================================================================
Total distributions (0.94) (0.37) (0.05) -- --
=============================================================================================================================
Net asset value, end of period $ 13.82 $ 11.86 $ 12.38 $ 10.96 $ 8.52
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Total return(b) 24.61% (1.19)% 13.40% 28.64% (14.80)%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $52,820 $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 1.26%(c) 1.31% 1.34% 1.64% 3.96%(d)
=============================================================================================================================
Ratio of net investment income (loss) to average net assets 0.54%(c) 0.34% 0.00% (0.14)% (0.30)%(d)
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Portfolio turnover rate(e) 14% 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, were
reclassified from accumulated net investment income (loss) to paid in
capital. Had net investment income (loss) per share been calculated
using the current method, which is before reclassification of net
operating losses, net investment income (loss) per share would have been
$(0.01) for the period April 30, 2002 (date operations commenced) to
December 31, 2002.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(c) Ratios are based on average daily net assets of $51,949,711.
(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 13--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
SERIES II
------------------------------------
APRIL 30, 2004
(DATE SALES
YEAR ENDED COMMENCED) TO
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) 0.04 0.02 (0.02)
- --------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.82 (0.19) 1.35
==================================================================================================
Total from investment operations 2.86 (0.17) 1.33
==================================================================================================
Less distributions:
Dividends from net investment income (0.14) (0.13) (0.04)
- --------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.78) (0.23) (0.01)
==================================================================================================
Total distributions (0.92) (0.36) (0.05)
==================================================================================================
Net asset value, end of period $ 13.78 $11.84 $ 12.37
__________________________________________________________________________________________________
==================================================================================================
Total return(a) 24.28% (1.37)% 11.98%
__________________________________________________________________________________________________
==================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 14 $ 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 1.51%(b) 1.56% 1.60%(c)
==================================================================================================
Ratio of net investment income (loss) to average net assets 0.29%(b) 0.14% (0.16)%(c)
==================================================================================================
Portfolio turnover rate(d) 14% 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 based on average daily net assets of $11,911.
(c) Annualized.
(d) 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. 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 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. Leisure Fund
NOTE 14--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; 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. On September 15, 2006, the
MDL Court granted the AMVESCAP defendants' motion to dismiss the Amended Class
Action Complaint for Violations of ERISA and dismissed such Complaint. The
plaintiff has commenced an appeal from that decision.
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.
AIM V.I. Leisure Fund
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V.I. Leisure Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM V.I. Leisure Fund (one of the
funds constituting AIM Variable Insurance Funds, hereafter referred to as the
"Fund") at December 31, 2006, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for each of the periods indicated, in
conformity with accounting principles generally accepted in the United States of
America. These financial statements and financial highlights (hereafter referred
to as "financial statements") are the responsibility of the Fund's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2006 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PRICEWATERHOUSECOOPERS LLP
February 14, 2007
Houston, Texas
AIM V.I. Leisure Fund
TRUSTEES AND OFFICERS
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management None
Trustee and Vice Chair Group Inc. (financial services holding
company); Director and Vice Chairman,
AMVESCAP PLC; Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm) and
Trustee and Vice Chair of The AIM Family
of Funds--Registered Trademark--
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer);
Chief Executive Officer, AMVESCAP
PLC -- Managed Products; and President
and Principal Executive Officer of The
AIM Family of Funds--Registered
Trademark--
- -------------------------------------------------------------------------------------------------------------------------------
Philip A. Taylor(2) -- 1954 2006 Director, Chief Executive Officer and None
Trustee, President and President, A I M Management Group Inc.,
Principal AIM Mutual Fund Dealer Inc. (registered
Executive Officer broker dealer), AIM Funds Management
Inc. (registered investment advisor) and
1371 Preferred Inc. (holding company);
Director and President, A I M Advisors,
Inc., INVESCO Funds Group, Inc.
(registered investment advisor and
register transfer agent) and AIM GP
Canada Inc. (general partner for a
limited partnership); Director, A I M
Capital Management, Inc. and A I M
Distributors, Inc.; Director and
Chairman, AIM Investment Services, Inc.,
Fund Management Company and INVESCO
Distributors, Inc. (registered broker
dealer); Director, President and
Chairman, AVZ Callco Inc. (holding
company); AMVESCAP Inc. (holding
company) and AIM Canada Holdings Inc.
(holding company); Director and Chief
Executive Officer, AIM Trimark Corporate
Class Inc. (formerly AIM Trimark Global
Fund Inc.) (corporate mutual fund
company) and AIM Trimark Canada Fund
Inc. (corporate mutual fund company);
Trustee, President and Principal
Executive Officer of The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); Trustee and
Executive Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); and Manager,
Powershares Capital Management LLC
Formerly: President and Principal
Executive Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); Chairman, AIM
Canada Holdings, Inc.; Executive Vice
President and Chief Operations Officer,
AIM Funds Management Inc.; President,
AIM Trimark Global Fund Inc. and AIM
Trimark Canada Fund Inc.; and Director,
Trimark Trust (federally regulated
Canadian Trust Company)
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company
Formerly: Partner, law firm of Baker & (2 portfolios))
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Founder, Green, Manning & Bunch Ltd., None
Trustee (investment banking firm); and Director,
Policy Studies, Inc. and Van Gilder
Insurance Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and None
Trustee private business corporations, including
the Boss Group Ltd. (private investment
and management); Cortland Trust, Inc.
(Chairman) (registered investment
company (3 portfolios)); Annuity and
Life Re (Holdings), Ltd. (insurance
company); CompuDyne Corporation
(provider of products and services to
the public security market); and
Homeowners of America Holding
Corporation (property casualty company)
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and Director of various
affiliated Volvo companies; and
Director, Magellan Insurance Company
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund
company); and Owner, Dos Angelos Ranch, (non-profit)
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- -------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company
(3 portfolios))
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired Director, Mainstay VP Series
Trustee Formerly: Partner, Deloitte & Touche Funds, Inc. (21 portfolios)
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
(2) Mr. Taylor is considered an interested person of the Trust because he is an
officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
TRUSTEES AND OFFICERS--(CONTINUED)
AIM V.I. Leisure Fund
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/ OTHER
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Senior Vice President and Senior Officer N/A
Senior Vice President and of The AIM Family of Funds--Registered
Senior Officer Trademark--
Formerly: Director of Compliance and
Assistant General Counsel, ICON
Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
John M. Zerr -- 1962 2006 Director, Senior Vice President, N/A
Senior Vice President, Chief Secretary and General Counsel, A I M
Legal Officer and Secretary Management Group Inc. and A I M
Advisors, Inc.; Director, Vice President
and Secretary, INVESCO Distributors,
Inc.; Vice President and Secretary,
A I M Capital Management, Inc., AIM
Investment Services, Inc., and Fund
Management Company; Senior Vice
President and Secretary, A I M
Distributors, Inc.; Director and Vice
President, INVESCO Funds Group Inc.;
Senior Vice President, Chief Legal
Officer and Secretary of The AIM Family
of Funds--Registered Trademark--; and
Manager, Powershares Capital Management
LLC
Formerly: Chief Operating Officer,
Senior Vice President, General Counsel,
and Secretary, Liberty Ridge Capital,
Inc. (an investment adviser); Vice
President and Secretary, PBHG Funds (an
investment company); Vice President and
Secretary, PBHG Insurance Series Fund
(an investment company); General Counsel
and Secretary, Pilgrim Baxter Value
Investors (an investment adviser); Chief
Operating Officer, General Counsel and
Secretary, Old Mutual Investment
Partners (a broker-dealer); General
Counsel and Secretary, Old Mutual Fund
Services (an administrator); General
Counsel and Secretary, Old Mutual
Shareholder Services (a shareholder
servicing center); Executive Vice
President, General Counsel and
Secretary, Old Mutual Capital, Inc. (an
investment adviser); and Vice President
and Secretary, Old Mutual Advisors Funds
(an investment company)
- ------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Global Compliance Director, AMVESCAP N/A
Vice President PLC; and Vice President of The AIM
Family of Funds--Registered Trademark--
Formerly: Senior Vice President, A I M
Management Group Inc. (financial
services holding company); Senior Vice
President and Chief Compliance Officer,
A I M Advisors, Inc. and The AIM Family
of Funds--Registered Trademark--; Vice
President and Chief Compliance Officer,
A I M Capital Management, Inc. and A I M
Distributors, Inc.; Vice President, AIM
Investment Services, Inc. and Fund
Management Company; Senior Vice
President and Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; and Senior Vice President
and Compliance Director, Delaware
Investments Family of Funds
- ------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Senior Vice President and General
Vice President Counsel, AMVESCAP PLC; Director, INVESCO
Funds Group, Inc.; and Vice President of
The AIM Family of Funds--Registered
Trademark--
Formerly: Director, Vice President and N/A
General Counsel, Fund Management
Company; Director, Senior Vice
President, Secretary and General
Counsel, A I M Management Group Inc. and
A I M Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Senior Vice President, A I M
Distributors, Inc.; Vice President,
A I M Capital Management, Inc. and AIM
Investment Services, Inc.; Senior Vice
President, Chief Legal Officer and
Secretary of The AIM Family of
Funds--Registered Trademark--; Chief
Executive Officer and President, INVESCO
Funds Group, Inc.; and Senior Vice
President, and General Counsel, Liberty
Financial Companies, Inc. and Senior
Vice President and General Counsel
Liberty Funds Group, LLC
- ------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President, Principal Advisors, Inc.; and Vice President,
Financial Officer and Treasurer and Principal Officer of The
Treasurer AIM Family of Funds--Registered
Trademark--
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
J. Philip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment Officer, A I M Advisors Inc.;
Director, Chairman, Chief Executive
Officer, President and Chief Investment
Officer, A I M Capital Management, Inc.;
Executive Vice President, A I M
Management Group Inc. and Vice President
of The AIM Family of Funds--Registered
Trademark--
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; and
Chief Equity Officer, Senior Vice
President and Senior Investment Officer,
A I M Capital Management, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc. and The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); and
President and Principal Executive
Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust Only)
Formerly: Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only)
- ------------------------------------------------------------------------------------------------------------------------------
Lance A. Rejsek -- 1967 2005 Anti-Money Laundering Compliance N/A
Anti-Money Laundering Officer, A I M Advisors, Inc., A I M
Compliance Officer Capital Management, Inc., A I M
Distributors, Inc., AIM Investment
Services, Inc., AIM Private Asset
Management, Inc., Fund Management
Company and The AIM Family of
Funds--Registered Trademark--
Formerly: Manager of the Fraud
Prevention Department, AIM Investment
Services, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
Todd L. Spillane -- 1958 2006 Senior Vice President, A I M Management N/A
Chief Compliance Officer Group Inc.; Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc.; and Vice President,
A I M Distributors, Inc., AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Global Head of Product
Development, AIG-Global Investment
Group, Inc.; Chief Compliance Officer
and Deputy General Counsel,
AIG-SunAmerica Asset Management; and
Chief Compliance Officer, Chief
Operating Officer and Deputy General
Counsel, American General Investment
Management
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers
Suite 100 11 Greenway Plaza Inc. LLP
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Ballard Spahr INDEPENDENT TRUSTEES AIM Investment State Street Bank and
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis Services, Inc. Trust Company
1735 Market Street, 51st & Frankel LLP P.O. Box 4739 225 Franklin Street
Floor 1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Philadelphia, PA 19103-7599 Americas
New York, NY 10036-2714
</Table>
TAX INFORMATION
Form 1099-DIV, Form 1042-S and other year-end tax information provide
shareholders with actual calendar year amounts that should be included in their
tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the
Internal Revenue Code or to meet a specific state's requirement.
The Fund designates the following amounts or, if subsequently determined to be
different, the maximum amount allowable for its fiscal year ended December 31,
2006:
<Table>
<Caption>
FEDERAL AND STATE INCOME TAX
Long-Term Capital Gain Dividends $2,585,483
Corporate Dividends Received Deduction* 46.28%
</Table>
* The above percentage is based on ordinary income dividends paid to
shareholders during the Fund's fiscal year.
Domestic Equity AIM V.I. MID CAP CORE EQUITY FUND
Mid-Cap Blend
ANNUAL REPORT TO SHAREHOLDERS - DECEMBER 31, 2006
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 [COVER GLOBE IMAGE]
Public Reference Room in Washington, D.C.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 AIM V.I. MID CAP CORE EQUITY FUND seeks
Services department at 800-410-4246 or on the AIM to provide long-term growth of capital.
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 UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT IS AS OF
About Us tab, click on Required Notices and then DECEMBER 31, 2006, AND IS BASED ON TOTAL NET ASSETS.
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
[AIM INVESTMENTS LOGO] INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ
--Registered Trademark-- EACH CAREFULLY BEFORE INVESTING.
============================================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE AIM V.I. MID CAP CORE EQUITY FUND
Business analysis allows us to identify
========================================================================================= key drivers of the company, understand
industry challenges and evaluate the
PERFORMANCE SUMMARY sustainability of competitive
advantages. Financial analysis provides
For the year ended December 31, 2006, AIM V.I. Mid Cap Core Equity Fund produced vital insights into historical and
positive returns. However, these results lagged the broad market as measured by the S&P potential ROIC, a key indicator of
500 --Registered Trademark-- Index and the style-specific Russell Midcap --Registered business quality and the caliber of
Trademark-- Index due to the portfolio's more defensive positioning. The Fund enjoyed management. Both the business and
strong results within consumer staples, materials and information technology (IT) financial analyses serve as a basis to
sectors. The Fund's cash weighting and an underweight position in financials relative construct valuation models that help us
to the style-specific index detracted from returns. estimate a company's value. We use three
primary valuation techniques --
Your Fund's long-term performance appears on pages 4 - 5. discounted cash flow, traditional
absolute and industry-relative valuation
FUND VS. INDEXES multiples and net asset value.
Total returns, 12/31/05 - 12/31/06, excluding variable product issuer charges. If Our risk management strategy includes
variable product issuer charges were included, returns would be lower. in-depth fundamental research, as well
as diversifying Fund holdings across
Series I Shares 11.24% industries and sectors and generally
Series II Shares 10.98 limiting the size of individual holdings
S&P 500 Index (Broad Market Index) 15.78 to less than 5% of the portfolio. We
Russell Midcap Index (Style-Specific Index) 15.26 consider selling a stock when:
Lipper Mid-Cap Core Funds Index (Peer Group Index) 13.44
- The value of the stock exceeds our
SOURCE: LIPPER INC. best-case appraisal of its worth.
=========================================================================================
- We haven't seen, nor do we envision, a
HOW WE INVEST invested capital (ROIC) and appreciation demonstrable improvement in
potential. The process we use to identify fundamentals.
We manage your Fund as a mid-cap core potential investments includes three phases:
fund, seeking to deliver solid absolute - More compelling investment
investment results as well as downside - Business analysis to determine both the opportunities exist.
protection in difficult markets. We attractiveness of an industry and the
believe the Fund can serve as cornerstone company's competitive position MARKET CONDITIONS AND YOUR FUND
of, or ballast within, a well-diversified
portfolio by complementing more - Financial analysis to determine ROIC Fiscal year 2006 proved to be a better
style-specific value and growth levels and trends and to understand capital year for investors than most
investments. allocation decisions prognosticators had expected. The
market's version of the Goldilocks fable
We conduct intensive fundamental - Valuation analysis to identify played out as Wall Street eventually
research to gain a thorough understanding attractively valued companies came to the conclusion that the economy
of a company's business prospects, return is "just right." However, investors
on should remember that in this classic
children's tale, the bears eventually do
come home.
====================================================================================================================================
PORTFOLIO COMPOSITION TOP FIVE INDUSTRIES* TOP 10 EQUITY HOLDINGS*
- ------------------------------------------------------------------------------------------------------------------------------------
By sector 1. Specialty Chemicals 7.4% 1. Sigma-Aldrich Corp. 3.3%
Consumer Discretionary 14.0% 2. Personal Products 5.4 2. Cadbury Schweppes PLC
Consumer Staples 13.2 3. Life Sciences Tools & Services 4.7 (United Kingdom) 3.1
Information Technology 13.0 4. Industrial Machinery 4.5 3. International Flavors &
Health Care 10.0 5. Application Software 3.5 Fragrances Inc. 3.0
Financials 8.9 4. Estee Lauder Cos. Inc.
Materials 8.7 Total Net Assets $637.92 million (The)-Class A 2.9
Industrials 8.6 Total Number of Holdings* 63 5. Service Corp. International 2.6
Energy 5.9 6. Avon Products, Inc. 2.4
Utilities 4.0 7. UGI Corp. 2.1
Telecommunication Services 1.6 8. Henkel KGaA-Pfd. (Germany) 2.1
Money Market Funds Plus 9. Waters Corp. 2.1
Other Assets Less Liabilities 12.1 10. Scripps Co. (E.W.) (The)-Class A 1.9
*Excluding money market fund holdings.
The Fund's holdings are subject to change, and there is no assurance that the Fund will continue to hold any particular security.
====================================================================================================================================
2
AIM V.I. MID CAP CORE EQUITY FUND
Strong economic data propelled the staples companies tend to be more profitable to the Russell Midcap Index, with a
markets early in the year, with in a slower growth economic environment. A greater emphasis on quality, earnings
small-cap stocks leading the way. top performer in 2006 was HEINEKEN N.V. We sustainability and valuations to bolster
However, several uncertainties persisted originally invested in 2004 based on what we downside protection. Overweight sectors
throughout the year. Ben Bernanke was believed to be a unique valuation were consumer staples and materials
appointed the new chairman of the U.S. opportunity created by widespread investor relative to the style-specific benchmark,
Federal Reserve Board (the Fed); Middle skepticism about the firm's ability to while significant underweight positions
East tensions escalated; U.S. increase revenues and profits. Management were in the financials and consumer
residential housing markets showed signs gradually gained the respect of investors discretionary sectors.
of cooling; and rising energy prices after several beneficial acquisitions drove
heightened inflation concerns. As a market share expansion in high-growth IN CLOSING
result, the markets contracted midway markets worldwide. These successful capital
through the year as investors allocation decisions have proved profitable As core managers, we are committed to
anticipated a potential economic for shareholders such as us, who invested adding value with superior risk-adjusted
downturn. This downturn in stock prices amid controversy and with a long-term returns and lower overall volatility
affected the more economically sensitive perspective. versus more aggressive equity
small-caps stocks more than large caps. investments. As always, we thank you for
However, small companies led the rally The Fund was overweight in the materials your continued investment in the AIM V.I.
that ensued during the second half of sector with holdings such as INTERNATIONAL Mid Cap Core Equity Fund.
2006 and trended positively until FLAVORS & FRAGRANCES (IFF), a specialty
year-end. chemicals company that produces flavors and The views and opinions expressed in
fragrances for food and perfume management's discussion of Fund
With continued strong broad market manufacturers. IFF was a top contributor to performance are those of A I M Advisors,
returns, 2006 caps several years of the Fund's results this year. Our 2003 Inc. These views and opinions are subject
strong market performance without a investment took advantage of a short-term to change at any time based on factors
significant market correction. In four investor focus and uncertainty regarding such as market and economic conditions.
out of the last five years, small caps company's research and development These views and opinions may not be
(as represented by the Russell 2000 expenditures. IFF began creating value for relied upon as investment advice or
- --Registered Trademark-- index) have shareholders by prudently reinvesting recommendations, or as an offer for a
outperformed large caps (as represented capital, cutting costs and enhancing particular security. The information is
by the Russell 1000 --Registered margins. It is now an industry leader with a not a complete analysis of every aspect
Trademark-- Index). Telecommunications, dominant market share and high-quality of any market, country, industry,
REITs and energy issues were the best business model. security or the Fund. Statements of fact
markets, while IT and health care lagged are from sources considered reliable, but
the broader index. BRIGGS & STRATTON, an engine manufacturer A I M Advisors, Inc. makes no
originally purchased in 2005, was a representation or warranty as to their
While the Fund achieved respectable disappointment for the Fund because of its completeness or accuracy. Although
double-digit returns, a more defensive lack of growth due to foreign competition. historical performance is no guarantee of
positioning and less exposure to The stock detracted from results and was future results, these insights may help
economically sensitive companies caused sold in favor of investments in which we you understand our investment management
it to lag the Russell Midcap Index. Our have a higher degree of conviction and which philosophy.
fundamental research indicated that have better risk/reward profiles.
valuations were extended in the more [SLOAN Ronald S. Sloan Chartered
speculative and cyclical parts of the The financials sector detracted from the PHOTO] Financial Analyst, senior
market. These extended valuations Fund's relative returns in 2006. We believed portfolio manager, is lead
reflected an elevated appetite for risk that regional banks in particular exhibited manager of AIM V.I. Mid Cap Core Equity
among investors who believe that a a higher risk profile and less upside Fund. Mr. Sloan has been in the
Goldilocks scenario of slower, but potential than we require because of investment industry since 1971. He joined
stable, growth and stable inflation increased potential for consumer loan AIM in 1998. Mr. Sloan attended the
expectations sets the stage for further defaults resulting from recent lenient University of Missouri, where he earned
stock market appreciation. lending restrictions. In addition, some both a B.S. in business administration
financial firms' valuations are trading well and an M.B.A.
Our emphasis on capital preservation above their historical averages.
- -- which has been and continues to be Assisted by the Mid/Large Cap Core Team
one of our consistent objectives as The Fund's cash position also detracted
managers of your Fund -- requires us to from overall returns. While we regret this
gain an understanding of downside risk. detraction, our long-term investment
Irrespective of broad market trends, we perspective and commitment to investing
consistently seek companies that display prudently discourage spending cash solely to
what we refer to as "core "chase" market performance, which could
characteristics" -- sustainable growth create unnecessary risk.
prospects, high ROIC, productive capital
allocation practices and opportunistic The Fund is positioned more defensively
valuations -- that in our view are relative
necessary to deliver competitive
long-term returns and mitigate downside
risk.
Attractive valuation, paired with
more stable cash-flow generating
business models, led to the Fund's
overweight position in consumer staples FOR A DISCUSSION OF THE RISKS OF
relative to the style-specific benchmark INVESTING IN YOUR FUND, INDEXES USED IN
and resulted in higher sector returns. THIS REPORT AND YOUR FUND'S LONG-TERM
Our analysis suggests that consumer PERFORMANCE, PLEASE SEE PAGES 4-5.
3
YOUR FUND'S LONG-TERM PERFORMANCE AIM V.I. MID CAP CORE EQUITY FUND
===========================================
AVERAGE ANNUAL TOTAL RETURNS CANNOT GUARANTEE COMPARABLE FUTURE RESULTS; DETERMINED BY THE VARIABLE PRODUCT
- ------------------------------------------- CURRENT PERFORMANCE MAY LOWER OR HIGHER. ISSUERS, WILL VARY AND WILL LOWER THE
As of 12/31/06 PLEASE CONTACT YOUR VARIABLE PRODUCT ISSUER TOTAL RETURN.
OR FINANCIAL ADVISOR FOR THE MOST RECENT
SERIES I SHARES MONTH-END VARIABLE PRODUCT PERFORMANCE. PER NASD REQUIREMENTS, THE MOST RECENT
Inception (9/10/01) 9.97% PERFORMANCE FIGURES REFLECT FUND EXPENSES, MONTH-END PERFORMANCE DATA AT THE FUND
5 Years 9.05 REINVESTED DISTRIBUTIONS AND CHANGES IN NET LEVEL, EXCLUDING VARIABLE PRODUCT
1 Year 11.24 ASSET VALUE. INVESTMENT RETURN AND PRINCIPAL CHARGES, IS AVAILABLE ON THIS AIM
VALUE WILL FLUCTUATE SO THAT YOU MAY HAVE A AUTOMATED INFORMATION LINE, 866-702-4402.
SERIES II SHARES GAIN OR LOSS WHEN YOU SELL SHARES. AS MENTIONED ABOVE, FOR THE MOST RECENT
Inception (9/10/01) 9.71% MONTH-END PERFORMANCE INCLUDING VARIABLE
5 Years 8.81 AIM V.I. MID CAP CORE EQUITY FUND, A PRODUCT CHARGES, PLEASE CONTACT YOUR
1 Year 10.98 SERIES PORTFOLIO OF AIM VARIABLE INSURANCE VARIABLE PRODUCT ISSUER OR FINANCIAL
=========================================== FUNDS, IS CURRENTLY OFFERED THROUGH ADVISOR.
INSURANCE COMPANIES ISSUING VARIABLE
=========================================== PRODUCTS. YOU CANNOT PURCHASE SHARES OF THE
CUMULATIVE TOTAL RETURNS FUND DIRECTLY.
- -------------------------------------------
6 MONTHS ENDED 12/31/06 PERFORMANCE FIGURES GIVEN REPRESENT THE
SERIES I SHARES 9.31% FUND AND ARE NOT INTENDED TO REFLECT ACTUAL
SERIES II SHARES 9.21 VARIABLE PRODUCT VALUES. THEY DO NOT REFLECT
=========================================== SALES CHARGES, EXPENSES AND FEES ASSESSED IN
CONNECTION WITH A VARIABLE PRODUCT. SALES
THE PERFORMANCE OF THE FUND'S SERIES I CHARGES, EXPENSES AND FEES, WHICH ARE
AND SERIES II SHARE CLASSES WILL DIFFER
PRIMARILY DUE TO DIFFERENT CLASS
EXPENSES.
THE PERFORMANCE DATA QUOTED REPRESENT
PAST PERFORMANCE AND
====================================================================================================================================
PRINCIPAL RISKS OF INVESTING IN THE FUND FUND'S PORTFOLIO MANAGERS WILL PRODUCE THE THE FUND IS NOT MANAGED TO TRACK THE
DESIRED RESULTS. PERFORMANCE OF ANY PARTICULAR INDEX,
PRICES OF EQUITY SECURITIES CHANGE IN INCLUDING THE INDEXES DEFINED HERE, AND
RESPONSE TO MANY FACTORS INCLUDING THE ABOUT INDEXES USED IN THIS REPORT CONSEQUENTLY, THE PERFORMANCE OF THE FUND
HISTORICAL AND PROSPECTIVE EARNINGS OF MAY DEVIATE SIGNIFICANTLY FROM THE
THE ISSUER, THE VALUE OF ITS ASSETS, THE UNMANAGED STANDARD & POOR'S COMPOSITE PERFORMANCE OF THE INDEX.
GENERAL ECONOMIC CONDITIONS, INTEREST INDEX OF 500 STOCKS (THE S&P 500 INDEX) IS
RATES, INVESTOR PERCEPTIONS AND MARKET AN INDEX OF COMMON STOCKS FREQUENTLY USED AS A DIRECT INVESTMENT CANNOT BE MADE IN
LIQUIDITY. A GENERAL MEASURE OF U.S. STOCK MARKET AN INDEX. UNLESS OTHERWISE INDICATED,
PERFORMANCE. INDEX RESULTS INCLUDE REINVESTED
FOREIGN SECURITIES HAVE ADDITIONAL DIVIDENDS, AND THEY DO NOT REFLECT SALES
RISKS, INCLUDING EXCHANGE RATE CHANGES, THE UNMANAGED RUSSELL MIDCAP INDEX CHARGES. PERFORMANCE OF AN INDEX OF FUNDS
POLITICAL AND ECONOMIC UPHEAVAL, THE REPRESENTS THE PERFORMANCE OF THE STOCKS OF REFLECTS FUND EXPENSES; PERFORMANCE OF A
RELATIVE LACK OF INFORMATION ABOUT THESE DOMESTIC MID-CAPITALIZATION COMPANIES. THE MARKET INDEX DOES NOT.
COMPANIES, RELATIVELY LOW MARKET RUSSELL MIDCAP INDEX IS A TRADEMARK/SERVICE
LIQUIDITY AND THE POTENTIAL LACK OF MARK OF THE FRANK RUSSELL COMPANY. RUSSELL OTHER INFORMATION
strict financial and accounting controls --Registered Trademark-- is a trademark of
and standards. the Frank Russell Company. The returns shown in management's
discussion of Fund performance are based
To the extent the Fund holds cash or The unmanaged Lipper Mid-Cap Core Funds on net asset values calculated for
cash equivalents rather than equity Index represents an average of the shareholder transactions. Generally
securities for risk management purposes, performance of the 30 largest accepted accounting principles require
the Fund may not achieve its investment mid-capitalization core funds tracked by adjustments to be made to the net assets
objective. Lipper Inc., an independent mutual fund of the Fund at period end for financial
performance monitor. reporting purposes, and as such, the net
If the seller of a repurchase asset values for shareholder transactions
agreement in which the Fund invests The unmanaged Russell 1000 Index and the returns based on those net asset
defaults on its obligation or declares represents the performance of the stocks of values may differ from the net asset
bankruptcy, the Fund may experience large-capitalization companies. values and returns reported in the
delays in selling the securities Financial Highlights. Additionally, the
underlying the repurchase agreement. The unmanaged Russell 2000 Index returns and net asset values shown
represents the performance of the stocks of throughout this report are at the Fund
There is no guarantee that the small-capitalization companies. level only and do not include variable
investment techniques and risk analyses product issuer charges. If such charges
used by the The Russell 1000 Index and the Russell were included, the total returns would be
2000 Index are trademarks/service marks of lower.
the Frank Russell Company. Russell
--Registered Trademark-- is a trademark of Industry classifications used in this
the Frank Russell Company. report are generally according to the
Global Industry Classification Standard,
In conjunction with the annual prospectus which was developed by and is the
update on or about May 1, 2007, the AIM V.I. exclusive property and a service mark of
Mid Cap Core Equity Fund prospectus will be Morgan Stanley Capital International Inc.
amended to reflect that the Fund has elected and Standard & Poor's.
to use the Lipper Variable Underlying Funds
(VUF) Mid-Cap Core Funds Index as its peer The Chartered Financial Analyst
group rather than the Lipper Mid-Cap Core --Registered Trademark-- (CFA
Funds Index. The Lipper VUF Mid-Cap Core --Registered Trademark--) designation is
Funds Index, recently published by Lipper a globally recognized standard for
Inc., comprises the largest underlying funds measuring the competence and integrity of
in each variable insurance category and does investment professionals.
not include mortality and expense fees.
4
AIM V.I. MID CAP CORE EQUITY FUND
Past performance cannot guarantee value of an investment, is constructed with
comparable future results. each segment representing a percent change
in the value of the investment. In this
This chart, which is a logarithmic chart, each segment represents a doubling,
chart, presents the fluctuations in the or 100% change, in the value of the
value of the Fund and its indexes. We investment. In other words, the space
believe that a logarithmic chart is more between $5,000 and $10,000 is the same size
effective than other types of charts in as the space between $10,000 and $20,000,
illustrating changes in value during the and so on.
early years shown in the chart. The
vertical axis, the one that indicates
the dollar
====================================================================================================================================
5
RESULTS OF A $10,000 INVESTMENT
Index data from 8/31/01, Fund data from 9/10/01
[MOUNTAIN CHART]
AIM V.I. MID CAP AIM V.I. MID CAP
CORE EQUITY FUND-SERIES CORE EQUITY FUND-SERIES
DATE I SHARES II SHARES S&P 500 INDEX RUSSELL MIDCAP-INDEX LIPPER MID-CAP CORE FUNDS INDEX
- -------------------------------------------------------------------------------------------------------------------------------
8/31/01 $ 10000 $ 10000 $ 10000
09/01 $ 9560 $ 9560 9193 8794 8722
10/01 9920 9920 9368 9142 9158
11/01 10361 10361 10086 9908 9850
12/01 10738 10722 10175 10306 10295
01/02 10728 10722 10026 10245 10177
02/02 10849 10833 9833 10136 10001
03/02 11300 11284 10203 10744 10675
04/02 11150 11133 9584 10536 10499
05/02 11220 11204 9514 10417 10286
06/02 10529 10512 8837 9718 9542
07/02 9577 9561 8148 8770 8575
08/02 9797 9771 8201 8818 8673
09/02 9015 8991 7311 8004 7980
10/02 9356 9341 7954 8409 8355
11/02 9957 9932 8421 8993 8923
12/02 9547 9521 7927 8638 8506
01/03 9316 9291 7720 8464 8338
02/03 9166 9141 7604 8351 8162
03/03 9136 9100 7677 8434 8183
04/03 9687 9661 8309 9046 8800
05/03 10509 10471 8747 9874 9539
06/03 10639 10592 8858 9974 9707
07/03 10950 10902 9015 10303 10007
08/03 11350 11302 9190 10750 10450
09/03 11080 11032 9093 10616 10275
10/03 11561 11513 9607 11426 11029
11/03 11761 11703 9691 11747 11330
12/03 12155 12096 10199 12099 11618
01/04 12397 12329 10387 12450 11932
02/04 12619 12551 10531 12718 12159
03/04 12578 12510 10372 12721 12130
04/04 12649 12580 10209 12254 11748
05/04 12799 12731 10349 12558 11933
06/04 13142 13064 10550 12905 12258
07/04 12609 12529 10201 12341 11634
08/04 12558 12469 10242 12394 11590
09/04 12791 12701 10353 12797 11997
10/04 12993 12903 10511 13150 12194
11/04 13527 13427 10936 13951 12920
12/04 13835 13738 11308 14545 13411
01/05 13561 13465 11033 14185 13060
02/05 14036 13928 11265 14623 13385
03/05 13931 13822 11066 14508 13249
04/05 13488 13369 10856 14046 12743
05/05 13868 13749 11201 14719 13348
06/05 14090 13970 11217 15114 13663
07/05 14744 14613 11634 15911 14296
08/05 14764 14633 11528 15800 14212
09/05 14627 14496 11621 16009 14329
10/05 14184 14053 11427 15528 13958
11/05 14743 14590 11859 16217 14538
12/05 14889 14735 11863 16385 14680
01/06 15545 15389 12177 17227 15435
02/06 15415 15258 12210 17206 15413
03/06 15612 15443 12362 17632 15834
04/06 15732 15563 12528 17756 15995
05/06 15284 15106 12168 17158 15362
06/06 15152 14974 12184 17178 15312
07/06 14945 14778 12259 16802 15020
08/06 15175 14995 12551 17229 15344
09/06 15601 15420 12874 17541 15541
10/06 16049 15856 13293 18232 16110
11/06 16388 16183 13545 18888 16595
12/06 16557 16354 13735 18886 16653
===============================================================================================================================
CALCULATING YOUR ONGOING FUND EXPENSES AIM V.I. MID CAP CORE EQUITY FUND
EXAMPLE ACTUAL EXPENSES Fund's actual return. The Fund's actual
cumulative total returns at net asset
As a shareholder of the Fund, you incur The table below provides information about value after expenses for the six months
ongoing costs, including management actual account values and actual expenses. ended December 31, 2006, appear in the
fees; distribution and/or service You may use the information in this table, table "Cumulative Total Returns" on page
(12b-1) fees; and other Fund expenses. together with the amount you invested, to 4.
This example is intended to help you estimate the expenses that you paid over the
understand your ongoing costs (in period. Simply divide your account value by The hypothetical account values and
dollars) of investing in the Fund and to $1,000 (for example, an $8,600 account value expenses may not be used to estimate the
compare these costs with ongoing costs divided by $1,000 = 8.6), then multiply the actual ending account balance or expenses
of investing in other mutual funds. The result by the number in the table under the you paid for the period. You may use this
example is based on an investment of heading entitled "Actual Expenses Paid information to compare the ongoing costs
$1,000 invested at the beginning of the During Period" to estimate the expenses you of investing in the Fund and other funds.
period and held for the entire period paid on your account during this period. To do so, compare this 5% hypothetical
July 1, 2006, through December 31, 2006. example with the 5% hypothetical examples
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES that appear in the shareholder reports of
The actual and hypothetical expenses the other funds.
in the examples below do not represent The table below also provides information
the effect of any fees or other expenses about hypothetical account values and Please note that the expenses shown in
assessed in connection with a variable hypothetical expenses based on the Fund's the table are meant to highlight your
product; if they did, the expenses shown actual expense ratio and an assumed rate of ongoing costs. Therefore, the
would be higher while the ending account return of 5% per year before expenses, which hypothetical information is useful in
values shown would be lower. is not the comparing ongoing costs, and will not
help you determine the relative total
costs of owning different funds.
HYPOTHETICAL
ACTUAL (5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (7/1/06) (12/31/06)(1) PERIOD(2) (12/31/06) PERIOD(2) RATIO
- ------------------------------------------------------------------------------------------------------------------------------------
Series I $1,000.00 $1,093.10 $5.49 $1,019.96 $5.30 1.04%
Series II 1,000.00 1,092.10 6.80 1,018.70 6.56 1.29
====================================================================================================================================
(1) The actual ending account value is based on the actual total return of the
Fund for the period July 1, 2006, through December 31, 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 December 31, 2006, appear in
the table "Cumulative Total Returns" on page 4.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above
multiplied by the average account value over the period, multiplied by
184/365 to reflect the most recent fiscal half year.
6
APPROVAL OF INVESTMENT ADVISORY AGREEMENT AIM V.I. MID CAP CORE EQUITY FUND
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 that in determining whether to continue the
the management of AIM V.I. Mid Cap Core AIM currently is providing services in Advisory Agreement for the Fund, the
Equity Fund (the "Fund") and, as accordance with the terms of the Advisory Board concluded that no changes should be
required by law, determines annually Agreement. 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 - The quality of services to be provided by management team at this time. However,
Advisors, Inc. ("AIM"). Based upon the AIM. The Board reviewed the credentials and due to the Fund's under-performance, the
recommendation of the Investments experience of the officers and employees of Board also concluded that it would be
Committee of the Board, at a meeting AIM who will provide investment advisory appropriate for the Board to continue to
held on June 27, 2006, the Board, services to the Fund. In reviewing the closely monitor and review the
including all of the independent qualifications of AIM to provide investment performance of the Fund. Although the
trustees, approved the continuance of advisory services, the Board considered such independent written evaluation of the
the advisory agreement (the "Advisory issues as AIM's portfolio and product review Fund's Senior Officer (discussed below)
Agreement") between the Fund and AIM for process, various back office support only considered Fund performance through
another year, effective July 1, 2006. functions provided by AIM and AIM's equity the most recent calendar year, the Board
and fixed income trading operations. Based also reviewed more recent Fund
The Board considered the factors on the review of these and other factors, performance, which did not change their
discussed below in evaluating the the Board concluded that the quality of conclusions.
fairness and reasonableness of the services to be provided by AIM was
Advisory Agreement at the meeting on appropriate and that AIM currently is - Meetings with the Fund's portfolio
June 27, 2006 and as part of the Board's providing satisfactory services in managers and investment personnel. With
ongoing oversight of the Fund. In their accordance with the terms of the Advisory respect to the Fund, the Board is meeting
deliberations, the Board and the Agreement. periodically with such Fund's portfolio
independent trustees did not identify managers and/or other investment
any particular factor that was - The performance of the Fund relative to personnel and believes that such
controlling, and each trustee attributed comparable funds. The Board reviewed the individuals are competent and able to
different weights to the various performance of the Fund during the past one continue to carry out their
factors. and three calendar years against the responsibilities under the Advisory
performance of funds advised by other Agreement.
One responsibility of the independent advisors with investment strategies
Senior Officer of the Fund is to manage comparable to those of the Fund. The Board - Overall performance of AIM. The Board
the process by which the Fund's proposed noted that the Fund's performance in such considered the overall performance of AIM
management fees are negotiated to ensure periods was below the median performance of in providing investment advisory and
that they are negotiated in a manner such comparable funds. The Board also noted portfolio administrative services to the
which is at arms' length and reasonable. that, in response to their request regarding Fund and concluded that such performance
To that end, the Senior Officer must the Fund's under-performance, management had was satisfactory.
either supervise a competitive bidding agreed to undertake further study to ensure
process or prepare an independent that the Fund's investment philosophy is - Fees relative to those of clients of
written evaluation. The Senior Officer properly positioned and marketed. Based on AIM with comparable investment
has recommended an independent written this review and after taking account of all strategies. The Board reviewed the
evaluation in lieu of a competitive of the other factors that the Board effective advisory fee rate (before
bidding process and, upon the direction considered in determining whether to waivers) for the Fund under the Advisory
of the Board, has prepared such an continue the Advisory Agreement for the Agreement. The Board noted that this rate
independent written evaluation. Such Fund, the Board concluded that no changes was (i) below the effective advisory fee
written evaluation also considered should be made to the Fund and that it was rates (before waivers) for two mutual
certain of the factors discussed below. not necessary to change the Fund's portfolio funds advised by AIM with investment
In addition, as discussed below, the management team at this time. However, due strategies comparable to those of the
Senior Officer made a recommendation to to the Fund's under-performance, the Board Fund and comparable to the effective
the Board in connection with such also concluded that it would be appropriate advisory fee rate (before waivers) for a
written evaluation. for the Board to continue to closely monitor third mutual fund advised by AIM with
and review the performance of the Fund. investment strategies comparable to those
The discussion below serves as a Although the independent written evaluation of the Fund; (ii) comparable to the
summary of the Senior Officer's of the Fund's Senior Officer (discussed effective advisory fee rate (before
independent written evaluation and below) only considered Fund performance waivers) for a variable insurance fund
recommendation to the Board in through the most recent calendar year, the advised by AIM and offered to insurance
connection therewith, as well as a Board also reviewed more recent Fund company separate accounts with investment
discussion of the material factors and performance, which did not change their strategies comparable to those of the
the conclusions with respect thereto conclusions. Fund; (iii) above the effective
that formed the basis for the Board's sub-advisory fee rate for one Canadian
approval of the Advisory Agreement. - The performance of the Fund relative to mutual fund advised by an AIM affiliate
After consideration of all of the indices. The Board reviewed the performance and sub-advised by AIM with investment
factors below and based on its informed of the Fund during the past one and three strategies comparable to those of the
business judgment, the Board determined calendar years against the performance of Fund, although the total advisory fees
that the Advisory Agreement is in the the Lipper Variable Underlying Fund Mid-Cap for such Canadian mutual fund were above
best interests of the Fund and its Core Index. The Board noted that the Fund's those for the Fund; (iv) above the
shareholders and that the compensation performance in such periods was below the effective sub-advisory fee rates for two
to AIM under the Advisory Agreement is performance of such Index. The Board also variable insurance funds sub-advised by
fair and reasonable and would have been noted that, in response to their request an AIM affiliate and offered to insurance
obtained through arm's length regarding the Fund's under-performance, company separate accounts with investment
negotiations. management had agreed to undertake further strategies comparable to those of the
study to ensure that the Fund's investment Fund, although the total advisory fees
Unless otherwise stated, information philosophy is properly positioned and for such variable insurance funds were
presented below is as of June 27, 2006 marketed. Based on this review and after above those for the Fund; and (v)
and does not reflect any changes that taking account of all of the comparable to or below the total advisory
may have occurred since June 27, 2006, fee rates for six separately managed
including but not limited to changes to accounts/wrap accounts managed by an AIM
the Fund's performance, advisory fees, affiliate with investment strategies
expense limitations and/or fee waivers. comparable to those of the Fund and above
the total advisory fee rates for 26
- - The nature and extent of the advisory separately
services to be provided by AIM. The
Board reviewed the services to be
provided by AIM under the Advisory
Agreement. Based on such review, the
Board concluded that the range of
(continued)
7
AIM V.I. MID CAP CORE EQUITY FUND
managed accounts/wrap accounts managed realize certain benefits upon investing cash - AIM's financial soundness in light of
by an AIM affiliate with investment balances in AIM advised money market funds, the Fund's needs. The Board considered
strategies comparable to those of the including a higher net return, increased whether AIM is financially sound and has
Fund. The Board noted that AIM has liquidity, increased diversification or the resources necessary to perform its
agreed to limit the Fund's total decreased transaction costs. The Board also obligations under the Advisory Agreement,
operating expenses, as discussed below. found that the Fund will not receive reduced and concluded that AIM has the financial
Based on this review, the Board services if it invests its cash balances in resources necessary to fulfill its
concluded that the advisory fee rate for such money market funds. The Board noted obligations under the Advisory Agreement.
the Fund under the Advisory Agreement that, to the extent the Fund invests
was fair and reasonable. uninvested cash in affiliated money market - Historical relationship between the
funds, AIM has voluntarily agreed to waive a Fund and AIM. In determining whether to
- - Fees relative to those of comparable portion of the advisory fees it receives continue the Advisory Agreement for the
funds with other advisors. The Board from the Fund attributable to such Fund, the Board also considered the prior
reviewed the advisory fee rate for the investment. The Board further determined relationship between AIM and the Fund, as
Fund under the Advisory Agreement. The that the proposed securities lending program well as the Board's knowledge of AIM's
Board compared effective contractual and related procedures with respect to the operations, and concluded that it was
advisory fee rates at a common asset lending Fund is in the best interests of the beneficial to maintain the current
level at the end of the calendar year lending Fund and its respective relationship, in part, because of such
and noted that the Fund's rate was shareholders. The Board therefore concluded knowledge. The Board also reviewed the
comparable to the median rate of the that the investment of cash collateral general nature of the non-investment
funds advised by other advisors with received in connection with the securities advisory services currently performed by
investment strategies comparable to lending program in the money market funds AIM and its affiliates, such as
those of the Fund that the Board according to the procedures is in the best administrative, transfer agency and
reviewed. The Board noted that AIM has interests of the lending Fund and its distribution services, and the fees
agreed to limit the Fund's total respective shareholders. received by AIM and its affiliates for
operating expenses, as discussed below. performing such services. In addition to
Based on this review, the Board - Independent written evaluation and reviewing such services, the trustees
concluded that the advisory fee rate for recommendations of the Fund's Senior also considered the organizational
the Fund under the Advisory Agreement Officer. The Board noted that, upon their structure employed by AIM and its
was fair and reasonable. direction, the Senior Officer of the Fund, affiliates to provide those services.
who is independent of AIM and AIM's Based on the review of these and other
- - Expense limitations and fee waivers. affiliates, had prepared an independent factors, the Board concluded that AIM and
The Board noted that AIM has written evaluation in order to assist the its affiliates were qualified to continue
contractually agreed to waive fees Board in determining the reasonableness of to provide non-investment advisory
and/or limit expenses of the Fund the proposed management fees of the AIM services to the Fund, including
through April 30, 2008 in an amount Funds, including the Fund. The Board noted administrative, transfer agency and
necessary to limit total annual that the Senior Officer's written evaluation distribution services, and that AIM and
operating expenses to a specified had been relied upon by the Board in this its affiliates currently are providing
percentage of average daily net assets regard in lieu of a competitive bidding satisfactory non-investment advisory
for each class of the Fund. The Board process. In determining whether to continue services.
considered the contractual nature of the Advisory Agreement for the Fund, the
this fee waiver/expense limitation and Board considered the Senior Officer's - Other factors and current trends. The
noted that it remains in effect until written evaluation. Board considered the steps that AIM and
April 30, 2008. The Board considered the its affiliates have taken over the last
effect this fee waiver/expense - Profitability of AIM and its affiliates. several years, and continue to take, in
limitation would have on the Fund's The Board reviewed information concerning order to improve the quality and
estimated expenses and concluded that the profitability of AIM's (and its efficiency of the services they provide
the levels of fee waivers/expense affiliates') investment advisory and other to the Funds in the areas of investment
limitations for the Fund were fair and activities and its financial condition. The performance, product line
reasonable. Board considered the overall profitability diversification, distribution, fund
of AIM, as well as the profitability of AIM operations, shareholder services and
- - Breakpoints and economies of scale. in connection with managing the Fund. The compliance. The Board concluded that
The Board reviewed the structure of the Board noted that AIM's operations remain these steps taken by AIM have improved,
Fund's advisory fee under the Advisory profitable, although increased expenses in and are likely to continue to improve,
Agreement, noting that it includes three recent years have reduced AIM's the quality and efficiency of the
breakpoints. The Board reviewed the profitability. Based on the review of the services AIM and its affiliates provide
level of the Fund's advisory fees, and profitability of AIM's and its affiliates' to the Fund in each of these areas, and
noted that such fees, as a percentage of investment advisory and other activities and support the Board's approval of the
the Fund's net assets, have decreased as its financial condition, the Board concluded continuance of the Advisory Agreement for
net assets increased because the that the compensation to be paid by the Fund the Fund.
Advisory Agreement includes breakpoints. to AIM under its Advisory Agreement was not
The Board noted that, due to the Fund's excessive.
asset levels at the end of the past
calendar year and the way in which the - Benefits of soft dollars to AIM. The Board
advisory fee breakpoints have been considered the benefits realized by AIM as a
structured, the Fund has yet to fully result of brokerage transactions executed
benefit from the breakpoints. The Board through "soft dollar" arrangements. Under
concluded that the Fund's fee levels these arrangements, brokerage commissions
under the Advisory Agreement therefore paid by the Fund and/or other funds advised
reflect economies of scale and that it by AIM are used to pay for research and
was not necessary to change the advisory execution services. This research may be
fee breakpoints in the Fund's advisory used by AIM in making investment decisions
fee schedule. for the Fund. The Board concluded that such
arrangements were appropriate.
- - Investments in affiliated money market
funds. The Board also took into account
the fact that uninvested cash and cash
collateral from securities lending
arrangements, if any (collectively,
"cash balances") of the Fund may be
invested in money market funds advised
by AIM pursuant to the terms of an SEC
exemptive order. The Board found that
the Fund may
8
AIM V.I. Mid Cap Core Equity Fund
SCHEDULE OF INVESTMENTS
December 31, 2006
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
DOMESTIC COMMON STOCKS-74.37%
ADVERTISING-1.63%
Omnicom Group Inc. 99,386 $ 10,389,812
========================================================================
AEROSPACE & DEFENSE-1.06%
Goodrich Corp. 148,973 6,785,720
========================================================================
APPAREL RETAIL-1.39%
Gap, Inc. (The) 453,595 8,845,103
========================================================================
APPLICATION SOFTWARE-1.65%
Cadence Design Systems, Inc.(a) 587,846 10,528,322
========================================================================
BROADCASTING & CABLE TV-1.88%
Scripps Co. (E.W.) (The)-Class A 239,848 11,978,009
========================================================================
COMMUNICATIONS EQUIPMENT-1.85%
ADTRAN, Inc. 223,138 5,065,232
- ------------------------------------------------------------------------
Juniper Networks, Inc.(a) 230,495 4,365,575
- ------------------------------------------------------------------------
Plantronics, Inc. 112,828 2,391,954
========================================================================
11,822,761
========================================================================
COMPUTER & ELECTRONICS RETAIL-1.26%
RadioShack Corp. 479,728 8,049,836
========================================================================
DISTRIBUTORS-1.49%
Genuine Parts Co. 200,306 9,500,514
========================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-1.41%
Mettler-Toledo International Inc.(a) 114,270 9,010,190
========================================================================
ENVIRONMENTAL & FACILITIES SERVICES-1.61%
Republic Services, Inc. 252,160 10,255,347
========================================================================
FOOD RETAIL-1.55%
SUPERVALU Inc. 275,823 9,860,672
========================================================================
GAS UTILITIES-2.14%
UGI Corp. 499,376 13,622,977
========================================================================
GENERAL MERCHANDISE STORES-0.83%
99 Cents Only Stores(a) 436,820 5,316,099
========================================================================
HEALTH CARE EQUIPMENT-1.04%
Hospira, Inc.(a) 196,825 6,609,384
========================================================================
HEALTH CARE FACILITIES-1.32%
Health Management Associates, Inc.-Class A 399,617 8,435,915
========================================================================
HOME IMPROVEMENT RETAIL-1.11%
Sherwin-Williams Co. (The) 111,290 7,075,818
========================================================================
INDUSTRIAL MACHINERY-3.77%
Dover Corp. 184,901 9,063,847
- ------------------------------------------------------------------------
ITT Corp. 72,084 4,095,813
- ------------------------------------------------------------------------
</Table>
<Table>
SHARES VALUE
- ------------------------------------------------------------------------
<Caption>
INDUSTRIAL MACHINERY-(CONTINUED)
Pall Corp. 226,275 $ 7,817,801
- ------------------------------------------------------------------------
Parker Hannifin Corp. 39,629 3,046,678
========================================================================
24,024,139
========================================================================
INSURANCE BROKERS-1.31%
Marsh & McLennan Cos., Inc. 272,815 8,364,508
========================================================================
LIFE SCIENCES TOOLS & SERVICES-4.71%
PerkinElmer, Inc. 377,146 8,383,956
- ------------------------------------------------------------------------
Techne Corp.(a) 148,011 8,207,210
- ------------------------------------------------------------------------
Waters Corp.(a) 275,000 13,466,750
========================================================================
30,057,916
========================================================================
MANAGED HEALTH CARE-1.03%
Health Net Inc.(a) 135,673 6,601,848
========================================================================
MULTI-LINE INSURANCE-1.41%
Genworth Financial Inc.-Class A 262,890 8,993,467
========================================================================
MULTI-UTILITIES-1.85%
Wisconsin Energy Corp. 249,292 11,831,398
========================================================================
OFFICE ELECTRONICS-1.64%
Xerox Corp.(a) 619,142 10,494,457
========================================================================
OFFICE SERVICES & SUPPLIES-1.40%
Pitney Bowes Inc. 192,857 8,908,065
========================================================================
OIL & GAS DRILLING-1.00%
Noble Corp. 84,009 6,397,285
========================================================================
OIL & GAS EQUIPMENT & SERVICES-2.49%
FMC Technologies, Inc.(a) 123,947 7,638,854
- ------------------------------------------------------------------------
Smith International, Inc. 200,274 8,225,253
========================================================================
15,864,107
========================================================================
OIL & GAS EXPLORATION & PRODUCTION-2.45%
Chesapeake Energy Corp. 230,184 6,686,845
- ------------------------------------------------------------------------
Pioneer Natural Resources Co. 175,041 6,947,377
- ------------------------------------------------------------------------
Whiting Petroleum Corp.(a) 42,553 1,982,970
========================================================================
15,617,192
========================================================================
PAPER PRODUCTS-1.30%
MeadWestvaco Corp. 276,335 8,306,630
========================================================================
PERSONAL PRODUCTS-5.36%
Avon Products, Inc. 468,342 15,474,020
- ------------------------------------------------------------------------
Estee Lauder Cos. Inc. (The)-Class A 459,060 18,738,829
========================================================================
34,212,849
========================================================================
</Table>
AIM V.I. Mid Cap Core Equity Fund
<Table>
<Caption>
SHARES VALUE
- ------------------------------------------------------------------------
PHARMACEUTICALS-1.89%
Forest Laboratories, Inc.(a) 133,029 $ 6,731,267
- ------------------------------------------------------------------------
Warner Chilcott Ltd.-Class A(a) 383,363 5,298,077
========================================================================
12,029,344
========================================================================
PROPERTY & CASUALTY INSURANCE-3.06%
Axis Capital Holdings Ltd. 282,644 9,431,830
- ------------------------------------------------------------------------
XL Capital Ltd.-Class A 139,838 10,071,133
========================================================================
19,502,963
========================================================================
PUBLISHING-1.21%
McClatchy Co. (The)-Class A 177,882 7,702,291
========================================================================
REGIONAL BANKS-1.67%
Marshall & Ilsley Corp. 137,717 6,625,565
- ------------------------------------------------------------------------
SVB Financial Group(a) 86,212 4,019,203
========================================================================
10,644,768
========================================================================
SEMICONDUCTORS-2.27%
Analog Devices, Inc. 229,287 7,536,664
- ------------------------------------------------------------------------
Linear Technology Corp. 228,961 6,942,097
========================================================================
14,478,761
========================================================================
SPECIALIZED CONSUMER SERVICES-2.63%
Service Corp. International 1,638,795 16,797,649
========================================================================
SPECIALTY CHEMICALS-7.38%
International Flavors & Fragrances Inc. 394,579 19,397,504
- ------------------------------------------------------------------------
Rohm and Haas Co. 130,369 6,664,463
- ------------------------------------------------------------------------
Sigma-Aldrich Corp. 270,241 21,003,130
========================================================================
47,065,097
========================================================================
SYSTEMS SOFTWARE-1.32%
McAfee Inc.(a) 297,708 8,448,953
========================================================================
Total Domestic Common Stocks (Cost
$404,758,047) 474,430,166
========================================================================
FOREIGN COMMON STOCKS & OTHER EQUITY
INTERESTS-11.39%
BELGIUM-1.45%
Groupe Bruxelles Lambert S.A. (Multi-Sector
Holdings)(b) 77,096 9,239,451
========================================================================
</Table>
<Table>
SHARES VALUE
- ------------------------------------------------------------------------
<Caption>
CANADA-1.04%
Nortel Networks Corp. (Communications
Equipment)(a) 247,749 $ 6,622,331
========================================================================
FRANCE-1.81%
Business Objects S.A.-ADR (Application
Software)(a) 292,825 11,551,946
========================================================================
JAPAN-0.54%
Sega Sammy Holdings Inc. (Leisure
Products)(b) 127,900 3,453,781
========================================================================
NETHERLANDS-1.05%
Heineken N.V. (Brewers)(b) 141,004 6,700,898
========================================================================
SOUTH KOREA-1.64%
SK Telecom Co., Ltd.-ADR (Wireless
Telecommunication Services) 395,728 10,478,877
========================================================================
SWEDEN-0.72%
Atlas Copco A.B.-Class A (Industrial
Machinery)(b) 137,200 4,586,439
========================================================================
UNITED KINGDOM-3.14%
Cadbury Schweppes PLC (Packaged Foods &
Meats) 1,871,702 20,033,717
========================================================================
Total Foreign Common Stocks & Other
Equity Interests (Cost $61,876,147) 72,667,440
========================================================================
PREFERRED STOCKS-2.13%
HOUSEHOLD PRODUCTS-2.13%
Henkel KGaA-Pfd. (Germany)(b) 92,286 13,579,339
========================================================================
Total Preferred Stocks (Cost $11,192,160) 13,579,339
========================================================================
MONEY MARKET FUNDS-12.06%
Liquid Assets Portfolio-Institutional
Class(c) 38,447,715 38,447,715
- ------------------------------------------------------------------------
Premier Portfolio-Institutional Class(c) 38,447,715 38,447,715
========================================================================
Total Money Market Funds (Cost
$76,895,430) 76,895,430
========================================================================
TOTAL INVESTMENTS-99.95% (Cost $554,721,784) 637,572,375
========================================================================
OTHER ASSETS LESS LIABILITIES-0.05% 347,969
========================================================================
NET ASSETS-100.00% $637,920,344
________________________________________________________________________
========================================================================
</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 December 31, 2006 was $37,559,908,
which represented 5.89% 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
December 31, 2006
<Table>
ASSETS:
Investments, at value (cost $477,826,354) $560,676,945
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $76,895,430) 76,895,430
=============================================================
Total investments (cost $554,721,784) 637,572,375
=============================================================
Foreign currencies, at value (cost $609,453) 610,864
- -------------------------------------------------------------
Receivables for:
Fund shares sold 309,526
- -------------------------------------------------------------
Dividends 924,892
- -------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 18,115
=============================================================
Total assets 639,435,772
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 610,866
- -------------------------------------------------------------
Fund shares reacquired 353,144
- -------------------------------------------------------------
Trustee deferred compensation and retirement
plans 43,179
- -------------------------------------------------------------
Accrued administrative services fees 394,461
- -------------------------------------------------------------
Accrued distribution fees-Series II 35,342
- -------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 5,053
- -------------------------------------------------------------
Accrued transfer agent fees 7,006
- -------------------------------------------------------------
Accrued operating expenses 66,377
=============================================================
Total liabilities 1,515,428
=============================================================
Net assets applicable to shares outstanding $637,920,344
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $546,136,284
- -------------------------------------------------------------
Undistributed net investment income (91,298)
- -------------------------------------------------------------
Undistributed net realized gain from investment
securities and foreign currencies 9,028,076
- -------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 82,847,282
=============================================================
$637,920,344
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $581,154,484
_____________________________________________________________
=============================================================
Series II $ 56,765,860
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 42,979,445
_____________________________________________________________
=============================================================
Series II 4,228,859
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 13.52
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 13.42
_____________________________________________________________
=============================================================
</Table>
STATEMENT OF OPERATIONS
For the year ended December 31, 2006
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of
$55,736) $ 7,653,930
- ------------------------------------------------------------
Dividends from affiliated money market funds 4,807,868
- ------------------------------------------------------------
Interest 33,509
============================================================
Total investment income 12,495,307
============================================================
EXPENSES:
Advisory fees 4,575,563
- ------------------------------------------------------------
Administrative services fees 1,724,200
- ------------------------------------------------------------
Custodian fees 112,394
- ------------------------------------------------------------
Distribution fees-Series II 134,968
- ------------------------------------------------------------
Transfer agent fees 33,595
- ------------------------------------------------------------
Trustees' and officer's fees and benefits 33,476
- ------------------------------------------------------------
Other 126,263
============================================================
Total expenses 6,740,459
============================================================
Less: Fees waived and expense offset
arrangements (36,133)
============================================================
Net expenses 6,704,326
============================================================
Net investment income 5,790,981
============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES AND
OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities (includes net gains
from securities sold to affiliates of
$1,532,225) 53,566,438
- ------------------------------------------------------------
Foreign currencies (84,329)
============================================================
53,482,109
============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities 6,912,886
- ------------------------------------------------------------
Foreign currencies (2,992)
- ------------------------------------------------------------
Option contracts written 425,649
============================================================
7,335,543
============================================================
Net gain from investment securities, foreign
currencies and option contracts 60,817,652
============================================================
Net increase in net assets resulting from
operations $66,608,633
____________________________________________________________
============================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. Mid Cap Core Equity Fund
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2006 and 2005
<Table>
<Caption>
2006 2005
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 5,790,981 $ 2,801,650
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 53,482,109 28,846,914
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities, foreign currencies and option contracts 7,335,543 11,957,849
==========================================================================================
Net increase in net assets resulting from operations 66,608,633 43,606,413
==========================================================================================
Distributions to shareholders from net investment income:
Series I (5,369,075) (2,944,117)
- ------------------------------------------------------------------------------------------
Series II (394,014) (141,476)
==========================================================================================
Total distributions from net investment income (5,763,089) (3,085,593)
==========================================================================================
Distributions to shareholders from net realized gains:
Series I (57,207,085) (17,996,436)
- ------------------------------------------------------------------------------------------
Series II (5,625,901) (1,538,860)
==========================================================================================
Total distributions from net realized gains (62,832,986) (19,535,296)
==========================================================================================
Decrease in net assets resulting from distributions (68,596,075) (22,620,889)
==========================================================================================
Share transactions-net:
Series I (2,215,259) 68,779,573
- ------------------------------------------------------------------------------------------
Series II 6,883,123 15,373,802
==========================================================================================
Net increase in net assets resulting from share
transactions 4,667,864 84,153,375
==========================================================================================
Net increase in net assets 2,680,422 105,138,899
==========================================================================================
NET ASSETS:
Beginning of year 635,239,922 530,101,023
==========================================================================================
End of year (including undistributed net investment income
of $(91,298) and $(33,549), respectively) $637,920,344 $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
December 31, 2006
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-one 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.
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 or official closing price as of the close of
the customary trading session on the exchange where the security is
principally traded, or lacking any sales or official closing price on a
particular day, the security may be valued at the closing bid price on that
day. Securities traded in the over-the-counter market 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. 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 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 open-end and closed-end registered
investment companies that trade on an exchange are valued at the last sales
price or official closing price as of the close of the customary trading
session on the exchange where the security is principally traded.
Debt obligations (including convertible bonds) and unlisted equities 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.
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. If market quotations are available and reliable for
foreign exchange traded equity securities, the securities will be valued at
the market quotations. Because trading hours for certain foreign securities
end before the close of the NYSE, closing market quotations may become
unreliable. If between the time trading ends on a particular security and
the close of the customary trading session on the NYSE, events occur that
are significant and may make the closing price unreliable, the Fund may
fair value the security. 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 prices are not provided by any of the above
methods may be valued based upon quotes furnished by independent sources
and are valued at the last bid price in the case of equity securities and
in the case of debt obligations, the mean between the last bid and asked
prices.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
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
AIM V.I. Mid Cap Core Equity Fund
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 the 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 to distribute substantially all of the
Fund's taxable earnings to shareholders. As such, the Fund will not be
subject to federal income taxes on otherwise taxable income (including net
realized capital gain) that 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. ACCOUNTING ESTIMATES -- 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.
H. INDEMNIFICATIONS -- 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.
I. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in
foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from (i) sales
of foreign currencies, (ii) currency gains or losses realized between the
trade and settlement dates on securities transactions, and (iii) the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
The Fund may invest in foreign securities which may be subject to foreign
taxes on income, gains on investments or currency repatriation, a portion
of which may be recoverable. Taxes are accrued based on the Fund's current
interpretation of tax regulations and rates that exist in the foreign
markets in which the Fund invests.
J. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security.
Fluctuations in the value of these contracts are recorded as unrealized
appreciation (depreciation) until the contracts are closed. When these
contracts are closed, realized gains (losses) are recorded. Realized and
unrealized gains and losses on these contracts are included in the
Statement of Operations. The Fund could be exposed to risk, which may be in
excess of the amount reflected in the Statement of Assets and Liabilities,
if counterparties to the contracts are unable to meet the terms of their
contracts or if the value of the foreign currency changes unfavorably.
K. COVERED CALL OPTIONS -- The Fund may write call options. A call option
gives the purchaser of such option the right to buy, and the writer (the
Fund) the obligation to sell, the underlying security at the stated
exercise price during the option period. Written call options are recorded
as a liability in the Statement of Assets and Liabilities. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. 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. Realized gains and losses on these contracts
are included in the Statement of Operations. A risk in writing a call
option is that the Fund gives up the opportunity
AIM V.I. Mid Cap Core Equity Fund
for profit if the market price of the security increases and the option is
exercised.
L. PUT OPTIONS PURCHASED -- The Fund may purchase put options including
options on securities indexes and/or futures contracts. By purchasing a put
option, the Fund obtains the right (but not the obligation) to sell the
option's underlying instrument at a fixed strike price. In return for this
right, the Fund pays an option premium. The option's underlying instrument
may be a security, securities index, or a futures contract. Put options may
be used by the Fund to hedge securities it owns by locking in a minimum
price at which the Fund can sell. If security prices fall, the put option
could be exercised to offset all or a portion of the Fund's resulting
losses. At the same time, because the maximum the Fund has at risk is the
cost of the option, purchasing put options does not eliminate the potential
for the Fund to profit from an increase in the value of the securities
hedged. 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.
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 $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 at least 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. In addition, the Fund may also benefit from a one time credit to be used
to offset future custodian expenses. These credits are used to pay certain
expenses incurred by the Fund. AIM did not waive fees and/or reimburse expenses
during the period under this expense limitation.
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in
the amount of 25% of the advisory fee AIM receives from the affiliated money
market funds on investments by the Fund in such affiliated money market funds.
Voluntary fee waivers or reimbursements may be modified or discontinued at any
time upon consultation with the Board of Trustees without further notice to
investors.
For the year ended December 31, 2006, AIM waived advisory fees of $23,981.
At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the year ended December 31, 2006, AMVESCAP did not
reimburse any such expenses.
The Trust has entered into a master administrative services agreement with
AIM pursuant to which the Fund 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. The
Fund may reimburse AIM for up to 0.25% of average daily assets invested by each
insurance company providing administrative services to the Fund. Pursuant to
such agreement, for the year ended December 31, 2006, AIM was paid $156,233 for
accounting and fund administrative services and reimbursed $1,567,967 for
services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with AIM
Investment Services, Inc. ("AIS") pursuant to which the Fund has agreed to pay
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 year ended December 31, 2006, expenses incurred under the
agreement are shown in the Statement of Operations as transfer agent fees.
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 Plan payments, 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
AIM V.I. Mid Cap Core Equity Fund
and own Series II shares of the Fund. For the year ended December 31, 2006,
expenses incurred under the Plan are shown in the Statement of Operations as
distribution fees.
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 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 year ended December 31, 2006.
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/05 AT COST FROM SALES (DEPRECIATION) 12/31/06 INCOME GAIN (LOSS)
- -----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-Institutional
Class $38,264,645 $162,785,163 $(162,602,093) $ -- $38,447,715 $2,402,248 $ --
- -----------------------------------------------------------------------------------------------------------------------------------
Premier
Portfolio-Institutional
Class -- 114,463,963 (76,016,248) -- 38,447,715 1,265,731 --
- -----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-Institutional
Class 38,264,645 88,387,726 (126,652,371) -- -- 1,139,889 --
===================================================================================================================================
Total
Investments
in
Affiliates $76,529,290 $365,636,852 $(365,270,712) $ -- $76,895,430 $4,807,868 $ --
___________________________________________________________________________________________________________________________________
===================================================================================================================================
</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 year ended December 31, 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 $5,094,046.
NOTE 5--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) custodian credits which
result from periodic overnight cash balances at the custodian and (ii) a one
time custodian fee credit to be used to offset future custodian fees. For the
year ended December 31, 2006, the Fund received credits from these arrangements,
which resulted in the reduction of the Fund's total expenses of $12,152.
NOTE 6--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to each Trustee and Officer of the Fund who is not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Fund, and "Trustees' and Officer's Fees and Benefits" also
include amounts accrued by the Fund to fund such deferred compensation amounts.
Those Trustees who defer compensation have the option to select various AIM
Funds in which their deferral accounts shall be deemed to be invested. Finally,
current Trustees are eligible to participate in a retirement plan that provides
for benefits to be paid upon retirement to Trustees over a period of time based
on the number of years of service. The Fund may have certain former Trustees who
also participate in a retirement plan and receive benefits under such plan.
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to fund such retirement benefits. Obligations under the deferred compensation
and retirement plans represent unsecured claims against the general assets of
the Fund.
During the year ended December 31, 2006, the Fund paid legal fees of $6,038
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 Securities and Exchange Commission, 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. Mid Cap Core Equity Fund
During the year ended December 31, 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 bank 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 contractually agreed upon rate.
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--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years December 31, 2006 and
2005 was as follows:
<Table>
<Caption>
2006 2005
- ----------------------------------------------------------------------------------------
Distributions paid from:
Ordinary income $13,589,126 $ 7,276,229
- ----------------------------------------------------------------------------------------
Long-term capital gain 55,006,949 15,344,660
========================================================================================
Total distributions $68,596,075 $22,620,889
________________________________________________________________________________________
========================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2006, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2006
- ----------------------------------------------------------------------------
Undistributed ordinary income $ 1,334,837
- ----------------------------------------------------------------------------
Undistributed long-term gain 9,611,254
- ----------------------------------------------------------------------------
Net unrealized appreciation -- investments 80,924,586
- ----------------------------------------------------------------------------
Temporary book/tax differences (40,480)
- ----------------------------------------------------------------------------
Post-October currency loss deferral (46,137)
- ----------------------------------------------------------------------------
Shares of beneficial interest 546,136,284
============================================================================
Total net assets $637,920,344
____________________________________________________________________________
============================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales and the recognition for tax purposes of unrealized gains on passive
foreign investment companies. The tax-basis net unrealized appreciation
(depreciation) on investments amount includes appreciation (depreciation) on
foreign currencies of $(3,308).
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan benefits.
The Fund does not have a capital loss carryforward as of December 31, 2006.
AIM V.I. Mid Cap Core Equity Fund
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities,
U.S. Treasury obligations and money market funds, if any) purchased and sold by
the Fund during the year ended December 31, 2006 was $445,695,406 and
$504,804,259, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- --------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $83,638,396
- --------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (2,710,502)
================================================================================
Net unrealized appreciation of investment securities $80,927,894
________________________________________________________________________________
================================================================================
Cost of investments for tax purposes is $556,644,481.
</Table>
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions and distributions reclass, on December 31, 2006, undistributed net
investment income was decreased by $85,641 and undistributed net realized gain
was increased by $85,641. This reclassification had no effect on the net assets
of the Fund.
NOTE 12--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
2006(A) 2005
--------------------------- ---------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------------------
Sold:
Series I 1,804,056 $ 25,439,433 9,458,916 $125,305,035
- ------------------------------------------------------------------------------------------------------------------------
Series II 962,594 13,444,373 2,245,440 29,655,326
========================================================================================================================
Issued as reinvestment of dividends:
Series I 4,608,241 62,349,500 1,516,110 20,907,159
- ------------------------------------------------------------------------------------------------------------------------
Series II 448,244 6,019,915 122,653 1,680,336
========================================================================================================================
Reacquired:
Series I (6,405,942) (90,004,192) (5,875,151) (77,432,621)
- ------------------------------------------------------------------------------------------------------------------------
Series II (907,250) (12,581,165) (1,212,147) (15,961,860)
========================================================================================================================
509,943 $ 4,667,864 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
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 shareholders 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 for 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
currently intends for the Fund to adopt FIN 48 provisions during the fiscal year
ended December 31, 2007.
AIM V.I. Mid Cap Core Equity Fund
NOTE 14--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
--------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
2006 2005 2004 2003 2002
- ---------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 13.61 $ 13.11 $ 12.06 $ 9.53 $ 10.72
- ---------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.14 0.06 0.03(a) 0.00(a) (0.02)(a)
- ---------------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.39 0.94 1.63 2.60 (1.17)
=================================================================================================================================
Total from investment operations 1.53 1.00 1.66 2.60 (1.19)
=================================================================================================================================
Less distributions:
Dividends from net investment income (0.14) (0.07) (0.02) -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (1.48) (0.43) (0.59) (0.07) --
=================================================================================================================================
Total distributions (1.62) (0.50) (0.61) (0.07) --
=================================================================================================================================
Net asset value, end of period $ 13.52 $ 13.61 $ 13.11 $ 12.06 $ 9.53
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Total return(b) 11.24% 7.62% 13.82% 27.31% (11.10)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $581,154 $584,860 $496,606 $293,162 $68,271
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Ratio of expenses to average net assets 1.04%(c) 1.03% 1.04% 1.07% 1.30%
=================================================================================================================================
Ratio of net investment income (loss) to average net assets 0.93%(c) 0.50% 0.25% 0.01% (0.22)%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
Portfolio turnover rate 83% 70% 55% 37% 36%
_________________________________________________________________________________________________________________________________
=================================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns do not reflect charges assessed
in connection with a variable product, which if included would reduce
total returns.
(c) Ratios are based on average daily net assets of $581,807,492.
AIM V.I. Mid Cap Core Equity Fund
NOTE 14--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
SERIES II
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
2006 2005 2004 2003 2002
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 13.52 $ 13.04 $ 12.01 $ 9.51 $ 10.71
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) 0.10 0.03 (0.00)(a) (0.03)(a) (0.04)(a)
- -----------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.38 0.92 1.62 2.60 (1.16)
=============================================================================================================================
Total from investment operations 1.48 0.95 1.62 2.57 (1.20)
=============================================================================================================================
Less distributions:
Dividends from net investment income (0.10) (0.04) (0.00) -- --
- -----------------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (1.48) (0.43) (0.59) (0.07) --
=============================================================================================================================
Total distributions (1.58) (0.47) (0.59) (0.07) --
=============================================================================================================================
Net asset value, end of period $ 13.42 $ 13.52 $ 13.04 $ 12.01 $ 9.51
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Total return(b) 10.98% 7.27% 13.57% 27.05% (11.20)%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $56,766 $50,380 $33,495 $ 4,874 $ 1,214
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Ratio of expenses to average net assets 1.29%(c) 1.28% 1.29% 1.32% 1.45%(d)
=============================================================================================================================
Ratio of net investment income (loss) to average net assets 0.68%(c) 0.25% (0.00)% (0.24)% (0.37)%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
Portfolio turnover rate 83% 70% 55% 37% 36%
_____________________________________________________________________________________________________________________________
=============================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns do not reflect charges assessed
in connection with a variable product, which if included would reduce
total returns.
(c) Ratios are based on average daily net assets of $53,987,158.
(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% for the year ended December 31, 2002.
AIM V.I. Mid Cap Core Equity Fund
NOTE 14--FINANCIAL HIGHLIGHTS--(CONTINUED)
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. 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 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; 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. On September 15, 2006, the
MDL Court granted the AMVESCAP defendants' motion to dismiss the Amended Class
Action Complaint for Violations of ERISA and dismissed such Complaint. The
plaintiff has commenced an appeal from that decision.
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.
AIM V.I. Mid Cap Core Equity Fund
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V.I. Mid Cap Core Equity Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM V.I. Mid Cap Core Equity Fund
(one of the funds constituting AIM Variable Insurance Funds, hereafter referred
to as the "Fund") at December 31, 2006, the results of its operations for the
year then ended, the changes in its net assets and the financial highlights for
each of the two years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2006 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion. The financial highlights for each of the periods ended on or before
December 31, 2004 were audited by another independent registered public
accounting firm whose report, dated February 4, 2005, expressed an unqualified
opinion on those statements.
PRICEWATERHOUSECOOPERS LLP
February 14, 2007
Houston, Texas
AIM V.I. Mid Cap Core Equity Fund
TAX INFORMATION
Form 1099-DIV, Form 1042-S and other year-end tax information provide
shareholders with actual calendar year amounts that should be included in their
tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the
Internal Revenue Code or to meet a specific state's requirement.
The Fund designates the following amounts or, if subsequently determined to
be different, the maximum amount allowable for its fiscal year ended December
31, 2006:
<Table>
<Caption>
FEDERAL AND STATE INCOME TAX
Long-Term Capital Gain Dividends $55,006,949
Corporate Dividends Received
Deduction* 53.00%
</Table>
* The above percentage is based on ordinary income dividends paid to
shareholders during the Fund's fiscal year.
AIM V.I. Mid Cap Core Equity Fund
TRUSTEES AND OFFICERS
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1983 Director and Chairman, A I M Management None
Trustee and Vice Chair Group Inc. (financial services holding
company); Director and Vice Chairman,
AMVESCAP PLC; Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm) and
Trustee and Vice Chair of The AIM Family
of Funds--Registered Trademark--
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer);
Chief Executive Officer, AMVESCAP
PLC -- Managed Products; and President
and Principal Executive Officer of The
AIM Family of Funds--Registered
Trademark--
- -------------------------------------------------------------------------------------------------------------------------------
Philip A. Taylor(2) -- 1954 2006 Director, Chief Executive Officer and None
Trustee, President and President, A I M Management Group Inc.,
Principal AIM Mutual Fund Dealer Inc. (registered
Executive Officer broker dealer), AIM Funds Management
Inc. (registered investment advisor) and
1371 Preferred Inc. (holding company);
Director and President, A I M Advisors,
Inc., INVESCO Funds Group, Inc.
(registered investment advisor and
register transfer agent) and AIM GP
Canada Inc. (general partner for a
limited partnership); Director, A I M
Capital Management, Inc. and A I M
Distributors, Inc.; Director and
Chairman, AIM Investment Services, Inc.,
Fund Management Company and INVESCO
Distributors, Inc. (registered broker
dealer); Director, President and
Chairman, AVZ Callco Inc. (holding
company); AMVESCAP Inc. (holding
company) and AIM Canada Holdings Inc.
(holding company); Director and Chief
Executive Officer, AIM Trimark Corporate
Class Inc. (formerly AIM Trimark Global
Fund Inc.) (corporate mutual fund
company) and AIM Trimark Canada Fund
Inc. (corporate mutual fund company);
Trustee, President and Principal
Executive Officer of The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); Trustee and
Executive Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); and Manager,
Powershares Capital Management LLC
Formerly: President and Principal
Executive Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); Chairman, AIM
Canada Holdings, Inc.; Executive Vice
President and Chief Operations Officer,
AIM Funds Management Inc.; President,
AIM Trimark Global Fund Inc. and AIM
Trimark Canada Fund Inc.; and Director,
Trimark Trust (federally regulated
Canadian Trust Company)
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company
Formerly: Partner, law firm of Baker & (2 portfolios))
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Founder, Green, Manning & Bunch Ltd., None
Trustee (investment banking firm); and Director,
Policy Studies, Inc. and Van Gilder
Insurance Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and None
Trustee private business corporations, including
the Boss Group Ltd. (private investment
and management); Cortland Trust, Inc.
(Chairman) (registered investment
company (3 portfolios)); Annuity and
Life Re (Holdings), Ltd. (insurance
company); CompuDyne Corporation
(provider of products and services to
the public security market); and
Homeowners of America Holding
Corporation (property casualty company)
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and Director of various
affiliated Volvo companies; and
Director, Magellan Insurance Company
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund
company); and Owner, Dos Angelos Ranch, (non-profit)
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- -------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company
(3 portfolios))
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired Director, Mainstay VP Series
Trustee Formerly: Partner, Deloitte & Touche Funds, Inc. (21 portfolios)
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
(2) Mr. Taylor is considered an interested person of the Trust because he is an
officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
TRUSTEES AND OFFICERS--(CONTINUED)
AIM V.I. Mid Cap Core Equity Fund
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Senior Vice President and Senior Officer N/A
Senior Vice President and of The AIM Family of Funds--Registered
Senior Officer Trademark--
Formerly: Director of Compliance and
Assistant General Counsel, ICON
Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
John M. Zerr -- 1962 2006 Director, Senior Vice President, N/A
Senior Vice President, Chief Secretary and General Counsel, A I M
Legal Officer and Secretary Management Group Inc. and A I M
Advisors, Inc.; Director, Vice President
and Secretary, INVESCO Distributors,
Inc.; Vice President and Secretary,
A I M Capital Management, Inc., AIM
Investment Services, Inc., and Fund
Management Company; Senior Vice
President and Secretary, A I M
Distributors, Inc.; Director and Vice
President, INVESCO Funds Group Inc.;
Senior Vice President, Chief Legal
Officer and Secretary of The AIM Family
of Funds--Registered Trademark--; and
Manager, Powershares Capital Management
LLC
Formerly: Chief Operating Officer,
Senior Vice President, General Counsel,
and Secretary, Liberty Ridge Capital,
Inc. (an investment adviser); Vice
President and Secretary, PBHG Funds (an
investment company); Vice President and
Secretary, PBHG Insurance Series Fund
(an investment company); General Counsel
and Secretary, Pilgrim Baxter Value
Investors (an investment adviser); Chief
Operating Officer, General Counsel and
Secretary, Old Mutual Investment
Partners (a broker-dealer); General
Counsel and Secretary, Old Mutual Fund
Services (an administrator); General
Counsel and Secretary, Old Mutual
Shareholder Services (a shareholder
servicing center); Executive Vice
President, General Counsel and
Secretary, Old Mutual Capital, Inc. (an
investment adviser); and Vice President
and Secretary, Old Mutual Advisors Funds
(an investment company)
- ------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Global Compliance Director, AMVESCAP N/A
Vice President PLC; and Vice President of The AIM
Family of Funds--Registered Trademark--
Formerly: Senior Vice President, A I M
Management Group Inc. (financial
services holding company); Senior Vice
President and Chief Compliance Officer,
A I M Advisors, Inc. and The AIM Family
of Funds--Registered Trademark--; Vice
President and Chief Compliance Officer,
A I M Capital Management, Inc. and A I M
Distributors, Inc.; Vice President, AIM
Investment Services, Inc. and Fund
Management Company; Senior Vice
President and Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; and Senior Vice President
and Compliance Director, Delaware
Investments Family of Funds
- ------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Senior Vice President and General
Vice President Counsel, AMVESCAP PLC; Director, INVESCO
Funds Group, Inc.; and Vice President of
The AIM Family of Funds--Registered
Trademark--
Formerly: Director, Vice President and N/A
General Counsel, Fund Management
Company; Director, Senior Vice
President, Secretary and General
Counsel, A I M Management Group Inc. and
A I M Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Senior Vice President, A I M
Distributors, Inc.; Vice President,
A I M Capital Management, Inc. and AIM
Investment Services, Inc.; Senior Vice
President, Chief Legal Officer and
Secretary of The AIM Family of
Funds--Registered Trademark--; Chief
Executive Officer and President, INVESCO
Funds Group, Inc.; and Senior Vice
President, and General Counsel, Liberty
Financial Companies, Inc. and Senior
Vice President and General Counsel
Liberty Funds Group, LLC
- ------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President, Principal Advisors, Inc.; and Vice President,
Financial Officer and Treasurer and Principal Officer of The
Treasurer AIM Family of Funds--Registered
Trademark--
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
J. Philip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment Officer, A I M Advisors Inc.;
Director, Chairman, Chief Executive
Officer, President and Chief Investment
Officer, A I M Capital Management, Inc.;
Executive Vice President, A I M
Management Group Inc. and Vice President
of The AIM Family of Funds--Registered
Trademark--
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; and
Chief Equity Officer, Senior Vice
President and Senior Investment Officer,
A I M Capital Management, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc. and The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); and
President and Principal Executive
Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust Only)
Formerly: Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only)
- ------------------------------------------------------------------------------------------------------------------------------
Lance A. Rejsek -- 1967 2005 Anti-Money Laundering Compliance N/A
Anti-Money Laundering Officer, A I M Advisors, Inc., A I M
Compliance Officer Capital Management, Inc., A I M
Distributors, Inc., AIM Investment
Services, Inc., AIM Private Asset
Management, Inc., Fund Management
Company and The AIM Family of
Funds--Registered Trademark--
Formerly: Manager of the Fraud
Prevention Department, AIM Investment
Services, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
Todd L. Spillane -- 1958 2006 Senior Vice President, A I M Management N/A
Chief Compliance Officer Group Inc.; Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc.; and Vice President,
A I M Distributors, Inc., AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Global Head of Product
Development, AIG-Global Investment
Group, Inc.; Chief Compliance Officer
and Deputy General Counsel,
AIG-SunAmerica Asset Management; and
Chief Compliance Officer, Chief
Operating Officer and Deputy General
Counsel, American General Investment
Management
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers
Suite 100 11 Greenway Plaza Inc. LLP
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Ballard Spahr INDEPENDENT TRUSTEES AIM Investment State Street Bank and
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis Services, Inc. Trust Company
1735 Market Street, 51st & Frankel LLP P.O. Box 4739 225 Franklin Street
Floor 1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Philadelphia, PA 19103-7599 Americas
New York, NY 10036-2714
</Table>
FIXED INCOME
AIM V.I. MONEY MARKET FUND
Cash Equivalents
Annual Report to Shareholders - December 31, 2006
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 in Washington, D.C. You can [COVER GLOBE IMAGE]
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 AIM V.I. MONEY MARKET FUND seeks to provide
available without charge, upon request, from as high a level of current income as is consistent
our Client Services department at with the preservation of capital and liquidity.
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 UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT IS
AIMinvestments.com, access the About Us tab, AS OF DECEMBER 31, 2006, AND IS BASED ON TOTAL NET ASSETS.
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
[AIM INVESTMENTS LOGO] CONTAIN MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES AND
--Registered Trademark-- EXPENSES. INVESTORS SHOULD READ EACH CAREFULLY BEFORE INVESTING.
================================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
AIM V.I. MONEY MARKET FUND
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 Fund rose during the year ended December
31, 2006. The seven-day SEC yield on the Fund's Series I shares was 3.49% at the - Safety of principal
beginning of the year and 4.56% at its close. The yield on the Fund's Series II
shares was 3.24% at the start of the year and 4.31% at its close. As of December 31, - Liquidity
2006, the Fund's total net assets stood at $45.91 million and the Fund's weighted
average maturity was 26 days. - The highest possible yield consistent
======================================================================================= with safety of principal
Your Fund invests only in high
quality U.S. dollar denominated
MARKET CONDITIONS AND YOUR FUND August meeting, and for the first time short-term fixed-income obligations.
in more than two years, the Fed held its Although a money market fund seeks to
The U.S. economy expanded throughout federal funds rate steady. In its August maintain the value of your investment at
2006, but the rate of that expansion statement, the Fed said that "economic $1.00 per share, it is possible to lose
slowed. According to the U.S. Department growth has moderated from its quite money by investing in the Fund.
of Commerce, gross domestic product, the strong pace earlier this year, partly
broadest measure of the nation's reflecting a gradual cooling of the Thank you for your continued
economic activity, grew at an annualized housing market and the lagged effects of investment in AIM VI. Money Market Fund.
rate of 5.6%, 2.6% and 2.0% in the increases in interest rates and energy
first, second and third quarter of 2006, prices." THE VIEWS AND OPINIONS EXPRESSED IN
respectively. Initial estimates MANAGEMENT'S DISCUSSION OF FUND
suggested the U.S. economy expanded at While the Fed said that some inflation PERFORMANCE ARE THOSE OF AIM ADVISORS,
an annualized rate of 3.5% in the fourth risks remained, it left this key INC. THESE VIEWS AND OPINIONS ARE SUBJECT
quarter of 2006. Early in the year, interest rate unchanged for the TO CHANGE AT ANY TIME BASED ON FACTORS
there was concern that robust economic remainder of the year. Together with SUCH AS MARKET AND ECONOMIC CONDITIONS.
growth and a continued strong housing positive economic growth and strong THESE VIEWS AND OPINIONS MAY NOT BE
market could cause inflation to rise. corporate profits, this sparked a strong RELIED UPON AS INVESTMENT ADVICE OR
stock market rally. The S&P 500 Index, RECOMMENDATIONS, OR AS AN OFFER FOR A
In response, the U.S. Federal Reserve which represents the performance of the PARTICULAR SECURITY. THE INFORMATION IS
Board (the Fed) continued to work broad U.S. stock market, rose 15.78% for NOT A COMPLETE ANALYSIS OF EVERY ASPECT
diligently to ensure that inflation the year. The Lehman Brothers U.S. OF ANY MARKET, COUNTRY, INDUSTRY,
remained in check. At its Aggregate Bond Index, which represents SECURITY OR THE FUND. STATEMENTS OF FACT
monetary policy meeting in late June, the performance of investment-grade ARE FROM SOURCES CONSIDERED RELIABLE,
the Fed raised the key federal funds fixed-income investments, rose 4.33% for BUT AIM ADVISORS, INC. MAKES NO
target rate to 5.25% -- its 17th the year. REPRESENTATION OR WARRANTY AS TO THEIR
consecutive increase. At its 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 AIM Advisors, Inc.
=========================================== =====================================================================================
PERFORMANCE QUOTED IS PAST PERFORMANCE AN INVESTMENT IN THE FUND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT
AND CANNOT GUARANTEE COMPARABLE FUTURE INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH THE FUND SEEKS TO
RESULTS; CURRENT PERFORMANCE MAY BE PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE TO LOSE
LOWER OR HIGHER. VISIT MONEY BY INVESTING IN THE FUND.
AIMINVESTMENTS.COM FOR THE MOST RECENT
MONTH-END PERFORMANCE.
=========================================== =====================================================================================
2
AIM V.I. MONEY MARKET FUND
PER NASD REQUIREMENTS, THE MOST The Fund's yield will vary as
RECENT MONTH-END PERFORMANCE DATA AT THE short-term securities in its portfolio
=========================================== FUND LEVEL, EXCLUDING VARIABLE PRODUCT mature and the proceeds are reinvested
PORTFOLIO COMPOSITION CHARGES, ARE AVAILABLE ON THE AIM in securities with different interest
AUTOMATED INFORMATION LINE, rates.
Maturity distribution of Fund holdings 866-702-4402. AS MENTIONED ABOVE, FOR
In days, as of 12/31/06 THE MOST RECENT MONTH-END PERFORMANCE The risks generally associated with
INCLUDING VARIABLE PRODUCT CHARGES, concentrating investments in the banking
1-7 56.7% PLEASE CONTACT YOUR VARIABLE PRODUCT industry, such as interest rate risk,
8-30 13.1 ISSUER OR FINANCIAL ADVISOR. credit risk and regulatory developments
31-90 23.4 relating to the banking and financial
91-120 6.8 THE RETURNS SHOWN IN MANAGEMENT'S services industries; or the risks
121-180 0.0 DISCUSSION OF FUND PERFORMANCE ARE BASED generally associated with the U.S.
181+ 0.0 ON NET ASSET VALUES CALCULATED FOR dollar-denominated foreign investments,
SHAREHOLDER TRANSACTIONS. GENERALLY including political and economic
The number of days to maturity of each ACCEPTED ACCOUNTING PRINCIPLES REQUIRE upheaval, seizure or nationalization of
holding is determined in accordance with ADJUSTMENTS TO BE MADE TO THE NET ASSETS deposits, imposition of taxes or other
the provisions of Rule 2a-7 of the OF THE FUND AT PERIOD END FOR FINANCIAL restrictions on the payment of principal
Investment Company Act of 1940. REPORTING PURPOSES, AND AS SUCH, THE NET and interest could reduce the Fund's
=========================================== ASSET VALUES FOR SHAREHOLDER income and/or share price.
TRANSACTIONS AND THE RETURNS BASED ON
THOSE NET ASSET VALUES MAY DIFFER FROM ABOUT INDEXES USED IN THIS REPORT
THE PERFORMANCE DATA QUOTED REPRESENT THE NET ASSET VALUES AND RETURNS
PAST PERFORMANCE AND CANNOT GUARANTEE REPORTED IN THE FINANCIAL HIGHLIGHTS. The unmanaged LEHMAN BROTHERS U.S.
COMPARABLE FUTURE RESULTS; CURRENT ADDITIONALLY, THE RETURNS AND NET ASSET AGGREGATE BOND INDEX (the Lehman
PERFORMANCE MAY BE LOWER OR HIGHER. VALUES SHOWN THROUGHOUT THIS REPORT ARE Aggregate), which represents the U.S.
PLEASE SEE YOUR VARIABLE PRODUCT ISSUER AT THE FUND LEVEL ONLY AND DO NOT investment-grade fixed-rate bond market
OR FINANCIAL ADVISOR FOR THE MOST RECENT INCLUDE VARIABLE PRODUCT ISSUER CHARGES. (including government and corporate
MONTH-END VARIABLE PRODUCT PERFORMANCE. IF SUCH CHARGES WERE INCLUDED, THE TOTAL securities, mortgage pass-through
PERFORMANCE FIGURES REFLECT FUND RETURNS WOULD BE LOWER. securities and asset-backed securities),
EXPENSES, REINVESTED DISTRIBUTIONS AND is compiled by Lehman Brothers, a global
CHANGES IN NET ASSET VALUE. INVESTMENT PRINCIPAL RISKS OF INVESTING IN THE FUND investment bank.
RETURN AND PRINCIPAL VALUE WILL
FLUCTUATE SO THAT YOU MAY HAVE A GAIN OR The Fund may invest in obligations The unmanaged STANDARD & POOR'S
LOSS WHEN YOU SELL SHARES. issued by agencies and instrumentalities COMPOSITE INDEX OF 500 STOCKS (the S&P
of the U.S. government that may vary in 500 --Registered Trademark-- Index) is an
AIM V.I. MONEY MARKET FUND, A SERIES the level of support they receive from index of common stocks frequently used
PORTFOLIO OF AIM VARIABLE INSURANCE the U.S government. The U.S. government as a general measure of U.S. stock
FUNDS, IS CURRENTLY OFFERED THROUGH may choose not to provide financial market performance.
INSURANCE COMPANIES ISSUING VARIABLE support to U.S. government sponsored
PRODUCTS. YOU CANNOT PURCHASE SHARES OF agencies or instrumentalities if it is A direct investment cannot be made in
THE FUND DIRECTLY. PERFORMANCE FIGURES not legally obligated to do so, in which an index. Unless otherwise indicated,
GIVEN REPRESENT THE FUND AND ARE NOT case, if the issuer defaulted, the index results include reinvested
INTENDED TO REFLECT ACTUAL VARIABLE underlying fund holding securities of dividends, and they do not reflect sales
PRODUCT VALUES. THEY DO NOT REFLECT such issuer might not be able to recover charges.
SALES CHARGES, EXPENSES AND FEES its investment from the U.S government.
ASSESSED IN CONNECTION WITH A VARIABLE The Fund is not managed to track the
PRODUCT. SALES CHARGES, EXPENSES AND If the seller of a repurchase performance of any particular index,
FEES, WHICH ARE DETERMINED BY THE agreement in which the Fund invests including the indexes defined here, and
VARIABLE PRODUCT ISSUERS, WILL VARY AND defaults on its obligation or declares consequently, the performance of the
WILL LOWER THE TOTAL RETURN. bankruptcy, the Fund may experience Fund may deviate significantly from the
delays in selling the securities performance of the indexes.
underlying the repurchase agreement.
3
AIM V.I. MONEY MARKET FUND
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE ACTUAL EXPENSES The hypothetical account values and
expenses may not be used to estimate the
As a shareholder of the Fund, you incur The table below provides information actual ending account balance or
ongoing costs, including management about actual account values and actual expenses you paid for the period. You
fees; distribution and/or service(12b-l) expenses. You may use the information in may use this information to compare the
fees; and other Fund expenses. This this table, together with the amount you ongoing costs of investing in the Fund
example is intended to help you invested, to estimate the expenses that and other funds. To do so, compare this
understand your ongoing costs (in you paid over the period. Simply divide 5% hypothetical example with the 5%
dollars) of investing in the Fund and to your account value by $1,000 (for hypothetical examples that appear in the
compare these costs with ongoing costs example, an $8,600 account value divided shareholder reports of the other funds.
of investing in other mutual funds. The by $1,000 = 8.6), then multiply the
example is based on an investment of result by the number in the table under Please note that the expenses shown
$1,000 invested at the beginning of the the heading entitled "Actual Expenses in the table are meant to highlight your
period and held for the entire period Paid During Period" to estimate the ongoing costs. Therefore, the
July 1,2006, through December 31,2006. expenses you paid on your account during hypothetical information is useful in
this period. comparing ongoing costs, and will not
The actual and hypothetical expenses help you determine the relative total
in the examples below do not represent HYPOTHETICAL EXAMPLE FOR COMPARISON costs of owning different funds.
the effect of any fees or other expenses PURPOSES
assessed in connection with a variable
product; if they did, the expenses shown The table below also provides
would be higher while the ending account information about hypothetical account
values shown would be lower. values and hypothetical expenses based
on the Fund's actual expense ratio and
an assumed rate of return of 5% per year
before expenses, which is not the fund's
actual return.
===================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN
BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (7/1/06) (12/31/06)(1) PERIOD(2) (12/31/06) PERIOD(2) RATIO
Series 1 $ 1,000.00 $ 1,022.80 $ 4.59 $ 1,020.67 $ 4.58 0.90%
Series II 1,000.00 1,021.50 5.86 1,019.41 5.85 1.15
(1) The actual ending account value is based on the actual total return of the Fund for the period July 1,2006, through
December 31, 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 184/365 to reflect the most recent fiscal half year.
===================================================================================================================================
4
AIM V.I. MONEY MARKET FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
The Board of Trustees of AIM Variable - The nature and extent of the advisory changes should be made to the Fund and
Insurance Funds (the "Board") oversees services to be provided by AIM. The that it was not necessary to change the
the management of AIM V.I. Money Market Board reviewed the services to be Fund's portfolio management team at this
Fund (the "Fund") and, as required by provided by AIM under the Advisory time. However, due to the Fund's
law, determines annually whether to Agreement. Based on such review, the under-performance, the Board also
approve the continuance of the Fund's Board concluded that the range of concluded that it would be appropriate
advisory agreement with AIM Advisors, services to be provided by AIM under the for the Board to continue to closely
Inc. ("AIM"). Based upon the Advisory Agreement was appropriate and monitor and review the performance of
recommendation of the Investments that AIM currently is providing services the Fund. Although the independent
Committee of the Board, at a meeting in accordance with the terms of the written evaluation of the Fund's Senior
held on June 27, 2006, the Board, Advisory Agreement. Officer (discussed below) only
including all of the independent considered Fund performance through the
trustees, approved the continuance of - The quality of services to be provided most recent calendar year, the Board
the advisory agreement (the "Advisory by AIM. The Board reviewed the also reviewed more recent Fund
Agreement") between the Fund and AIM for credentials and experience of the performance, which did not change their
another year, effective July 1, 2006. officers and employees of AIM who will conclusions.
provide investment advisory services to
The Board considered the factors the Fund. In reviewing the - Meetings with the Fund's portfolio
discussed below in evaluating the qualifications of AIM to provide managers and investment personnel. With
fairness and reasonableness of the investment advisory services, the Board respect to the Fund, the Board is
Advisory Agreement at the meeting on considered such issues as AIM's meeting periodically with such Fund's
June 27, 2006 and as part of the Board's portfolio and product review process, portfolio managers and/or other
ongoing oversight of the Fund. In their AIM's legal and compliance function, investment personnel and believes that
deliberations, the Board and the AIM's use of technology, AIM's portfolio such individuals are competent and able
independent trustees did not identify administration function and the quality to continue to carry out their
any particular factor that was of AIM's investment research. Based on responsibilities under the Advisory
controlling, and each trustee attributed the review of these and other factors, Agreement.
different weights to the various the Board concluded that the quality of
factors. services to be provided by AIM was - Overall performance of AIM. The Board
appropriate and that AIM currently is considered the overall performance of
One responsibility of the independent providing satisfactory services in AIM in providing investment advisory
Senior Officer of the Fund is to manage accordance with the terms of the and portfolio administrative services to
the process by which the Fund's proposed Advisory Agreement. the Fund and concluded that such
management fees are negotiated to ensure performance was satisfactory.
that they are negotiated in a manner - The performance of the Fund relative
which is at arms' length and reasonable. to comparable funds. The Board reviewed - Fees relative to those of clients of
To that end, the Senior Officer must the performance of the Fund during the AIM with comparable investment
either supervise a competitive bidding past one, three and five calendar years strategies. The Board reviewed the
process or prepare an independent against the performance of funds advised effective advisory fee rate (before
written evaluation. The Senior Officer by other advisors with investment waivers) for the Fund under the Advisory
has recommended an independent written strategies comparable to those of the Agreement. The Board noted that this
evaluation in lieu of a competitive Fund. The Board noted that the Fund's rate was (i) above the effective
bidding process and, upon the direction performance in such periods was below advisory fee rate (before waivers) for a
of the Board, has prepared such an the median performance of such mutual fund advised by AIM with
independent written evaluation. Such comparable funds. Based on this review investment strategies comparable to
written evaluation also considered and after taking account of all of the those of the Fund (which mutual fund has
certain of the factors discussed below. other factors that the Board considered an "all-in" fee structure whereby AIM
In addition, as discussed below, the in determining whether to continue the pays all of the fund's ordinary oper-
Senior Officer made a recommendation to Advisory Agreement for the Fund, the ating expenses) and the same as the
the Board in connection with such Board concluded that no changes should effective advisory fee rate (before
written evaluation. be made to the Fund and that it was not waivers) for a second mutual fund
necessary to change the Fund's portfolio advised by AIM with investment
The discussion below serves as a management team at this time. However, strategies comparable to those of the
summary of the Senior Officer's due to the Fund's under-performance, the Fund; and (ii) above the effective advi-
independent written evaluation and Board also concluded that it would be sory and sub-advisory fee rates for one
recommendation to the Board in appropriate for the Board to continue to Canadian mutual fund advised by an AIM
connection therewith, as well as a closely monitor and review the affiliate and sub-advised by AIM with
discussion of the material factors and performance of the Fund. Although the investment strategies comparable to
the conclusions with respect thereto independent written evaluation of the those of the Fund. The Board noted that
that formed the basis for the Board's Fund's Senior Officer (discussed below) AIM has agreed to limit the Fund's total
approval of the Advisory Agreement. only considered Fund performance through operating expenses, as discussed below.
After consideration of all of the the most recent calendar year, the Board Based on this review, the Board con-
factors below and based on its informed also reviewed more recent Fund cluded that the advisory fee rate for
business judgment, the Board determined performance, which did not change their the Fund under the Advisory Agreement
that the Advisory Agreement is in the conclusions. was fair and reasonable.
best interests of the Fund and its
shareholders and that the compensation - The performance of the Fund relative - Fees relative to those of comparable
to AIM under the Advisory Agreement is to indices. The Board reviewed the funds with other advisors. The Board
fair and reasonable and would have been performance of the Fund during the past reviewed the advisory fee rate for the
obtained through arm's length one, three and five calendar years Fund under the Advisory Agreement. The
negotiations. against the performance of the Lipper Board compared effective contractual
Variable Underlying Fund Money Market advisory fee rates at a common asset
Unless otherwise stated, information Index. The Board noted that the Fund's level at the end of the past calendar
presented below is as of June 27, 2006 performance in such periods was below year and noted that the Fund's rate was
and does not reflect any changes that the performance of such Index. Based on comparable to the median rate of the
may have occurred since June 27, 2006, this review and after taking account of funds advised by
including but not limited to changes to all of the other factors that the Board
the Fund's performance, advisory fees, considered in determining whether to
expense limitations and/or fee waivers. continue the Advisory Agreement for the
Fund, the Board concluded that no
5
AIM V.I. MONEY MARKET FUND
other advisors with investment affiliated money market funds, AIM has - AIM's financial soundness in light of
strategies comparable to those of the voluntarily agreed to waive a portion the Fund's needs. The Board considered
Fund that the Board reviewed. The Board of the advisory fees it receives from whether AIM is financially sound and
noted that AIM has agreed to limit the the Fund attributable to such has the resources necessary to perform
Fund's total operating expenses, as investment. The Board further determined its obligations under the Advisory
discussed below. Based on this review, that the proposed securities lending Agreement, and concluded that AIM has
the Board concluded that the advisory program and related procedures with the financial resources necessary to
fee rate for the Fund under the Advisory respect to the lending Fund is in the fulfill its obligations under the
Agreement was fair and reasonable. best interests of the lending Fund and Advisory Agreement.
its respective shareholders. The Board
- - Expense limitations and fee waivers. therefore concluded that the investment - Historical relationship between the
The Board noted that AIM has of cash collateral received in Fund and AIM. In determining whether to
contractually agreed to waive fees connection with the securities lending continue the Advisory Agreement for the
and/or limit expenses of the Fund program in the money market funds Fund, the Board also considered the
through April 30, 2008 so that total according to the procedures is in the prior relationship between AIM and the
annual operating expenses are limited best interests of the lending Fund and Fund, as well as the Board's knowledge
to a specified percentage of average its respective shareholders. of AIM's operations, and concluded that
daily net assets for each class of the it was beneficial to maintain the cur-
Fund. The Board considered the - Independent written evaluation and rent relationship, in part, because of
contractual nature of this fee waiver recommendations of the Fund's Senior such knowledge. The Board also reviewed
and noted that it remains in effect Officer. The Board noted that, upon the general nature of the non-investment
until April 30, 2008. their direction, the Senior Officer of advisory services currently performed by
the Fund, who is independent of AIM and AIM and its affiliates, such as
The Board considered the effect AIM's affiliates, had prepared an administrative, transfer agency and
this fee waiver/expense limitation independent written evaluation in order distribution services, and the fees
would have on the Fund's estimated to assist the Board in determining the received by AIM and its affiliates for
expenses and concluded that the reasonableness of the proposed performing such services. In addition to
levels of fee waivers/expense management fees of the AIM Funds, reviewing such services, the trustees
limitations for the Fund were including the Fund. The Board noted that also considered the organizational
fair and reasonable. the Senior Officer's written evaluation structure employed by AIM and its
had been relied upon by the Board in affiliates to provide those services.
- - Breakpoints and economies of scale. this regard in lieu of a competitive Based on the review of these and other
The Board reviewed the structure of the bidding process. In determining whether factors, the Board concluded that AIM
Fund's advisory fee under the Advisory to continue the Advisory Agreement for and its affiliates were qualified to
Agreement, noting that it includes one the Fund, the Board considered the continue to provide non-investment
breakpoint. The Board reviewed the level Senior Officer's written evaluation. advisory services to the Fund, including
of the Fund's advisory fees, and noted administrative, transfer agency and
that such fees, as a percentage of the - Profitability of AIM and its distribution services, and that AIM and
Fund's net assets, would decrease as net affiliates. The Board reviewed its affiliates currently are providing
assets increase because the Advisory information concerning the profitability satisfactory non-investment advisory
Agreement includes a breakpoint. The of AIM's (and its affiliates') services.
Board noted that, due to the Fund's investment advisory and other activities
asset levels at the end of the past and its financial condition. The Board - Other factors and current trends. The
calendar year and the way in which the considered the overall profitability of Board considered the steps that AIM and
advisory fee breakpoint has been AIM, as well as the profitability of AIM its affiliates have taken over the last
structured, the Fund has yet to benefit in connection with managing the Fund. several years, and continue to take, in
from the breakpoint. The Board concluded The Board noted that AIM's operations order to improve the quality and
that the Fund's fee levels under the remain profitable, although increased efficiency of the services they provide
Advisory Agreement therefore would expenses in recent years have reduced to the Funds in the areas of investment
reflect economies of scale at higher AIM's profitability. Based on the review performance, product line
asset levels and that it was not of the profitability of AIM's and its diversification, distribution, fund
necessary to change the advisory fee affiliates' investment advisory and operations, shareholder services and
breakpoints in the Fund's advisory fee other activities and its financial compliance. The Board concluded that
schedule. condition, the Board concluded that the these steps taken by AIM have improved,
compensation to be paid by the Fund to and are likely to continue to improve,
- - Investments in affiliated money market AIM under its Advisory Agreement was not the quality and efficiency of the servic-
funds. The Board also took into account excessive. es AIM and its affiliates provide to the
the fact that uninvested cash and cash Fund in each of these areas, and support
collateral from securities lending - Benefits of soft dollars to AIM. The the Board's approval of the continuance
arrangements, if any (collectively, Board considered the benefits realized of the Advisory Agreement for the Fund.
"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 in such money market funds.
The Board noted that, to the extent the
Fund invests uninvested cash in
6
AIM V.I. Money Market Fund
SCHEDULE OF INVESTMENTS
December 31, 2006
<Table>
<Caption>
PRINCIPAL
AMOUNT
MATURITY (000) VALUE
- ----------------------------------------------------------------------------------
COMMERCIAL PAPER-45.42%(A)
ASSET-BACKED SECURITIES-COMMERCIAL
LOANS/LEASES-10.30%
Amstel Funding Corp.
(Acquired 11/02/06; Cost $1,468,680)
5.22%(b)(c) 03/26/07 $1,500 $ 1,477,040
- ----------------------------------------------------------------------------------
(Acquired 11/01/06; Cost $839,210)
5.25%(b)(c) 02/06/07 851 846,656
- ----------------------------------------------------------------------------------
Atlantis One Funding Corp. (Acquired
12/21/06; Cost $893,882)
5.32%(b)(c) 02/05/07 900 895,478
- ----------------------------------------------------------------------------------
Fountain Square Commercial Funding Corp.
(Acquired 10/03/06; Cost $1,488,708)
5.25%(b) 01/30/07 1,515 1,508,814
==================================================================================
4,727,988
==================================================================================
ASSET-BACKED SECURITIES-FULLY BACKED-10.29%
Concord Minutemen Capital Co., LLC- Series A
(Multi CEP's-Liberty Hampshire Co., LLC;
agent)
(Acquired 09/26/06; Cost $975,733)
5.20%(b) 03/13/07 1,000 989,889
- ----------------------------------------------------------------------------------
(Acquired 12/04/06; Cost $1,179,027)
5.20%(b) 04/04/07 1,200 1,184,053
- ----------------------------------------------------------------------------------
Govco Inc. (Multi CEP's-Government sponsored
entities)
(Acquired 09/19/06; Cost $974,042)
5.25%(b) 03/16/07 1,000 989,354
- ----------------------------------------------------------------------------------
Tulip Funding Corp. (CEP-ABN AMRO Bank N.V.)
(Acquired 12/11/06; Cost $1,556,701)
5.31%(b)(c) 01/03/07 1,562 1,561,770
==================================================================================
4,725,066
==================================================================================
ASSET-BACKED SECURITIES-MULTI-PURPOSE-6.52%
CRC Funding LLC
(Acquired 12/01/06; Cost $1,984,804)
5.26%(b) 01/22/07 2,000 1,994,156
- ----------------------------------------------------------------------------------
Sheffield Receivables Corp. (Acquired
10/06/06; Cost $986,318)
5.24%(b) 01/12/07 1,000 998,545
==================================================================================
2,992,701
==================================================================================
</Table>
<Table>
PRINCIPAL
AMOUNT
MATURITY (000) VALUE
- ----------------------------------------------------------------------------------
<Caption>
ASSET-BACKED SECURITIES-SECURITY INVESTMENT
VEHICLES-16.58%
Aquifer Funding Ltd./LLC (Acquired 12/07/06;
Cost $1,991,445)
5.31%(b) 01/05/07 $2,000 $ 1,999,115
- ----------------------------------------------------------------------------------
Beta Finance Corp./Inc. (Acquired 10/20/06;
Cost $973,175)
5.22%(b)(c) 04/23/07 1,000 983,905
- ----------------------------------------------------------------------------------
Klio II Funding Ltd./Corp. (Acquired
12/13/06; Cost $1,204,944)
5.26%(b) 03/15/07 1,221 1,208,155
- ----------------------------------------------------------------------------------
Liberty Harbour CDO Ltd./Inc. (Acquired
12/11/06; Cost $852,310)
5.29%(b) 02/02/07 859 855,087
- ----------------------------------------------------------------------------------
Scaldis Capital Ltd./LLC (Acquired 10/13/06;
Cost $974,770)
5.22%(b)(c) 04/05/07 1,000 986,515
- ----------------------------------------------------------------------------------
(Acquired 12/21/06; Cost $520,578)
5.32%(b)(c) 02/16/07 525 521,509
- ----------------------------------------------------------------------------------
Tierra Alta Funding, Ltd./Corp. (Acquired
11/01/06; Cost $1,049,040)
5.27%(b) 01/17/07 1,061 1,058,670
==================================================================================
7,612,956
==================================================================================
DIVERSIFIED BANKS-1.73%
HBOS Treasury Services PLC
5.30%(c) 02/08/07 800 795,642
==================================================================================
Total Commercial Paper (Cost $20,854,353) 20,854,353
==================================================================================
VARIABLE RATE DEMAND NOTES-26.61%(D)
INSURED-0.50%(E)
Omaha (City of), Nebraska; Special Tax
Redevelopment;
Series 2002 B, Taxable RB (INS-Ambac
Assurance Corp.)
5.40%(f)(g) 02/01/13 230 230,000
==================================================================================
LETTER OF CREDIT ENHANCED-26.11%(H)
Albany (City of), New York Industrial
Development Agency (Albany Medical Center
Hospital);
Series 2006 B, Taxable RB
(LOC-Citizens Bank of Pennsylvania)
5.35%(f)(g) 05/01/35 1,000 1,000,000
- ----------------------------------------------------------------------------------
Albuquerque (City of), New Mexico (KTech
Corp. Project);
Series 2002, Taxable RB (LOC-Wells Fargo
Bank, N.A.) 5.42%(g) 11/01/22 700 700,000
- ----------------------------------------------------------------------------------
</Table>
AIM V.I. Money Market Fund
<Table>
<Caption>
PRINCIPAL
AMOUNT
MATURITY (000) VALUE
- ----------------------------------------------------------------------------------
LETTER OF CREDIT ENHANCED-(CONTINUED)
Corp. Finance Managers Inc.; Floating Rate
Notes (LOC-Wells Fargo Bank, N.A.)
5.42%(f)(g) 02/02/43 $2,535 $ 2,535,000
- ----------------------------------------------------------------------------------
EPC Allentown, LLC;
Series 2005, Floating Rate Bonds
(LOC-Wachovia Bank, N.A.)
5.35%(f)(g) 07/01/30 3,200 3,200,000
- ----------------------------------------------------------------------------------
Lehigh (County of), Pennsylvania Industrial
Development Authority (Bouras Industries
Project);
Series 2002 C, Taxable IDR
(LOC-Wachovia Bank, N.A.)
5.35%(f)(g) 11/01/13 595 595,000
- ----------------------------------------------------------------------------------
Moon (Township of), Pennsylvania Industrial
Development Authority (One Thorn Run
Project);
Series 1995 B, Taxable IDR (LOC-National
City Bank of Pennsylvania) 5.42%(f)(g) 11/01/15 755 755,000
- ----------------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------------
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
==================================================================================
11,985,000
==================================================================================
Total Variable Rate Demand Notes (Cost
$12,215,000) 12,215,000
==================================================================================
MEDIUM-TERM NOTES-5.88%
Metropolitan Life Global Funding I Floating
Rate MTN (Acquired 11/10/04; Cost $700,525)
5.45%(b)(g) 12/28/07 700 700,200
- ----------------------------------------------------------------------------------
Societe Generale S.A.; Unsec. Floating Rate
MTN (Acquired 10/26/05 Cost $2,000,000)
5.34%(b)(c)(g) 01/02/08 2,000 2,000,000
==================================================================================
Total Medium-Term Notes (Cost $2,700,200) 2,700,200
==================================================================================
MASTER NOTE AGREEMENT-4.35%
Merrill Lynch Mortgage Capital, Inc.
(Acquired 12/06/06; Cost $2,000,000)
5.44%(b)(f)(g)(i) 02/05/07 2,000 2,000,000
==================================================================================
</Table>
<Table>
PRINCIPAL
AMOUNT
MATURITY (000) VALUE
- ----------------------------------------------------------------------------------
<Caption>
ASSET-BACKED SECURITIES-4.36%
FULLY BACKED-2.18%
RACERS Trust;
Series 2004-6-MM, Floating Rate Notes
(CEP-Lehman Brothers Holdings Inc.)
(Acquired 04/13/04; Cost $1,000,000)
5.37%(b)(g) 05/22/07 $1,000 $ 1,000,000
==================================================================================
STRUCTURED-2.18%
Permanent Financing PLC; (United Kingdom)
Series 9A, Class 1A, Floating Rate Bonds
(Acquired 03/15/06; Cost $1,000,000)
5.32%(b)(c)(g) 03/10/07 1,000 1,000,000
==================================================================================
Total Asset-Backed Securities (Cost
$2,000,000) 2,000,000
==================================================================================
FUNDING AGREEMENTS-2.18%
New York Life Insurance Co. (Acquired
04/05/06; Cost $1,000,000)
5.42%(b)(g)(j) 04/05/07 1,000 1,000,000
==================================================================================
TOTAL INVESTMENTS (excluding Repurchase
Agreements)-88.80% (Cost $40,769,553) 40,769,553
__________________________________________________________________________________
==================================================================================
<Caption>
REPURCHASE
AMOUNT
- ----------------------------------------------------------------------------------
REPURCHASE AGREEMENTS-11.58%(K)
Citigroup Global Markets Inc.,
Joint Term agreement dated 12/27/07,
aggregate maturing value $1,301,357,590
(collateralized by Corporate obligations valued at
$1,365,000,001; 0%-8.00%, 11/15/18-12/20/46)
5.39%, 01/03/07 2,002,090 2,000,000
- ----------------------------------------------------------------------------------
Greenwich Capital Markets, Inc.,
Joint agreement dated 12/29/07, aggregate maturing
value $800,472,889 (collateralized by U.S. government
obligations valued at $816,000,064; 3.81%-7.60%,
04/01/16-10/01/46)
5.32%, 01/02/07 3,317,234 3,315,274
==================================================================================
Total Repurchase Agreements
(Cost $5,315,274) 5,315,274
==================================================================================
TOTAL INVESTMENTS-100.38% (Cost $46,084,827)(l)(m)
46,084,827
==================================================================================
OTHER ASSETS LESS LIABILITIES-(0.38)% (175,131)
==================================================================================
NET ASSETS-100.00% $45,909,696
__________________________________________________________________________________
==================================================================================
</Table>
AIM V.I. Money Market Fund
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(SM)
RB - Revenue Bonds
INS - Insurer
Unsec. - Unsecured
</Table>
Notes to Schedule of Investments:
(a) Security may be 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 December 31, 2006 was
$27,758,911, which represented 60.46% 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:
Netherlands: 10.4%; United Kingdom: 6.1%; other countries less than 5%:
7.6%.
(d) Demand security; payable upon demand by the Fund at specified time intervals
no greater than thirteen months.
(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 periodically. Rate shown is the rate in effect
on December 31, 2006.
(h) Principal and interest payments are fully enhanced by a letter of credit
from the bank listed or a predecessor bank, branch or subsidiary.
(i) 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.
(j) Security considered to be illiquid. The Fund is limited to investing 10% of
net assets in illiquid securities at the time of purchase. The value of this
security considered illiquid at December 31, 2006 represented 2.18% of the
Fund's Net Assets.
(k) Principal amount equals value at period end. See Note 1I.
(l) Also represents cost for federal income tax purposes.
(m) Entities may either issue, guarantee, back or otherwise enhance the credit
quality of a security. The entities are not primarily responsible for the
issuer's obligation but may be called upon to satisfy issuers obligations.
<Table>
<Caption>
ENTITIES PERCENTAGE
- --------------------------------------------------------------------------
Wachovia Bank, N.A. 15.2%
- --------------------------------------------------------------------------
Wells Fargo Bank, N.A. 7.0
- --------------------------------------------------------------------------
Amstel Funding Corp. 5.1
- --------------------------------------------------------------------------
Other Entities Less Than 5% 61.0
__________________________________________________________________________
==========================================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. Money Market Fund
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2006
<Table>
ASSETS:
Investments, excluding repurchase agreements,
at value
(cost $40,769,553) $40,769,553
- ------------------------------------------------------------
Repurchase agreements (cost $5,315,274) 5,315,274
============================================================
Total investments (cost $46,084,827) 46,084,827
============================================================
Interest receivable 99,086
- ------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 52,578
============================================================
Total assets 46,236,491
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Fund shares reacquired 208,476
- ------------------------------------------------------------
Trustee deferred compensation and retirement
plans 59,055
- ------------------------------------------------------------
Accrued administrative services fees 25,046
- ------------------------------------------------------------
Accrued distribution fees-Series II 1,473
- ------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 3,385
- ------------------------------------------------------------
Accrued transfer agent fees 724
- ------------------------------------------------------------
Accrued operating expenses 28,636
============================================================
Total liabilities 326,795
============================================================
Net assets applicable to shares outstanding $45,909,696
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $45,903,352
- ------------------------------------------------------------
Undistributed net investment income 6,344
============================================================
$45,909,696
____________________________________________________________
============================================================
NET ASSETS:
Series I $43,568,246
____________________________________________________________
============================================================
Series II $ 2,341,450
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 43,566,934
____________________________________________________________
============================================================
Series II 2,341,336
____________________________________________________________
============================================================
Series I:
Net asset value per share $ 1.00
____________________________________________________________
============================================================
Series II:
Net asset value per share $ 1.00
____________________________________________________________
============================================================
</Table>
STATEMENT OF OPERATIONS
For the year ended December 31, 2006
<Table>
INVESTMENT INCOME:
Interest $2,466,025
____________________________________________________________
============================================================
EXPENSES:
Advisory fees 193,553
- ------------------------------------------------------------
Administrative services fees 141,239
- ------------------------------------------------------------
Custodian fees 4,368
- ------------------------------------------------------------
Distribution fees-Series II 6,227
- ------------------------------------------------------------
Transfer agent fees 6,576
- ------------------------------------------------------------
Trustees' and officer's fees and benefits 16,324
- ------------------------------------------------------------
Professional services fees 54,419
- ------------------------------------------------------------
Other 17,798
============================================================
Total expenses 440,504
============================================================
Net investment income 2,025,521
============================================================
Net increase in net assets resulting from
operations 2,025,521
____________________________________________________________
============================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. Money Market Fund
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2006 and 2005
<Table>
<Caption>
2006 2005
- -----------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 2,025,521 $ 1,334,306
- -----------------------------------------------------------------------------------------
Distributions to shareholders from net investment income:
Series I (1,928,189) (1,235,959)
- -----------------------------------------------------------------------------------------
Series II (97,332) (98,347)
=========================================================================================
Decrease in net assets resulting from distributions (2,025,521) (1,334,306)
=========================================================================================
Share transactions-net:
Series I (1,354,278) (9,084,618)
- -----------------------------------------------------------------------------------------
Series II (738,190) (2,996,593)
=========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (2,092,468) (12,081,211)
=========================================================================================
Net increase (decrease) in net assets (2,092,468) (12,081,211)
=========================================================================================
NET ASSETS:
Beginning of year 48,002,164 60,083,375
=========================================================================================
End of year (including undistributed net investment income
of $6,344 and $6,344, respectively) $45,909,696 $ 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
December 31, 2006
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-one 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.
The following is a summary of the significant accounting policies followed
by the Fund in the preparation of its financial statements.
A. SECURITY VALUATIONS -- The Fund's securities are recorded on the basis of
amortized cost which approximates value as permitted by Rule 2a-7 under the
1940 Act. This method values a security at its cost on the date of purchase
and, thereafter, assumes a constant amortization to maturity of any
premiums or accretion of any discounts.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income, adjusted for amortization of premiums and accretion
of discounts on investments, is recorded on the accrual basis from
settlement date. Paydown gains and losses on mortgage and asset-backed
securities are recorded as adjustments to interest income.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized gain (loss) from
investment securities reported in the Statement of Operations and the
Statement of Changes in Net Assets and the realized net gains (losses) on
securities per share in the Financial Highlights. Transaction costs are
included in the calculation of the Fund's net asset value and, accordingly,
they reduce the Fund's total returns. These transaction costs are not
considered operating expenses and are not reflected in net investment
income reported in the Statement of Operations and Statement of Changes in
Net Assets, or the net investment income per share and ratios of expenses
and net investment income reported in the Financial Highlights, nor are
they limited by any expense limitation arrangements between the Fund and
the advisor.
The Fund allocates realized capital gains and losses to a class based on
the relative net assets of each class. The Fund allocates income to a class
based on the relative value of the settled shares of each class.
C. COUNTRY DETERMINATION -- For the purposes of making investment selection
decisions and presentation in the Schedule of Investments, AIM may
determine the country in which an issuer is located and/or credit risk
exposure based on various factors. These factors include the laws of the
country under which the issuer is organized, where the issuer maintains a
principal office, the country in which the issuer derives 50% or more of
its total revenues and the country that has the primary market for the
issuer's securities, as well as other criteria. Among the other criteria
that may be evaluated for making this determination are the country in
which the issuer maintains 50% or more of its assets, the type of security,
financial guarantees and enhancements, the nature of the collateral and the
sponsor organization. Country of issuer and/or credit risk exposure has
been determined to be the 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 to distribute substantially all of the
Fund's taxable earnings to shareholders. As such, the Fund will not be
subject to federal income taxes on otherwise taxable income (including net
realized capital gain) that 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. ACCOUNTING ESTIMATES -- 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.
H. INDEMNIFICATIONS -- 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.
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 securities consistent with the Fund's investment objectives and may
consist of U.S. Government Securities, U.S. Government Agency Securities
AIM V.I. Money Market Fund
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 at least 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 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. These credits are used to pay
certain expenses incurred by the Fund. AIM did not waive fees and/or reimburse
expenses during the period under this expense limitation.
At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the year ended December 31, 2006, AMVESCAP did not
reimburse any such expenses.
The Trust has entered into a master administrative services agreement with
AIM pursuant to which the Fund 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.
The Fund may reimburse AIM for up to 0.25% of average daily assets invested
by each insurance company providing administrative services to the Fund.
Pursuant to such agreement, for the year ended December 31, 2006, AIM was paid
$50,000 for accounting and fund administrative services and reimbursed $91,239
for services provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with AIM
Investment Services, Inc. ("AIS") pursuant to which the Fund has agreed to pay
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 year ended December 31, 2006, expenses incurred under the
agreement are shown in the Statement of Operations as transfer agent fees.
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 Plan payments, 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. For the year ended December 31, 2006, expenses
incurred under the Plan are shown in the Statement of Operations as distribution
fees.
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 year ended December 31, 2006, the Fund paid legal fees of $3,948
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 4--BORROWINGS
Pursuant to an exemptive order from the Securities and Exchange Commission, 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 exceed
10% of the Fund's total assets. To the extent that the loan is required to be
secured by collateral, the collateral is marked to market daily to ensure that
the market value is at least 102% of the outstanding principal value of the
loan. During the year ended December 31, 2006 the Fund did not borrow or lend
under the interfund lending facility.
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
bank 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 contractually agreed upon rate.
NOTE 5--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years December 31, 2006 and
2005 was as follows:
<Table>
<Caption>
2006 2005
- --------------------------------------------------------------------------------------
Distributions paid from:
Ordinary income $2,025,521 $1,334,306
- --------------------------------------------------------------------------------------
Long-term capital gain -- --
======================================================================================
Total distributions $2,025,521 $1,334,306
______________________________________________________________________________________
======================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2006, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2006
- ---------------------------------------------------------------------------
Undistributed ordinary income $ 57,564
- ---------------------------------------------------------------------------
Temporary book/tax differences (51,220)
- ---------------------------------------------------------------------------
Shares of beneficial interest 45,903,352
===========================================================================
Total net assets $45,909,696
___________________________________________________________________________
===========================================================================
</Table>
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan benefits.
The Fund does not have a capital loss carryforward as of December 31, 2006.
AIM V.I. Money Market Fund
NOTE 6--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
2006(A) 2005
-------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------------------
Sold:
Series I 29,676,430 $29,676,430 55,383,109 $ 55,383,109
- ------------------------------------------------------------------------------------------------------------------------
Series II 808,564 808,564 10,356,640 10,356,640
========================================================================================================================
Issued as reinvestment of dividends:
Series I 1,928,164 1,928,164 1,235,959 1,235,959
- ------------------------------------------------------------------------------------------------------------------------
Series II 97,332 97,332 98,347 98,347
========================================================================================================================
Reacquired:
Series I (32,958,863) (32,958,863) (65,703,686) (65,703,686)
- ------------------------------------------------------------------------------------------------------------------------
Series II (1,644,095) (1,644,095) (13,451,580) (13,451,580)
========================================================================================================================
(2,092,468) $(2,092,468) (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 84% of
the outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with
these entities whereby these entities sell units of interest in separate
accounts funding variable products that are invested in the Fund. The
Fund, AIM and/or AIM affiliates may make payments to these entities,
which are considered to be related to the Fund, for providing services
to the Fund, AIM and/or AIM affiliates including but not limited to
services such as, securities brokerage, third party record keeping and
account servicing and administrative services. The Trust has no
knowledge as to whether all or any portion of the shares owned of record
by these entities are also owned beneficially.
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 for 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
currently intends for the Fund to adopt FIN 48 provisions during the fiscal year
ending December 31, 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
-------------------------------------------------------
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
2006 2005 2004 2003 2002
- ---------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.04 0.02 0.01 0.01 0.01
=====================================================================================================================
Less dividends from net investment income (0.04) (0.02) (0.01) (0.01) (0.01)
=====================================================================================================================
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
_____________________________________________________________________________________________________________________
=====================================================================================================================
Total return(a) 4.27% 2.51% 0.69% 0.58% 1.19%
_____________________________________________________________________________________________________________________
=====================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $43,568 $44,923 $54,008 $77,505 $119,536
_____________________________________________________________________________________________________________________
=====================================================================================================================
Ratio of expenses to average net assets 0.90%(b) 0.82% 0.75% 0.66% 0.67%
=====================================================================================================================
Ratio of net investment income to average net assets 4.20%(b) 2.46% 0.67% 0.59% 1.18%
_____________________________________________________________________________________________________________________
=====================================================================================================================
</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 do not reflect charges assessed
in connection with a variable product, which if included would reduce
total returns.
(b) Ratios are based on average daily net assets of $45,897,600.
<Table>
<Caption>
SERIES II
----------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------
2006 2005 2004 2003 2002
- ------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.04 0.02 0.004 0.003 0.01
==================================================================================================================
Less dividends from net investment income (0.04) (0.02) (0.004) (0.003) (0.01)
==================================================================================================================
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
__________________________________________________________________________________________________________________
==================================================================================================================
Total return(a) 4.01% 2.26% 0.44% 0.33% 0.93%
__________________________________________________________________________________________________________________
==================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 2,341 $3,080 $ 6,076 $ 2,382 $7,831
__________________________________________________________________________________________________________________
==================================================================================================================
Ratio of expenses to average net assets 1.15%(b) 1.07% 1.00% 0.91% 0.92%
==================================================================================================================
Ratio of net investment income to average net assets 3.95%(b) 2.21% 0.42% 0.34% 0.93%
__________________________________________________________________________________________________________________
==================================================================================================================
</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 do not reflect charges assessed
in connection with a variable product, which if included would reduce
total returns.
(b) Ratios are based on average daily net assets of $2,490,676.
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. 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. Money Market Fund
NOTE 9--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 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; 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. On September 15, 2006, the
MDL Court granted the AMVESCAP defendants' motion to dismiss the Amended Class
Action Complaint for Violations of ERISA and dismissed such Complaint. The
plaintiff has commenced an appeal from that decision.
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.
AIM V.I. Money Market Fund
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V.I. Money Market Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM V.I. Money Market Fund (one of
the funds constituting AIM Variable Insurance Funds, hereafter referred to as
the "Fund") at December 31, 2006, the results of its operations for the year
then ended, the changes in its net assets and the financial highlights for each
of the two years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2006 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion. The financial highlights for each of the periods ended on or before
December 31, 2004 were audited by another independent registered public
accounting firm whose report, dated February 4, 2005, expressed an unqualified
opinion on those statements.
PRICEWATERHOUSECOOPERS LLP
February 14, 2007
Houston, Texas
AIM V.I. Money Market Fund
TAX INFORMATION
Form 1099-DIV, Form 1042-S and other year-end tax information provide
shareholders with actual calendar year amounts that should be included in their
tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the
Internal Revenue Code or to meet a specific state's requirement.
The Fund designates the following amounts or, if subsequently determined to be
different, the maximum amount allowable for its fiscal year ended December 31,
2006:
FEDERAL AND STATE INCOME TAX
<Table>
Corporate Dividends Received Deduction* 0%
</Table>
* The above percentage is based on ordinary income dividends paid to
shareholders during the fund's fiscal year.
AIM V.I. Money Market Fund
TRUSTEES AND OFFICERS
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management None
Trustee and Vice Chair Group Inc. (financial services holding
company); Director and Vice Chairman,
AMVESCAP PLC; Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm) and
Trustee and Vice Chair of The AIM Family
of Funds--Registered Trademark--
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer);
Chief Executive Officer, AMVESCAP
PLC -- Managed Products; and President
and Principal Executive Officer of The
AIM Family of Funds--Registered
Trademark--
- -------------------------------------------------------------------------------------------------------------------------------
Philip A. Taylor(2) -- 1954 2006 Director, Chief Executive Officer and None
Trustee, President and President, A I M Management Group Inc.,
Principal AIM Mutual Fund Dealer Inc. (registered
Executive Officer broker dealer), AIM Funds Management
Inc. (registered investment advisor) and
1371 Preferred Inc. (holding company);
Director and President, A I M Advisors,
Inc., INVESCO Funds Group, Inc.
(registered investment advisor and
register transfer agent) and AIM GP
Canada Inc. (general partner for a
limited partnership); Director, A I M
Capital Management, Inc. and A I M
Distributors, Inc.; Director and
Chairman, AIM Investment Services, Inc.,
Fund Management Company and INVESCO
Distributors, Inc. (registered broker
dealer); Director, President and
Chairman, AVZ Callco Inc. (holding
company); AMVESCAP Inc. (holding
company) and AIM Canada Holdings Inc.
(holding company); Director and Chief
Executive Officer, AIM Trimark Corporate
Class Inc. (formerly AIM Trimark Global
Fund Inc.) (corporate mutual fund
company) and AIM Trimark Canada Fund
Inc. (corporate mutual fund company);
Trustee, President and Principal
Executive Officer of The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); Trustee and
Executive Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); and Manager,
Powershares Capital Management LLC
Formerly: President and Principal
Executive Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); Chairman, AIM
Canada Holdings, Inc.; Executive Vice
President and Chief Operations Officer,
AIM Funds Management Inc.; President,
AIM Trimark Global Fund Inc. and AIM
Trimark Canada Fund Inc.; and Director,
Trimark Trust (federally regulated
Canadian Trust Company)
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company
Formerly: Partner, law firm of Baker & (2 portfolios))
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Founder, Green, Manning & Bunch Ltd., None
Trustee (investment banking firm); and Director,
Policy Studies, Inc. and Van Gilder
Insurance Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and None
Trustee private business corporations, including
the Boss Group Ltd. (private investment
and management); Cortland Trust, Inc.
(Chairman) (registered investment
company (3 portfolios)); Annuity and
Life Re (Holdings), Ltd. (insurance
company); CompuDyne Corporation
(provider of products and services to
the public security market); and
Homeowners of America Holding
Corporation (property casualty company)
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and Director of various
affiliated Volvo companies; and
Director, Magellan Insurance Company
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund
company); and Owner, Dos Angelos Ranch, (non-profit)
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- -------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company
(3 portfolios))
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired Director, Mainstay VP Series
Trustee Formerly: Partner, Deloitte & Touche Funds, Inc. (21 portfolios)
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
(2) Mr. Taylor is considered an interested person of the Trust because he is an
officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
TRUSTEES AND OFFICERS--(CONTINUED)
AIM V.I. Money Market Fund
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Senior Vice President and Senior Officer N/A
Senior Vice President and of The AIM Family of Funds--Registered
Senior Officer Trademark--
Formerly: Director of Compliance and
Assistant General Counsel, ICON
Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
John M. Zerr -- 1962 2006 Director, Senior Vice President, N/A
Senior Vice President, Chief Secretary and General Counsel, A I M
Legal Officer and Secretary Management Group Inc. and A I M
Advisors, Inc.; Director, Vice President
and Secretary, INVESCO Distributors,
Inc.; Vice President and Secretary,
A I M Capital Management, Inc., AIM
Investment Services, Inc., and Fund
Management Company; Senior Vice
President and Secretary, A I M
Distributors, Inc.; Director and Vice
President, INVESCO Funds Group Inc.;
Senior Vice President, Chief Legal
Officer and Secretary of The AIM Family
of Funds--Registered Trademark--; and
Manager, Powershares Capital Management
LLC
Formerly: Chief Operating Officer,
Senior Vice President, General Counsel,
and Secretary, Liberty Ridge Capital,
Inc. (an investment adviser); Vice
President and Secretary, PBHG Funds (an
investment company); Vice President and
Secretary, PBHG Insurance Series Fund
(an investment company); General Counsel
and Secretary, Pilgrim Baxter Value
Investors (an investment adviser); Chief
Operating Officer, General Counsel and
Secretary, Old Mutual Investment
Partners (a broker-dealer); General
Counsel and Secretary, Old Mutual Fund
Services (an administrator); General
Counsel and Secretary, Old Mutual
Shareholder Services (a shareholder
servicing center); Executive Vice
President, General Counsel and
Secretary, Old Mutual Capital, Inc. (an
investment adviser); and Vice President
and Secretary, Old Mutual Advisors Funds
(an investment company)
- ------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Global Compliance Director, AMVESCAP N/A
Vice President PLC; and Vice President of The AIM
Family of Funds--Registered Trademark--
Formerly: Senior Vice President, A I M
Management Group Inc. (financial
services holding company); Senior Vice
President and Chief Compliance Officer,
A I M Advisors, Inc. and The AIM Family
of Funds--Registered Trademark--; Vice
President and Chief Compliance Officer,
A I M Capital Management, Inc. and A I M
Distributors, Inc.; Vice President, AIM
Investment Services, Inc. and Fund
Management Company; Senior Vice
President and Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; and Senior Vice President
and Compliance Director, Delaware
Investments Family of Funds
- ------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Senior Vice President and General
Vice President Counsel, AMVESCAP PLC; Director, INVESCO
Funds Group, Inc.; and Vice President of
The AIM Family of Funds--Registered
Trademark--
Formerly: Director, Vice President and N/A
General Counsel, Fund Management
Company; Director, Senior Vice
President, Secretary and General
Counsel, A I M Management Group Inc. and
A I M Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Senior Vice President, A I M
Distributors, Inc.; Vice President,
A I M Capital Management, Inc. and AIM
Investment Services, Inc.; Senior Vice
President, Chief Legal Officer and
Secretary of The AIM Family of
Funds--Registered Trademark--; Chief
Executive Officer and President, INVESCO
Funds Group, Inc.; and Senior Vice
President, and General Counsel, Liberty
Financial Companies, Inc. and Senior
Vice President and General Counsel
Liberty Funds Group, LLC
- ------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President, Principal Advisors, Inc.; and Vice President,
Financial Officer and Treasurer and Principal Officer of The
Treasurer AIM Family of Funds--Registered
Trademark--
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
J. Philip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment Officer, A I M Advisors Inc.;
Director, Chairman, Chief Executive
Officer, President and Chief Investment
Officer, A I M Capital Management, Inc.;
Executive Vice President, A I M
Management Group Inc. and Vice President
of The AIM Family of Funds--Registered
Trademark--
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; and
Chief Equity Officer, Senior Vice
President and Senior Investment Officer,
A I M Capital Management, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc. and The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); and
President and Principal Executive
Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust Only)
Formerly: Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only)
- ------------------------------------------------------------------------------------------------------------------------------
Lance A. Rejsek -- 1967 2005 Anti-Money Laundering Compliance N/A
Anti-Money Laundering Officer, A I M Advisors, Inc., A I M
Compliance Officer Capital Management, Inc., A I M
Distributors, Inc., AIM Investment
Services, Inc., AIM Private Asset
Management, Inc., Fund Management
Company and The AIM Family of
Funds--Registered Trademark--
Formerly: Manager of the Fraud
Prevention Department, AIM Investment
Services, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
Todd L. Spillane -- 1958 2006 Senior Vice President, A I M Management N/A
Chief Compliance Officer Group Inc.; Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc.; and Vice President,
A I M Distributors, Inc., AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Global Head of Product
Development, AIG-Global Investment
Group, Inc.; Chief Compliance Officer
and Deputy General Counsel,
AIG-SunAmerica Asset Management; and
Chief Compliance Officer, Chief
Operating Officer and Deputy General
Counsel, American General Investment
Management
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers
Suite 100 11 Greenway Plaza Inc. LLP
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Ballard Spahr INDEPENDENT TRUSTEES AIM Investment The Bank of New York
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis Services, Inc. 2 Hanson Place
1735 Market Street, 51st & Frankel LLP P.O. Box 4739 Brooklyn, NY 11217-1431
Floor 1177 Avenue of the Houston, TX 77210-4739
Philadelphia, PA 19103-7599 Americas
New York, NY 10036-2714
</Table>
DOMESTIC EQUITY AIM V.I. SMALL CAP EQUITY FUND
Small Cap Annual Report to Shareholders - December 31, 2006
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 in Washington, D.C.You can [COVER GLOBE IMAGE]
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, AIM V.I. SMALL CAP EQUITY FUND
scroll down and click on AIM Funds Proxy Policy. seeks long-term growth of capital.
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 UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT
Fund from the drop-down menu. The information is IS AS OF DECEMBER 31, 2006, AND IS BASED ON TOTAL NET ASSETS.
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
[AIM INVESTMENTS LOGO] INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ
- --Registered Trademark-- EACH CAREFULLY BEFORE INVESTING.
=========================================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
AIM V.I. SMALL CAP EQUITY FUND
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE analysis to make sure there are no signs
========================================================================================== of stock deterioration. This also serves
as a risk management measure that helps
PER FORMANCE SUMMARY us confirm our high conviction
candidates.
For the year ended December 31, 2006, AIM V.I. Small Cap Equity Fund, excluding variable
product issuer charges, produced positive returns and outperformed the broad market, as We consider selling or trimming a
measured by the S&P 500 --REGISTERED TRADEMARK-- Index. The Fund performed in line with stock when:
the Russell 2000 --REGISTERED TRADEMARK-- Index -- its style-specific benchmark -- as
outperformance in some sectors was offset by underperformance in other sectors. - The company's fundamental
business prospects deteriorate.
Solid stock selection and strong performance by small-cap stocks enabled the Fund to
outperform the large-cap oriented S&P 500 Index. - A stock hits its target price.
Your Fund's long-term performance appears on pages 4-5. - The company's technical profile
deteriorates.
FUND VS. INDEXES
MARKET CONDITIONS AND YOUR FUND
TOTAL RETURNS, 12/31/05 - 12/31/06, EXCLUDING VARIABLE PRODUCT ISSUER CHARGES.
IF VARIABLE PRODUCT ISSUER CHARGES WERE INCLUDED, RETURNS WOULD BE LOWER. Domestic equities posted solid returns
in 2006, leaving several major market
indexes near multi-year highs. Strong
economic growth, favorable corporate
Series I Shares 17.44% earnings results and continued benign
Series II Shares 17.12 inflation benefited equities, offsetting
S&P 500 Index (Broad Market Index) 15.78 high energy prices, a slowing housing
Russell 2000 Index (Style-Specific Index) 18.37 market and the U.S. Federal Reserve
Lipper Small-Cap Core Funds Index (Peer Group Index) 13.70 Board's (the Fed) tightening campaign.
SOURCE: LIPPER INC.
========================================================================================== Although mixed signals from the
Fed created some market volatility in
HOW WE INVEST STOCK SELECTION: We select stocks May and June, the market began to rally
based on an analysis of individual when the Fed left interest rates
We focus on small-cap companies with visible companies. Our three-step selection process unchanged at several meetings beginning
and long-term growth opportunities, as includes: in August. In addition, the price of
demonstrated by consistent and accelerating crude oil and other commodities
earnings growth. Our investment philosophy 1. Fundamental analysis. Building stabilized, fostering optimism that a
involves: financial models and conducting in-depth hard landing for the U.S. economy could
interviews with company management. be avoided. For the year, while
PORTFOLIO CONSTRUCTION: We align the small-cap stocks led the market higher,
fund with the S&P 600 Index, the benchmark 2. Valuation analysis. Identifying large-and mid-cap stocks also had
we believe represents the small-cap-core attractively valued stocks given their double-digit returns. Additionally,
asset class. We seek to control risk by growth potential over a one- to two-year value stocks outperformed growth stocks.
keeping the Fund's sector weightings in line horizon. Positive performance was broad among
with the benchmark by staying fully Russell 2000 Index sectors, with the
diversified in all those sectors. 3. Technical analysis. Identifying the best returns found in materials,
"timeliness" of a stock purchase. We review telecommunication services and consumer
trading volume characteristics and trend staples.
====================================================================================================================================
PORTFOLIO COMPOSITION TOP FIVE INDUSTRIES* TOP 10 EQUITY HOLDINGS*
- ------------------------------------------------------------------------------------------------------------------------------------
By sector 1. Regional Banks 6.0% 1. NTELOS Holdings Corp. 1.4%
Financials 18.1% 2. Semiconductors 4.5 2. Energen Corp. 1.3
Information Technology 17.2 3. Property & Casualty Insurance 4.2 3. Pinnacle Entertainment, Inc. 1.3
Industrials 17.0 4. Application Software 3.8 4. DJO Inc. 1.2
Consumer Discretionary 12.0 5. Oil & Gas Equipment & Services 3.6 5. Snap-On Inc. 1.2
Health Care 11.3 Total Net Assets $94.10 million 6. FMC Corp. 1.2
Energy 7.4 7. UAP Holding Corp. 1.2
Materials 6.1 Total Number of Holdings* 117 8. Compass Minerals International,
Consumer Staples 4.0 Inc. 1.2
Telecommunication Services 2.0 9. TreeHouse Foods, Inc. 1.2
Utilities 1.9 10. Philadelphia Consolidated
Money Market Funds Plus Holding Co. 1.2
Other Assets Less Liabilities 3.0
*Excluding money market fund holdings.
The Fund's holdings are subject to change, and there is no assurance that
the Fund will continue to hold any particular security.
====================================================================================================================================
2
AIM V.I. SMALL CAP EQUITY FUND
The Fund benefited from positive benefit from the worldwide acceleration in The views and opinions expressed in
absolute performance in all 10 economic non-residential construction activity. management's discussion of Fund
sectors, with the highest positive impact on However, we sold our position in the company performance are those of A I M Advisors,
performance coming from holdings in the before the close of the year. One other Inc. These views and opinions are
financials, industrials and consumer holding that performed well was subject to change at any time based on
discretionary sectors. On a relative basis, PEOPLESUPPORT, a company that provides factors such as market and economic
the Fund performed in line with the Russell outsourced customer care through a call conditions. These views and opinions may
2000 Index, as outperformance in several center in the Philippines. The company not be relied upon as investment advice
sectors was offset by underperformance in benefited from solid growth in market share or recommendations, or as an offer for a
other sectors. as it had a significant cost advantage over particular security. The information is
its key competitors. not a complete analysis of every aspect
The Fund outperformed the Russell 2000 of any market, country, industry,
Index by the widest margin in the financials The Fund underperformed relative to security or the Fund. Statements of fact
sector, primarily due to solid stock the Russell 2000 Index by the largest margin are from sources considered reliable,
selection. We had particular success with a in the information technology (IT) and but A I M Advisors, Inc. makes no
number of bank stocks, including HANCOCK materials sectors. In the IT sector, Fund representation or warranty as to their
HOLDINGS, a leading provider of commercial performance was hindered by several software completeness or accuracy. Although
and consumer banking services along the Gulf holdings, including BISYS. BISYS was historical performance is no guarantee
coasts of Mississippi and Louisiana. This negatively affected when the company of future results, these insights may
bank has benefited from strong earnings reported disappointing results and lowered help you understand our investment
growth as a result of increased deposits earnings guidance for 2007. Despite the management philosophy.
associated with the rebuilding efforts along pullback, we continued to maintain a
the Gulf coast. Commercial real estate position in the stock for several reasons, Juliet S. Ellis
services provider JONES LANG LASALLE also including its attractive valuation. One Chartered Financial
made a significant contribution to Fund other area of weakness was the semiconductor [ELLIS PHOTO] Analyst, senior
performance. This company delivered strong industry, where NEXTEST, DSP GROUP and portfolio manager, is
results in all business segments, exceeding SEMTECH detracted from performance. However, lead manager of AIM
sales and earnings expectations in several some of this underperformance in these two V.I. Small Cap Equity
consecutive quarters. Other areas of industries was offset by strong stock Fund.
strength included diversified financials and selection in the hardware industry.
insurance. Ms. Ellis joined AIM in 2004. She
In the materials sector, previously served as senior portfolio
The Fund also outperformed the underperformance versus the Russell 2000 manager of two small-cap funds for
style-specific index in the consumer Index was due to both stock selection and an another company and was responsible for
discretionary sector due to stock selection underweight position in metals and mining the management of more than $2 billion
in the specialty retailing industry. Fund stocks. Many of these stocks had strong in assets. Ms. Ellis began her
holding GYMBOREE, a children's apparel performance during the reporting period. investment career in 1981 as a financial
retailer, was up more than 65% during the consultant. She is a Cum Laude and Phi
reporting period, as the company's strategy The most significant changes to Beta Kappa graduate of Indiana
to broaden its assortment of merchandise led overall positioning of the Fund included University with a B.A. in economics and
to strong sales growth. Other retailing additions in the materials, political science.
holdings that made key contributions telecommunication services and consumer
included TOO, which we sold, and CACHE. One discretionary sectors and reductions in the Juan R. Hartsfield
other key contributor in the sector was Gulf financials and IT sectors. All changes to Chartered Financial
coast casino operator PINNACLE ENTERTAINMENT the Fund were based on our bottom-up stock [HARTSFIELD Analyst, portfolio
as the company generated strong revenue selection process of identifying high PHOTO] of manager, is
growth from a combination of the successful quality growth companies trading at what we manager AIM V.I.
opening of a new upscale facility in Lake believe are attractive valuations. Small Cap Equity
Charles, LA., and the closing of several Fund. Prior to
competing facilities in the area. IN CLOSING
joining AIM in 2004, he began his
The Fund also benefited from strong Although we are pleased to have provided investment career in 2000 as an equity
stock selection in the industrials sector. positive returns for our investors for the analyst and most recently served as a
In the capital goods industry, crane year, we are always striving to improve portfolio manager. Mr. Hartsfield earned
manufacturer MANITOWOC was the top performance and help you meet your financial a B.S. in petroleum engineering from The
contributor to overall Fund performance goals. We thank you for your commitment to University of Texas and his M.B.A. from
during the year. The company's significant AIM V.I. Small Cap Equity Fund. the University of Michigan.
global presence positioned it to
Assisted by the Small Cap Core/Growth
Team
FOR A DISCUSSION OF THE RISKS OF
INVESTING IN YOUR FUND, INDEXES USED IN
THIS REPORT AND YOUR FUND'S LONG-TERM
PERFORMANCE, PLEASE SEE PAGES 4-5.
3
============================================
YOUR FUND'S LONG-TERM PERFORMANCE AIM V.I. SMALL CAP EQUITY FUND
AVERAGE ANNUAL TOTAL RETURNS RESULTS; CURRENT PERFORMANCE MAY BE LOWER OR PRODUCT. SALES CHARGES, EXPENSES AND
HIGHER. PLEASE CONTACT YOUR VARIABLE PRODUCT FEES, WHICH ARE DETERMINED BY THE
As of 12/31/06 ISSUER OR FINANCIAL ADVISOR FOR THE MOST VARIABLE PRODUCT ISSUERS, WILL VARY AND
SERIES I SHARES RECENT MONTH-END VARIABLE PRODUCT WILL LOWER THE TOTAL RETURN.
Inception (8/29/03) 14.72% PERFORMANCE. PERFORMANCE FIGURES REFLECT
1 Year 17.44 FUND EXPENSES, REINVESTED DISTRIBUTIONS AND PER NASD REQUIREMENTS, THE MOST
CHANGES IN NET ASSET VALUE. INVESTMENT RECENT MONTH-END PERFORMANCE DATA AT THE
SERIES II SHARES RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO FUND LEVEL, EXCLUDING VARIABLE PRODUCT
Inception (8/29/03) 14.50% THAT YOU MAY HAVE A GAIN OR LOSS WHEN YOU CHARGES, IS AVAILABLE ON THIS AIM
1 Year 17.12 SELL SHARES. AUTOMATED INFORMATION LINE,
============================================ 866-702-4402. AS MENTIONED ABOVE, FOR
AIM V.I. SMALL CAP EQUITY FUND, A THE MOST RECENT MONTH-END PERFORMANCE
SERIES PORTFOLIO OF AIM VARIABLE INSURANCE INCLUDING VARIABLE PRODUCT CHARGES,
CUMULATIVE TOTAL RETURNS FUNDS, IS CURRENTLY OFFERED THROUGH PLEASE CONTACT YOUR VARIABLE PRODUCT
INSURANCE COMPANIES ISSUING VARIABLE ISSUER OR FINANCIAL ADVISOR.
6 months ended 12/31/06 PRODUCTS. YOU CANNOT PURCHASE SHARES OF THE
Series I Shares 6.88% FUND DIRECTLY. PERFORMANCE FIGURES GIVEN HAD THE ADVISOR NOT WAIVED FEES
Series II Shares 6.78 REPRESENT THE FUND AND ARE NOT INTENDED TO AND/OR REIMBURSED EXPENSES, PERFORMANCE
============================================ REFLECT ACTUAL VARIABLE PRODUCT VALUES. THEY WOULD HAVE BEEN LOWER.
DO NOT REFLECT SALES CHARGES, EXPENSES AND
THE PERFORMANCE OF THE FUND'S SERIES I AND FEES ASSESSED IN CONNECTION WITH A VARIABLE
SERIES II SHARE CLASSES WILL DIFFER
PRIMARILY DUE TO DIFFERENT CLASS EXPENSES.
THE PERFORMANCE DATA QUOTED REPRESENT
PAST PERFORMANCE AND CANNOT GUARANTEE
COMPARABLE FUTURE
====================================================================================================================================
Principal risks of investing in the Fund Because a large percentage of the Although the Fund's return during
Fund's assets may be invested in a limited certain periods was positively impacted
Prices of equity securities change in number of securities, a change in the value by its investments in initial public
response to many factors including the of those securities could significantly offerings (IPOs), there can be no
historical and prospective earnings of the affect the value of your investment in the assurance that the Fund will have
issuer, the value of its assets, general Fund. favorable IPO investment opportunities
economic conditions, interest rates, in the future.
investor perceptions and market liquidity. The Fund invests in synthetic
instruments, the value of which may not ABOUT INDEXES USED IN THIS REPORT
Investing in a fund that invests in correlate perfectly with the overall
smaller companies involves risks not securities markets. Rising interest rates THE UNMANAGED STANDARD & POOR'S
associated with investing in more and market price fluctuations will affect COMPOSITE INDEX OF 500 STOCKS (the S&P
established companies, such as business the performance of the Fund's investments in 500 Index) is an index of common stocks
risk, stock price fluctuations and synthetic instruments. Also, synthetic frequently used as a general measure of
illiquidity. instruments are subject to counter party U.S. stock market performance.
risk -- the risk that the other party in the
Foreign securities have additional transaction will not fulfill its contractual The unmanaged STANDARD & POOR'S
RISKS, including exchange rate changes, obligation to complete the transaction with COMPOSITE INDEX OF 600 STOCKS (the S&P
political and economic upheaval, the the Fund. 600) is an index of common stocks
relative lack of information about these frequently used as a general measure of
companies, relatively low market liquidity If the seller of a repurchase the small company segment of the U.S.
and the potential lack of strict financial agreement in which the Fund invests defaults stock market.
and accounting controls and standards. on its obligation or declares bankruptcy,
the Fund may experience delays in selling The unmanaged LIPPER SMALL-CAP
The value of convertible securities in the securities underlying the repurchase CORE FUNDS INDEX represents an average
which the Fund invests may be affected by agreement. of the performance of the 30 largest
market interest rates, the risk that the small-capitalization core funds tracked
issuer may default on interest or principal There is no guarantee that the by Lipper Inc., an independent mutual
payments and the value of the underlying investment techniques and risk analyses used fund performance monitor.
common stock into which these securities by the Fund's portfolio managers will
may be converted. produce the desired results. The unmanaged RUSSELL 2000 INDEX
represents the performance of the stocks
of
Continued on page 5
4
====================================================================================================================================
PAST PERFORMANCE CANNOT GUARANTEE COMPARABLE AIM V.I. SMALL CAP EQUITY FUND
FUTURE RESULTS.
Continued from page 4
domestic small-capitalization company. The of funds reflects fund expenses; performance (CFA --Registered Trademark--)
Russell 2000 Index is a trademark/service of a market index does not. designation is a globally recognized
mark of the Frank Russell Company Russell -- standard for measuring the competence
Registered Trademark-- is a trademark of the OTHER INFORMATION and integrity of investment
Frank Russell Company. professionals.
The returns shown in the management's
In conjunction with the annual discussion of Fund performance are based on
prospectus update on or about May 1, 2007, net asset values calculated for shareholder
the AIM V.I Small Cap Equity Fund prospectus transactions. Generally accepted accounting
will be amended to reflect that the Fund has principles require adjustments to be made to
elected to use the Lipper Variable the net assets of the Fund at period end for
Underlying Funds (VUF) Small-Cap Core Funds financial reporting purposes, and as such,
Index as its peer group rather than the the net asset value for shareholder
Lipper Small-Cap Core Funds Index. The transactions and the returns based on those
Lipper VUF Small-Cap Core Funds Index, net asset values may differ from the net
recently published by Lipper Inc., comprises asset values and returns reported in the
the largest underlying funds in each Financial Highlights. Additionally, the
variable insurance category and does not returns and net asset values shown
include mortality and expense fees. throughout this report are at the Fund level
only and do not include variable product
The Fund is not managed to track the issuer charges. If such charges were
performance of any particular index, included, the total returns would be lower.
including the indexes defined here, and
consequently, the performance of the Fund Industry classifications used in this
may deviate significantly from the report are generally according to the Global
performance of the indexes. Industry Classification Standard, which was
developed by and is the exclusive property
A direct investment cannot be made in and a service mark of Morgan Stanley Capital
an index. Unless otherwise indicated, index International Inc. and Standard & Poor's.
results include reinvested dividends, and
they do not reflect sales charges. The Chartered Financial
Performance of an index Analyst--Registered Trademark--
5
===========================================================================================================================
[MOUNTAIN CHART]
RESULTS OF A $10,000 INVESTMENT
Fund data from 8/29/03, index data from 8/31/03
AIM V.I. SMALL CAP EQUITY FUND AIM V.I. SMALL CAP EQUITY FUND LIPPER SMALL-CAP
DATE -SERIES I SHARES -SERIES II SHARES S&P 500 INDEX RUSSELL 2000 INDEX CORE FUNDS INDEX
- ----------------------------------------------------------------------------------------------------------------------------
8/29/03 $ 10000 $ 10000
8/03 10000 10000 $ 10000 $ 10000 $ 10000
9/03 9830 9830 9894 9815 9783
10/03 10650 10650 10454 10640 10552
11/03 10990 10990 10545 11017 10932
12/03 11393 11387 11098 11241 11236
1/04 11713 11707 11302 11729 11592
2/04 11964 11958 11459 11834 11793
3/04 12074 12068 11286 11945 11921
4/04 11563 11548 11109 11336 11512
5/04 11694 11678 11261 11516 11612
6/04 12034 12018 11480 12001 12107
7/04 11183 11167 11100 11193 11469
8/04 10732 10717 11145 11135 11369
9/04 11163 11137 11265 11658 11934
10/04 11433 11418 11437 11888 12130
11/04 12224 12208 11900 12919 13088
12/04 12465 12439 12305 13301 13299
1/05 12065 12038 12005 12746 12914
2/05 12445 12419 12257 12962 13215
3/05 12185 12158 12041 12591 12883
4/05 11484 11458 11812 11870 12187
5/05 12205 12168 12188 12647 12840
6/05 12506 12469 12205 13135 13278
7/05 13066 13028 12659 13967 14067
8/05 12916 12879 12544 13708 13937
9/05 13105 13069 12645 13751 14070
10/05 12875 12829 12434 13324 13638
11/05 13565 13509 12904 13971 14261
12/05 13475 13429 12909 13907 14304
1/06 14506 14440 13250 15154 15394
2/06 14566 14501 13286 15112 15293
3/06 14976 14901 13452 15845 15966
4/06 15257 15181 13632 15843 16086
5/06 14925 14861 13240 14953 15310
6/06 14806 14730 13258 15049 15206
7/06 14406 14329 13340 14560 14689
8/06 14777 14689 13656 14991 14980
9/06 14917 14829 14008 15115 15050
10/06 15537 15439 14464 15986 15778
11/06 16028 15930 14739 16406 16238
12/06 15817 15719 14946 16461 16264
===========================================================================================================================
SOURCE: LIPPER INC.
CALCULATING YOUR ONGOING FUND EXPENSES AIM V.I. SMALL CAP EQUITY FUND
EXAMPLE ACTUAL EXPENSES not the Fund's actual return. The Fund's
As a shareholder of the Fund, you incur The table below provides information about actual Cumulative total return at net
ongoing costs, including management fees; actual account values and actual expenses. asset value after expenses for the six
distribution and/or service (12b-1) fees; You may use the information in this table, months ended December 31, 2006, appear
and other Fund expenses. This example is together with the amount you invested, to in the table "Cumulative Total Returns"
intended to help you understand your ongoing estimate the expenses that you paid over the on page 4.
costs (in dollars) of investing in the Fund period. Simply divide your account value by
and to compare these costs with ongoing $1,000 (for example, an $8,600 account value The hypothetical account values
costs of investing in other mutual funds. divided by $1,000 = 8.6), then multiply the and expenses may not be used to estimate
The example is based on an investment of result by the number in the table under the the actual ending account balance or
$1,000 invested at the beginning of the heading entitled "Actual Expenses Paid expenses you paid for the period. You
period and held for the entire period July During Period" to estimate the expenses you may use this information to compare the
1, 2006, through December 31, 2006. paid on your account during this period. ongoing costs of investing in the Fund
and other funds. To do so, compare this
The actual and hypothetical expenses Hypothetical example for comparison purposes 5% hypothetical example with the 5%
in the examples below do not represent the hypothetical examples that appear in the
effect of any fees or other expenses The table below also provides information shareholder reports of the other funds.
assessed in connection with a variable about hypothetical account values and
product; if they did, the expenses shown hypothetical expenses based on the Fund's Please note that the expenses
would be higher while the ending account actual expense ratio and an assumed rate of shown in the table are meant to
values shown would be lower. return of 5% per year before expenses, which highlight your ongoing costs. Therefore,
is the hypothetical information is useful
in comparing ongoing costs, and will not
help you determine the relative total
costs of owning different funds.
====================================================================================================================================
HYPOTHETICAL
ACTUAL (5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (7/1/06) (12/31/06)(1) PERIOD(2) (12/31/06) PERIOD(2) RATIO
- -----------------------------------------------------------------------------------------------------
Series I $ 1,000.00 $ 1,068.80 $ 6.00 $ 1,019.41 $ 5.85 1.15%
Series II 1,000.00 1,067.80 7.30 1,018.15 7.12 1.40
=====================================================================================================
(1) The actual ending account value is based on the actual total return of the
Fund for the period July 1, 2006, through December 31, 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 December 31, 2006,
appear in the table "Cumulative Total Returns" on page 4.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated
above multiplied by the average account value over the period, multiplied
by 184/365 to reflect the most recent fiscal half year.
6
APPROVAL OF INVESTMENT ADVISORY AGREEMENT AIM V.I. SMALL CAP EQUITY FUND
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 Fund concluded that the range of services to be conclusions.
(the "Fund") and, as required by law, provided by AIM under the Advisory Agreement
determines annually whether to approve the was appropriate and that AIM currently is - Meetings with the Fund's portfolio
continuance of the Fund's advisory agreement providing services in accordance with the managers and investment personnel. With
with A I M Advisors, Inc. ("AIM"). Based terms of the Advisory Agreement. respect to the Fund, the Board is
upon the recommendation of the Investments meeting periodically with such Fund's
Committee of the Board, at a meeting held on - The quality of services to be provided by portfolio managers and/or other
June 27, 2006, the Board, including all of AIM. The Board reviewed the credentials and investment personnel and believes that
the independent trustees, approved the experience of the officers and employees of such individuals are competent and able
continuance of the advisory agreement (the AIM who will provide investment advisory to continue to carry out their
"Advisory Agreement") between the Fund and services to the Fund. In reviewing the responsibilities under the Advisory
AIM for another year, effective July 1, qualifications of AIM to provide investment Agreement.
2006. advisory services, the Board considered such
issues as AIM's portfolio and product review - Overall performance of AIM. The Board
The Board considered the factors process, various back office support considered the overall performance of
discussed below in evaluating the fairness functions provided by AIM and AIM's equity AIM in providing investment advisory and
and reasonableness of the Advisory Agreement and fixed income trading operations. Based portfolio administrative services to the
at the meeting on June 27, 2006 and as part on the review of these and other factors, Fund and concluded that such performance
of the Board's ongoing oversight of the the Board concluded that the quality of was satisfactory.
Fund. In their deliberations, the Board and services to be provided by AIM was
the independent trustees did not identify appropriate and that AIM currently is - Fees relative to those of clients of
any particular factor that was controlling, providing satisfactory services in AIM with comparable investment
and each trustee attributed different accordance with the terms of the Advisory strategies. The Board reviewed the
weights to the various factors. Agreement. effective advisory fee rate (before
waivers) for the Fund under the Advisory
One responsibility of the independent Agreement. The Board noted that this
Senior Officer of the Fund is to manage the - The performance of the Fund relative to rate was (i) the same as the effective
process by which the Fund's proposed comparable funds. The Board reviewed the advisory fee rates (before waivers) for
management fees are negotiated to ensure performance of the Fund during the past two mutual funds advised by AIM with
that they are negotiated in a manner which calendar year against the performance of investment strategies comparable to
is at arms' length and reasonable. To that funds advised by other advisors with those of the Fund and below the
end, the Senior Officer must either investment strategies comparable to those of effective advisory fee rate (before
supervise a competitive bidding process or the Fund. The Board noted that the Fund's waivers) for a third mutual fund advised
prepare an independent written evaluation. performance was above the median performance by AIM with investment strategies
The Senior Officer has recommended an of such comparable funds for the one year comparable to those of the Fund; and
independent written evaluation in lieu of a period. Based on this review and after (ii) above the effective sub-advisory
competitive bidding process and, upon the taking account of all of the other factors fee rate for one Canadian mutual fund
direction of the Board, has prepared such an that the Board considered in determining sub-advised by an AIM affiliate with
independent written evaluation. Such written whether to continue the Advisory Agreement investment strategies comparable to
evaluation also considered certain of the for the Fund, the Board concluded that no those of the Fund. The Board noted that
factors discussed below. In addition, as changes should be made to the Fund and that AIM has agreed to waive advisory fees of
discussed below, the Senior Officer made a it was not necessary to change the Fund's the Fund and to limit the Fund's total
recommendation to the Board in connection portfolio management team at this time. operating expenses, as discussed below.
with such written evaluation. Although the independent written evaluation Based on this review, the Board
of the Fund's Senior Officer (discussed concluded that the advisory fee rate for
The discussion below serves as a below) only considered Fund performance the Fund under the Advisory Agreement
summary of the Senior Officer's independent through the most recent calendar year, the was fair and reasonable.
written evaluation and recommendation to the Board also reviewed more recent Fund
Board in connection therewith, as well as a performance, which did not change their - Fees relative to those of comparable
discussion of the material factors and the conclusions. funds with other advisors. The Board
conclusions with respect thereto that formed reviewed the advisory fee rate for the
the basis for the Board's approval of the - The performance of the Fund relative to Fund under the Advisory Agreement. The
Advisory Agreement. After consideration of indices. The Board reviewed the performance Board compared effective contractual
all of the factors below and based on its of the Fund during the past calendar year advisory fee rates at a common asset
informed business judgment, the Board against the performance of the Lipper level at the end of the past calendar
determined that the Advisory Agreement is in Variable Underlying Fund Small-Cap Core year and noted that the Fund's rate was
the best interests of the Fund and its Index. The Board noted that the Fund's comparable to the median rate of the
shareholders and that the compensation to performance was above the performance of funds advised by other advisors with
AIM under the Advisory Agreement is fair and such Index for the one year period. Based on investment strategies comparable to
reasonable and would have been obtained this review and after taking account of all those of the Fund that the Board
through arm's length negotiations. of the other factors that the Board reviewed. The Board noted that AIM has
considered in determining whether to agreed to waive advisory fees of the
Unless otherwise stated, information continue the Advisory Agreement for the Fund and to limit the Fund's total
presented below is as of June 27, 2006 and Fund, the Board concluded that no changes operating expenses, as discussed below.
does not reflect any changes that may have should be made to the Fund and that it was Based on this review, the Board
occurred since June 27, 2006, including but not necessary to change the Fund's portfolio concluded that the advisory fee rate for
not limited to changes to the Fund's management team at this time. Although the the Fund under the Advisory Agreement
performance, advisory fees, expense independent written evaluation of the Fund's was fair and reasonable.
limitations and/or fee waivers. Senior Officer (discussed below) only
considered Fund performance through the most - Expense limitations and fee waivers.
- - The nature and extent of the advisory recent calendar year, the The Board noted that AIM has
services to be provided by AIM. The Board contractually agreed to waive advisory
reviewed the services to be fees of the Fund through April 30, 2008
to the extent necessary so that the
advisory fees payable by the Fund do not
exceed a specified maximum advisory fee
rate, which maximum rate includes
breakpoints and is based on net asset
levels. The Board considered the
contractual nature of this fee waiver
and noted
7
AIM V.I. SMALL CAP EQUITY FUND
that it remains in effect until April 30, portion of the advisory fees it receives - AIM's financial soundness in light of
2008. The Board noted that AIM has from the Fund attributable to such the Fund's needs. The Board considered
contractually agreed to waive fees and/or investment. The Board further determined whether AIM is financially sound and has
limit expenses of the Fund through April 30, that the proposed securities lending program the resources necessary to perform its
2008 in an amount necessary to limit total and related procedures with respect to the obligations under the Advisory
annual operating expenses to a specified lending Fund is in the best interests of the Agreement, and concluded that AIM has
percentage of average daily net assets for lending Fund and its respective the financial resources necessary to
each class of the Fund. The Board considered shareholders. The Board therefore concluded fulfill its obligations under the
the contractual nature of this fee that the investment of cash collateral Advisory Agreement.
waiver/expense limitation and noted that it received in connection with the securities
remains in effect until April 30, 2008. The lending program in the money market funds - Historical relationship between the
Board considered the effect these fee according to the procedures is in the best Fund and AIM. In determining whether to
waivers/expense limitations would have on interests of the lending Fund and its continue the Advisory Agreement for the
the Fund's estimated expenses and concluded respective shareholders. Fund, the Board also considered the
that the levels of fee waivers/expense prior relationship between AIM and the
limitations for the Fund were fair and - Independent written evaluation and Fund, as well as the Board's knowledge
reasonable. recommendations of the Fund's Senior of AIM's operations, and concluded that
Officer. The Board noted that, upon their it was beneficial to maintain the
- - Breakpoints and economies of scale. The direction, the Senior Officer of the Fund, current relationship, in part, because
Board reviewed the structure of the Fund's who is independent of AIM and AIM's of such knowledge. The Board also
advisory fee under the Advisory Agreement, affiliates, had prepared an independent reviewed the general nature of the
noting that it does not include any written evaluation in order to assist the non-investment advisory services
breakpoints. The Board considered whether it Board in determining the reasonableness of currently performed by AIM and its
would be appropriate to add advisory fee the proposed management fees of the AIM affiliates, such as administrative,
breakpoints for the Fund or whether, due to Funds, including the Fund. The Board noted transfer agency and distribution
the nature of the Fund and the advisory fee that the Senior Officer's written evaluation services, and the fees received by AIM
structures of comparable funds, it was had been relied upon by the Board in this and its affiliates for performing such
reasonable to structure the advisory fee regard in lieu of a competitive bidding services. In addition to reviewing such
without breakpoints. Based on this review, process. In determining whether to continue services, the trustees also considered
the Board concluded that it was not the Advisory Agreement for the Fund, the the organizational structure employed by
necessary to add advisory fee breakpoints to Board considered the Senior Officer's AIM and its affiliates to provide those
the Fund's advisory fee schedule. The Board written evaluation and the recommendation services. Based on the review of these
reviewed the level of the Fund's advisory made by the Senior Officer to the Board that and other factors, the Board concluded
fees, and noted that such fees, as a the Board consider whether the advisory fee that AIM and its affiliates were
percentage of the Fund's net assets, would waivers for certain equity AIM Funds, qualified to continue to provide
remain constant under the Advisory Agreement including the Fund should be simplified. The non-investment advisory services to the
because the Advisory Agreement does not Board concluded that it would be advisable Fund, including administrative, transfer
include any breakpoints. The Board noted to consider this issue and reach a decision agency and distribution services, and
that AIM has contractually agreed to waive prior to the expiration date of such that AIM and its affiliates currently
advisory fees of the Fund through April 30, advisory fee waivers. are providing satisfactory
2008 to the extent necessary so that the non-investment advisory services.
advisory fees payable by the Fund do not - Profitability of AIM and its affiliates.
exceed a specified maximum advisory fee The Board reviewed information concerning - Other factors and current trends. The
rate, which maximum rate includes the profitability of AIM's (and its Board considered the steps that AIM and
breakpoints and is based on net asset affiliates') investment advisory and other its affiliates have taken over the last
levels. The Board concluded that the Fund's activities and its financial condition. The several years, and continue to take, in
fee levels under the Advisory Agreement Board considered the overall profitability order to improve the quality and
therefore would not reflect economies of of AIM, as well as the profitability of AIM efficiency of the services they provide
scale, although the advisory fee waiver in connection with managing the Fund. The to the Funds in the areas of investment
reflects economies of scale. Board noted that AIM's operations remain performance, product line
profitable, although increased expenses in diversification, distribution, fund
- - Investments in affiliated money market recent years have reduced AIM's operations, shareholder services and
funds. The Board also took into account the profitability. Based on the review of the compliance. The Board concluded that
fact that uninvested cash and cash profitability of AIM's and its affiliates' these steps taken by AIM have improved,
collateral from securities lending investment advisory and other activities and and are likely to continue to improve,
arrangements, if any (collectively, "cash its financial condition, the Board concluded the quality and efficiency of the
balances") of the Fund may be invested in that the compensation to be paid by the Fund services AIM and its affiliates provide
money market funds advised by AIM pursuant to AIM under its Advisory Agreement was not to the Fund in each of these areas, and
to the terms of an SEC exemptive order. The excessive. support the Board's approval of the
Board found that the Fund may realize continuance of the Advisory Agreement
certain benefits upon investing cash - Benefits of soft dollars to AIM. The Board for the Fund.
balances in AIM advised money market funds, considered the benefits realized by AIM as a
including a higher net return, increased result of brokerage transactions executed
liquidity, increased diversification or through "soft dollar" arrangements. Under
decreased transaction costs. The Board also these arrangements, brokerage commissions
found that the Fund will not receive reduced paid by the Fund and/or other funds advised
services if it invests its cash balances in by AIM are used to pay for research and
such money market funds. The Board noted execution services. This research may be
that, to the extent the Fund invests used by AIM in making investment decisions
uninvested cash in affiliated money market for the Fund. The Board concluded that such
funds, AIM has voluntarily agreed to waive a arrangements were appropriate.
8
AIM V.I. Small Cap Equity Fund
SCHEDULE OF INVESTMENTS
December 31, 2006
<Table>
<Caption>
SHARES VALUE
- ----------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-96.96%
AEROSPACE & DEFENSE-0.99%
Curtiss-Wright Corp. 25,157 $ 932,822
======================================================================
AIRLINES-0.35%
Allegiant Travel Co.(a) 11,828 331,894
======================================================================
APPAREL RETAIL-3.05%
Cache, Inc.(a) 36,640 924,794
- ----------------------------------------------------------------------
Charming Shoppes, Inc.(a) 64,147 867,909
- ----------------------------------------------------------------------
Christopher & Banks Corp. 30,598 570,959
- ----------------------------------------------------------------------
Gymboree Corp. (The)(a) 13,297 507,413
======================================================================
2,871,075
======================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-0.52%
Fossil, Inc.(a) 21,686 489,670
======================================================================
APPLICATION SOFTWARE-3.82%
Blackbaud, Inc. 24,730 642,980
- ----------------------------------------------------------------------
Epicor Software Corp.(a) 62,560 845,186
- ----------------------------------------------------------------------
Hyperion Solutions Corp.(a) 27,163 976,238
- ----------------------------------------------------------------------
Transaction Systems Architects, Inc.(a) 25,389 826,920
- ----------------------------------------------------------------------
Ultimate Software Group, Inc. (The)(a) 13,127 305,334
======================================================================
3,596,658
======================================================================
ASSET MANAGEMENT & CUSTODY BANKS-0.98%
Affiliated Managers Group, Inc.(a) 8,812 926,406
======================================================================
AUTOMOTIVE RETAIL-1.01%
Midas, Inc.(a) 41,337 950,751
======================================================================
BIOTECHNOLOGY-0.39%
Cubist Pharmaceuticals, Inc.(a) 20,184 365,532
======================================================================
BUILDING PRODUCTS-1.72%
Goodman Global, Inc.(a) 52,989 911,411
- ----------------------------------------------------------------------
NCI Building Systems, Inc.(a) 13,724 710,217
======================================================================
1,621,628
======================================================================
CASINOS & GAMING-1.28%
Pinnacle Entertainment, Inc.(a) 36,313 1,203,413
======================================================================
COMMUNICATIONS EQUIPMENT-1.56%
Black Box Corp. 17,993 755,526
- ----------------------------------------------------------------------
Packeteer, Inc.(a) 52,493 713,905
======================================================================
1,469,431
======================================================================
COMPUTER STORAGE & PERIPHERALS-0.97%
Emulex Corp.(a) 46,699 911,097
======================================================================
</Table>
<Table>
SHARES VALUE
- ----------------------------------------------------------------------
<Caption>
CONSTRUCTION & ENGINEERING-1.86%
Infrasource Services Inc.(a) 43,707 $ 951,501
- ----------------------------------------------------------------------
URS Corp.(a) 18,600 797,010
======================================================================
1,748,511
======================================================================
DATA PROCESSING & OUTSOURCED SERVICES-1.56%
BISYS Group, Inc. (The)(a) 44,106 569,409
- ----------------------------------------------------------------------
Wright Express Corp.(a) 28,896 900,688
======================================================================
1,470,097
======================================================================
DIVERSIFIED CHEMICALS-1.21%
FMC Corp. 14,888 1,139,676
======================================================================
DIVERSIFIED METALS & MINING-1.20%
Compass Minerals International, Inc. 35,888 1,132,625
======================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-0.98%
Genlyte Group Inc. (The)(a) 11,817 923,026
======================================================================
ELECTRONIC MANUFACTURING SERVICES-0.87%
Park Electrochemical Corp. 31,966 819,928
======================================================================
ENVIRONMENTAL & FACILITIES SERVICES-1.01%
Waste Connections, Inc.(a) 22,777 946,384
======================================================================
FOOD RETAIL-1.02%
Ruddick Corp. 34,428 955,377
======================================================================
GAS UTILITIES-1.29%
Energen Corp. 25,808 1,211,428
======================================================================
HEALTH CARE DISTRIBUTORS-0.94%
Owens & Minor, Inc. 28,217 882,346
======================================================================
HEALTH CARE EQUIPMENT-1.94%
STERIS Corp. 34,454 867,207
- ----------------------------------------------------------------------
Vital Signs, Inc. 19,114 954,171
======================================================================
1,821,378
======================================================================
HEALTH CARE FACILITIES-0.64%
LCA-Vision Inc. 17,640 606,110
======================================================================
HEALTH CARE SERVICES-0.00%
Amedisys, Inc.(a) 1 22
======================================================================
HEALTH CARE SUPPLIES-2.14%
DJO Inc.(a) 26,843 1,149,417
- ----------------------------------------------------------------------
Haemonetics Corp.(a) 19,149 862,088
======================================================================
2,011,505
======================================================================
</Table>
AIM V.I. Small Cap Equity Fund
<Table>
<Caption>
SHARES VALUE
- ----------------------------------------------------------------------
HEALTH CARE TECHNOLOGY-1.69%
Computer Programs and Systems, Inc. 18,040 $ 613,180
- ----------------------------------------------------------------------
Phase Forward Inc.(a) 65,027 974,104
======================================================================
1,587,284
======================================================================
HOTELS, RESORTS & CRUISE LINES-1.12%
Red Lion Hotels Corp.(a) 82,900 1,056,146
======================================================================
HOUSEHOLD APPLIANCES-1.21%
Snap-on Inc. 23,937 1,140,359
======================================================================
HOUSEHOLD PRODUCTS-0.85%
Central Garden & Pet Co.(a) 16,545 801,109
======================================================================
HUMAN RESOURCE & EMPLOYMENT SERVICES-1.64%
Heidrick & Struggles International, Inc.(a) 21,636 916,501
- ----------------------------------------------------------------------
Kenexa Corp.(a) 18,959 630,576
======================================================================
1,547,077
======================================================================
INDUSTRIAL MACHINERY-3.57%
Chart Industries, Inc.(a) 42,269 685,181
- ----------------------------------------------------------------------
Kadant Inc.(a) 36,438 888,358
- ----------------------------------------------------------------------
RBC Bearings Inc.(a) 34,527 989,544
- ----------------------------------------------------------------------
Valmont Industries, Inc. 14,327 795,005
======================================================================
3,358,088
======================================================================
INSURANCE BROKERS-1.10%
eHealth, Inc.(a) 6,539 131,499
- ----------------------------------------------------------------------
Hilb Rogal and Hobbs Co. 21,455 903,685
======================================================================
1,035,184
======================================================================
INTEGRATED TELECOMMUNICATION SERVICES-1.94%
Alaska Communications Systems Group Inc. 34,401 522,551
- ----------------------------------------------------------------------
NTELOS Holdings Corp.(a) 73,119 1,307,368
======================================================================
1,829,919
======================================================================
INTERNET SOFTWARE & SERVICES-1.68%
CyberSource Corp.(a) 88,747 977,992
- ----------------------------------------------------------------------
DealerTrack Holdings Inc.(a) 20,387 599,785
======================================================================
1,577,777
======================================================================
INVESTMENT BANKING & BROKERAGE-1.01%
CMET Finance Holdings, Inc.
(Acquired 12/08/03; Cost $20,000)(a)(b)(c) 200 3,422
- ----------------------------------------------------------------------
Thomas Weisel Partners Group, Inc.(a) 44,799 945,259
======================================================================
948,681
======================================================================
LEISURE PRODUCTS-0.37%
Smith & Wesson Holding Corp.(a) 33,717 348,634
======================================================================
</Table>
<Table>
SHARES VALUE
- ----------------------------------------------------------------------
<Caption>
LIFE SCIENCES TOOLS & SERVICES-1.82%
Dionex Corp.(a) 16,046 $ 909,969
- ----------------------------------------------------------------------
ICON PLC-ADR (United Kingdom)(a) 21,350 804,895
======================================================================
1,714,864
======================================================================
METAL & GLASS CONTAINERS-1.09%
AptarGroup, Inc. 17,395 1,027,001
======================================================================
MULTI-UTILITIES-0.65%
Avista Corp. 24,265 614,147
======================================================================
OFFICE REIT'S-1.37%
Alexandria Real Estate Equities, Inc. 10,009 1,004,904
- ----------------------------------------------------------------------
Republic Property Trust 24,350 280,999
======================================================================
1,285,903
======================================================================
OFFICE SERVICES & SUPPLIES-0.74%
PeopleSupport Inc.(a) 33,184 698,523
======================================================================
OIL & GAS EQUIPMENT & SERVICES-3.62%
NATCO Group Inc.-Class A(a) 28,952 922,990
- ----------------------------------------------------------------------
Oceaneering International, Inc.(a) 23,203 921,159
- ----------------------------------------------------------------------
Oil States International, Inc.(a) 30,324 977,343
- ----------------------------------------------------------------------
Seitel, Inc.(a) 163,446 584,319
======================================================================
3,405,811
======================================================================
OIL & GAS EXPLORATION & PRODUCTION-2.91%
Comstock Resources, Inc.(a) 32,422 1,007,027
- ----------------------------------------------------------------------
Penn Virginia Corp. 14,868 1,041,355
- ----------------------------------------------------------------------
Warren Resources Inc.(a) 58,464 685,198
======================================================================
2,733,580
======================================================================
OIL & GAS REFINING & MARKETING-0.88%
Alon USA Energy, Inc. 31,411 826,423
======================================================================
PACKAGED FOODS & MEATS-2.13%
Flowers Foods, Inc. 33,773 911,533
- ----------------------------------------------------------------------
TreeHouse Foods, Inc.(a) 35,094 1,094,933
======================================================================
2,006,466
======================================================================
PHARMACEUTICALS-1.75%
Aspreva Pharmaceuticals Corp. (Canada)(a) 30,569 627,276
- ----------------------------------------------------------------------
ViroPharma Inc.(a) 69,313 1,014,742
======================================================================
1,642,018
======================================================================
PROPERTY & CASUALTY INSURANCE-4.16%
Assured Guaranty Ltd. 36,352 966,963
- ----------------------------------------------------------------------
FPIC Insurance Group, Inc.(a) 23,656 921,874
- ----------------------------------------------------------------------
Ohio Casualty Corp. 31,188 929,714
- ----------------------------------------------------------------------
Philadelphia Consolidated Holding Corp.(a) 24,542 1,093,592
======================================================================
3,912,143
======================================================================
REAL ESTATE MANAGEMENT & DEVELOPMENT-0.97%
Jones Lang LaSalle Inc. 9,892 911,746
======================================================================
</Table>
AIM V.I. Small Cap Equity Fund
<Table>
<Caption>
SHARES VALUE
- ----------------------------------------------------------------------
REGIONAL BANKS-5.98%
Alabama National BanCorp. 10,795 $ 741,940
- ----------------------------------------------------------------------
Columbia Banking System, Inc. 20,744 728,529
- ----------------------------------------------------------------------
First Financial Bankshares, Inc. 11,564 484,069
- ----------------------------------------------------------------------
Hancock Holding Co. 13,604 718,835
- ----------------------------------------------------------------------
Provident Bankshares Corp. 18,059 642,901
- ----------------------------------------------------------------------
Sterling Bancshares, Inc. 54,654 711,595
- ----------------------------------------------------------------------
Sterling Financial Corp. 19,209 649,456
- ----------------------------------------------------------------------
United Community Banks, Inc. 29,424 950,984
======================================================================
5,628,309
======================================================================
RESIDENTIAL REIT'S-0.32%
Mid-America Apartment Communities, Inc. 5,181 296,560
======================================================================
RESTAURANTS-3.41%
IHOP Corp. 18,765 988,915
- ----------------------------------------------------------------------
O'Charley's Inc.(a) 47,148 1,003,309
- ----------------------------------------------------------------------
Papa John's International, Inc.(a) 22,855 663,024
- ----------------------------------------------------------------------
Steak n Shake Co. (The)(a) 31,653 557,093
======================================================================
3,212,341
======================================================================
SEMICONDUCTOR EQUIPMENT-1.45%
ATMI, Inc.(a) 30,909 943,652
- ----------------------------------------------------------------------
Nextest Systems Corp.(a) 37,194 419,176
======================================================================
1,362,828
======================================================================
SEMICONDUCTORS-4.46%
DSP Group, Inc.(a) 32,309 701,105
- ----------------------------------------------------------------------
Hittite Microwave Corp.(a) 21,296 688,287
- ----------------------------------------------------------------------
Micrel, Inc.(a) 61,969 668,026
- ----------------------------------------------------------------------
Power Integrations, Inc.(a) 34,066 798,848
- ----------------------------------------------------------------------
Semtech Corp.(a) 49,162 642,547
- ----------------------------------------------------------------------
Supertex, Inc.(a) 17,816 699,278
======================================================================
4,198,091
======================================================================
SPECIALIZED REIT'S-2.25%
Equity Inns Inc. 15,828 252,615
- ----------------------------------------------------------------------
LaSalle Hotel Properties 21,406 981,465
- ----------------------------------------------------------------------
</Table>
<Table>
SHARES VALUE
- ----------------------------------------------------------------------
<Caption>
SPECIALIZED REIT'S-(CONTINUED)
Senior Housing Properties Trust 6,192 $ 151,580
- ----------------------------------------------------------------------
Universal Health Realty Income Trust 18,855 734,968
======================================================================
2,120,628
======================================================================
SPECIALTY CHEMICALS-1.63%
A. Schulman, Inc. 20,684 460,219
- ----------------------------------------------------------------------
H.B. Fuller Co. 41,678 1,076,126
======================================================================
1,536,345
======================================================================
STEEL-0.97%
Carpenter Technology Corp. 8,857 908,020
======================================================================
TECHNOLOGY DISTRIBUTORS-0.83%
Agilysys, Inc. 46,593 779,967
======================================================================
TRADING COMPANIES & DISTRIBUTORS-2.67%
H&E Equipment Services, Inc.(a) 17,072 422,873
- ----------------------------------------------------------------------
UAP Holding Corp. 45,176 1,137,532
- ----------------------------------------------------------------------
Williams Scotsman International Inc.(a) 48,435 950,295
======================================================================
2,510,700
======================================================================
TRUCKING-1.42%
Landstar System, Inc. 16,330 623,479
- ----------------------------------------------------------------------
Marten Transport, Ltd.(a) 38,973 714,375
======================================================================
1,337,854
======================================================================
Total Common Stocks & Other Equity
Interests (Cost $81,185,268) 91,239,316
======================================================================
MONEY MARKET FUNDS-3.23%
Liquid Assets Portfolio-Institutional
Class(d) 1,516,665 1,516,665
- ----------------------------------------------------------------------
Premier Portfolio-Institutional Class(d) 1,516,665 1,516,665
======================================================================
Total Money Market Funds
(Cost $3,033,330) 3,033,330
======================================================================
TOTAL INVESTMENTS-100.19%
(Cost $84,218,598) 94,272,646
======================================================================
OTHER ASSETS LESS LIABILITIES-(0.19)% (175,477)
======================================================================
NET ASSETS-100.00% $94,097,169
______________________________________________________________________
======================================================================
</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 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 December 31, 2006 represented less than 0.01%
of the Fund's Net Assets. Unless otherwise indicated, this security is not
considered to be illiquid.
(c) Security fair valued in good faith in accordance with the procedures
established by the Board of Trustees. The value of this security at December
31, 2006 represented less than 0.01% of the Fund's Net Assets. See Note 1A.
(d) The money market fund and the Fund are affiliated by having the same
investment advisor. See Note 3.
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. Small Cap Equity Fund
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2006
<Table>
ASSETS:
Investments, at value (cost $81,185,268) $91,239,316
- ------------------------------------------------------------
Investments in affiliated money market funds
(cost $3,033,330) 3,033,330
============================================================
Total investments (cost $84,218,598) 94,272,646
============================================================
Receivables for:
Fund shares sold 204,879
- ------------------------------------------------------------
Dividends 69,718
- ------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 8,442
============================================================
Total assets 94,555,685
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Investments purchased 349,241
- ------------------------------------------------------------
Fund shares reacquired 2,172
- ------------------------------------------------------------
Trustee deferred compensation and retirement
plans 9,581
- ------------------------------------------------------------
Fund expenses advanced 7,638
- ------------------------------------------------------------
Accrued administrative services fees 53,243
- ------------------------------------------------------------
Accrued distribution fees-Series II 529
- ------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 3,301
- ------------------------------------------------------------
Accrued transfer agent fees 363
- ------------------------------------------------------------
Accrued operating expenses 32,448
============================================================
Total liabilities 458,516
============================================================
Net assets applicable to shares outstanding $94,097,169
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $83,505,938
- ------------------------------------------------------------
Undistributed net investment income (loss) (111,189)
- ------------------------------------------------------------
Undistributed net realized gain from investment
securities 648,372
- ------------------------------------------------------------
Unrealized appreciation of investment
securities 10,054,048
============================================================
$94,097,169
____________________________________________________________
============================================================
NET ASSETS:
Series I $93,243,499
____________________________________________________________
============================================================
Series II $ 853,670
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 6,136,994
____________________________________________________________
============================================================
Series II 56,539
____________________________________________________________
============================================================
Series I:
Net asset value per share $ 15.19
____________________________________________________________
============================================================
Series II:
Net asset value per share $ 15.10
____________________________________________________________
============================================================
</Table>
STATEMENT OF OPERATIONS
For the year ended December 31, 2006
<Table>
INVESTMENT INCOME:
Dividends $ 589,256
- ------------------------------------------------------------
Dividends from affiliated money market funds 143,035
============================================================
Total investment income 732,291
============================================================
EXPENSES:
Advisory fees 569,320
- ------------------------------------------------------------
Administrative services fees 215,952
- ------------------------------------------------------------
Custodian fees 23,931
- ------------------------------------------------------------
Distribution fees-Series II 1,925
- ------------------------------------------------------------
Transfer agent fees 4,575
- ------------------------------------------------------------
Trustees' and officer's fees and benefits 16,475
- ------------------------------------------------------------
Professional services fees 44,761
- ------------------------------------------------------------
Other 14,362
============================================================
Total expenses 891,301
============================================================
Less: Fees waived and expense offset
arrangements (118,984)
============================================================
Net expenses 772,317
============================================================
Net investment income (loss) (40,026)
============================================================
REALIZED AND UNREALIZED GAIN FROM INVESTMENT
SECURITIES:
Net realized gain from investment securities
(includes net gains from securities sold to
affiliates of $49,560) 4,835,605
- ------------------------------------------------------------
Change in net unrealized appreciation of
investment securities 4,648,572
- ------------------------------------------------------------
Net gain from investment securities 9,484,177
============================================================
Net increase in net assets resulting from
operations $9,444,151
____________________________________________________________
============================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. Small Cap Equity Fund
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2006 and 2005
<Table>
<Caption>
2006 2005
- ----------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (40,026) $ (144,314)
- ----------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 4,835,605 662,270
- ----------------------------------------------------------------------------------------
Change in net unrealized appreciation of investment
securities 4,648,572 2,398,286
========================================================================================
Net increase in net assets resulting from operations 9,444,151 2,916,242
========================================================================================
Distributions to shareholders from net realized gains:
Series I (3,592,564) --
- ----------------------------------------------------------------------------------------
Series II (33,971) --
========================================================================================
Decrease in net assets resulting from distributions (3,626,535) --
========================================================================================
Share transactions-net:
Series I 44,759,517 13,921,136
- ----------------------------------------------------------------------------------------
Series II 89,165 7,329
========================================================================================
Net increase in net assets resulting from share
transactions 44,848,682 13,928,465
========================================================================================
Net increase in net assets 50,666,298 16,844,707
========================================================================================
NET ASSETS:
Beginning of year 43,430,871 26,586,164
========================================================================================
End of year (including undistributed net investment income
(loss) of $(111,189) and $(73,864), respectively) $94,097,169 $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
December 31, 2006
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-one 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.
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 or official closing price as of the close of
the customary trading session on the exchange where the security is
principally traded, or lacking any sales or official closing price on a
particular day, the security may be valued at the closing bid price on that
day. Securities traded in the over-the-counter market 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. 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 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 open-end and closed-end registered
investment companies that trade on an exchange are valued at the last sales
price or official closing price as of the close of the customary trading
session on the exchange where the security is principally traded.
Debt obligations (including convertible bonds) and unlisted equities 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.
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. If market quotations are available and reliable for
foreign exchange traded equity securities, the securities will be valued at
the market quotations. Because trading hours for certain foreign securities
end before the close of the NYSE, closing market quotations may become
unreliable. If between the time trading ends on a particular security and
the close of the customary trading session on the NYSE, events occur that
are significant and may make the closing price unreliable, the Fund may
fair value the security. 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 prices are not provided by any of the above
methods may be valued based upon quotes furnished by independent sources
and are valued at the last bid price in the case of equity securities and
in the case of debt obligations, the mean between the last bid and asked
prices.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
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
AIM V.I. Small Cap Equity Fund
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 the 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 to distribute substantially all of the
Fund's taxable earnings to shareholders. As such, the Fund will not be
subject to federal income taxes on otherwise taxable income (including net
realized capital gain) that 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. ACCOUNTING ESTIMATES -- 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.
H. INDEMNIFICATIONS -- 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.
I. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in
foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from (i) sales
of foreign currencies, (ii) currency gains or losses realized between the
trade and settlement dates on securities transactions, and (iii) the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books and the U.S. dollar
equivalent of the amounts actually received or paid. Net unrealized foreign
currency gains and losses arise from changes in the fair values of assets
and liabilities, other than investments in securities at fiscal period end,
resulting from changes in exchange rates.
The Fund may invest in foreign securities which may be subject to foreign
taxes on income, gains on investments or currency repatriation, a portion
of which may be recoverable. Taxes are accrued based on the Fund's current
interpretation of tax regulations and rates that exist in the foreign
markets in which the Fund invests.
J. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security.
Fluctuations in the value of these contracts are recorded as unrealized
appreciation (depreciation) until the contracts are closed. When these
contracts are closed, realized gains (losses) are recorded. Realized and
unrealized gains and losses on these contracts are included in the
Statement of Operations. The Fund could be exposed to risk, which may be in
excess of the amount reflected in the Statement of Assets and Liabilities,
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 0.85% of the Fund's
average daily net assets.
AIM V.I. Small Cap Equity Fund
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 at least 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. In addition, the Fund may also benefit from a one time credit to be used
to offset future custodian expenses. These credits are used to pay certain
expenses incurred by the Fund.
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in
the amount of 25% of the advisory fee AIM receives from the affiliated money
market funds on investments by the Fund in such affiliated money market funds.
Voluntary fee waivers or reimbursements may be modified or discontinued at any
time upon consultation with the Board of Trustees without further notice to
investors.
For the year ended December 31, 2006, AIM waived advisory fees of $116,879.
At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the year ended December 31, 2006, AMVESCAP did not
reimburse any such expenses.
The Trust has entered into a master administrative services agreement with
AIM pursuant to which the Fund 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. The
Fund may reimburse AIM for up to 0.25% of average daily assets invested by each
insurance company providing administrative services to the Fund. Pursuant to
such agreement, for the year ended December 31, 2006, AIM was paid $50,000 for
accounting and fund administrative services and reimbursed $165,952 for services
provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with AIM
Investment Services, Inc. ("AIS") pursuant to which the Fund has agreed to pay
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 year ended December 31, 2006, expenses incurred under the
agreement are shown in the Statement of Operations as transfer agent fees.
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 Plan payments, 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. For the year ended December 31, 2006, expenses
incurred under the Plan are shown in the Statement of Operations as distribution
fees.
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 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 year ended December 31, 2006.
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/05 AT COST FROM SALES (DEPRECIATION) 12/31/06 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-Institutional
Class $1,164,526 $27,717,533 $(27,365,394) $ -- $1,516,665 $ 71,485 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
Premier
Portfolio-Institutional
Class -- 16,581,063 (15,064,398) -- 1,516,665 44,077 --
- ----------------------------------------------------------------------------------------------------------------------------------
STIC Prime
Portfolio-Institutional
Class 1,164,526 12,460,323 (13,624,849) -- -- 27,473 --
==================================================================================================================================
Total
Investments
in
Affiliates $2,329,052 $56,758,919 $(56,054,641) $ -- $3,033,330 $143,035 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</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 year ended December 31, 2006, the Fund
engaged in securities sales of $306,329, which resulted in net realized gains of
$49,560, and securities purchases of $3,657,763.
NOTE 5--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) custodian credits which
result from periodic overnight cash balances at the custodian and (ii) a one
time custodian fee credit to be used to offset future custodian fees. For the
year ended December 31, 2006, the Fund received credits from these arrangements,
which resulted in the reduction of the Fund's total expenses of $2,105.
NOTE 6--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to each Trustee and Officer of the Fund who is not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Fund, and "Trustees' and Officer's Fees and Benefits" also
include amounts accrued by the Fund to fund such deferred compensation amounts.
Those Trustees who defer compensation have the option to select various AIM
Funds in which their deferral accounts shall be deemed to be invested. Finally,
current Trustees are eligible to participate in a retirement plan that provides
for benefits to be paid upon retirement to Trustees over a period of time based
on the number of years of service. The Fund may have certain former Trustees who
also participate in a retirement plan and receive benefits under such plan.
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to fund such retirement benefits. Obligations under the deferred compensation
and retirement plans represent unsecured claims against the general assets of
the Fund.
During the year ended December 31, 2006, the Fund paid legal fees of $3,979
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended December 31, 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 bank 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 contractually agreed upon rate.
AIM V.I. Small Cap Equity Fund
NOTE 8--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended December 31, 2006
and 2005 was as follows:
<Table>
<Caption>
2006 2005
- ----------------------------------------------------------------------------------
Distributions paid from:
Ordinary income $ 912,136 $ --
- ----------------------------------------------------------------------------------
Long-term capital gain 2,714,399 --
==================================================================================
Total distributions $3,626,535 $ --
__________________________________________________________________________________
==================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2006, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2006
- ---------------------------------------------------------------------------
Undistributed ordinary income $ 511,175
- ---------------------------------------------------------------------------
Undistributed long-term gain 262,093
- ---------------------------------------------------------------------------
Net unrealized appreciation -- investments 9,826,286
- ---------------------------------------------------------------------------
Temporary book/tax differences (8,323)
- ---------------------------------------------------------------------------
Shares of beneficial interest 83,505,938
===========================================================================
Total net assets $94,097,169
___________________________________________________________________________
===========================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales, the deferral of losses on certain straddles and the recognition for
tax purposes of unrealized gains on passive foreign investment companies.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan benefits.
Capital loss carryforward is calculated and reported as of a specific date.
Results of transactions and other activity after that date may affect the amount
of capital loss carryforward actually available for the Fund to utilize. The
ability to utilize capital loss carryforward in the future may be limited under
the Internal Revenue Code and related regulations based on the results of future
transactions.
The Fund utilized $492,385 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund does not have a capital loss carryforward as of December 31, 2006.
NOTE 9--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities,
U.S. Treasury obligations and money market funds, if any) purchased and sold by
the Fund during the year ended December 31, 2006 was $74,824,520 and
$33,730,321, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $11,811,012
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (1,984,726)
===============================================================================
Net unrealized appreciation of investment securities $ 9,826,286
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $84,446,360.
</Table>
NOTE 10--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of passive foreign
investment companies, on December 31, 2006, undistributed net investment income
(loss) was increased by $2,701 and undistributed net realized gain was decreased
by $2,701. This reclassification had no effect on the net assets of the Fund.
AIM V.I. Small Cap Equity Fund
NOTE 11--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- -------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
2006(a) 2005
------------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
- -------------------------------------------------------------------------------------------------------------------
Sold:
Series I 4,127,247 $61,970,339 1,778,336 $22,484,880
- -------------------------------------------------------------------------------------------------------------------
Series II 3,739 55,902 807 10,132
===================================================================================================================
Issued as reinvestment of dividends:
Series I 233,132 3,592,564 -- --
- -------------------------------------------------------------------------------------------------------------------
Series II 2,218 33,971 -- --
===================================================================================================================
Reacquired:
Series I (1,398,963) (20,803,386) (688,338) (8,563,744)
- -------------------------------------------------------------------------------------------------------------------
Series II (49) (708) (224) (2,803)
===================================================================================================================
2,967,324 $44,848,682 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
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 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 for 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
currently intends for the Fund to adopt FIN 48 provisions during the fiscal year
ending December 31, 2007.
NOTE 13--SIGNIFICANT EVENT
The Board of Trustees of the Trust unanimously approved, on December 13, 2006 a
Plan of Reorganization ("Plan") pursuant to which the Fund would acquire all of
the assets of AIM V.I. Small Cap Growth Fund ("Selling Fund"), a series of the
Trust. Upon closing of the transaction, shareholders of Selling Fund will
receive a corresponding class of shares of the Fund in exchange for their shares
of Selling Fund, and Selling Fund will cease operations.
The Plan requires approval of Selling Fund shareholders. The Fund will
submit the Plan to the shareholders for their consideration at a meeting to be
held on or about March 19, 2007. If approved by Selling Fund's shareholders, the
reorganization is expected to be consummated shortly thereafter.
AIM V.I. Small Cap Equity Fund
NOTE 14--FINANCIAL HIGHLIGHTS
The following schedule presents financial highlights for a share of the Fund
outstanding throughout the periods indicated.
<Table>
<Caption>
SERIES I
----------------------------------------------------
AUGUST 29, 2003
(DATE OPERATIONS
YEAR ENDED DECEMBER 31, COMMENCED) TO
-------------------------------- 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) (0.01)(a) (0.06)(a) (0.06)(a) (0.01)
- ------------------------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 2.37 1.07 1.13 1.41
==================================================================================================================
Total from investment operations 2.36 1.01 1.07 1.40
==================================================================================================================
Less distributions:
Dividends from net investment income -- -- (0.00) (0.01)
- ------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.63) -- -- (0.01)
==================================================================================================================
Total distributions (0.63) -- (0.00) (0.02)
==================================================================================================================
Net asset value, end of period $ 15.19 $ 13.46 $ 12.45 $ 11.38
__________________________________________________________________________________________________________________
==================================================================================================================
Total return(b) 17.44% 8.11% 9.41% 13.94%
__________________________________________________________________________________________________________________
==================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $93,243 $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 1.33%(c) 1.57% 2.01% 12.86%(d)
==================================================================================================================
Ratio of net investment income (loss) to average net assets (0.06)%(c) (0.44)% (0.56)% (0.44)%(d)
__________________________________________________________________________________________________________________
==================================================================================================================
Portfolio turnover rate(e) 52% 70% 156% 26%
__________________________________________________________________________________________________________________
==================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(c) Ratios are based on average daily net assets of $66,208,932.
(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 14--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
SERIES II
----------------------------------------------------
AUGUST 29, 2003
(DATE OPERATIONS
YEAR ENDED DECEMBER 31, COMMENCED) TO
-------------------------------- 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) 2.36 1.06 1.13 1.41
==================================================================================================================
Total from investment operations 2.32 0.98 1.05 1.39
==================================================================================================================
Less distributions:
Dividends from net investment income -- -- (0.00) (0.00)
- ------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.63) -- -- (0.01)
==================================================================================================================
Total distributions (0.63) -- (0.00) (0.01)
==================================================================================================================
Net asset value, end of period $ 15.10 $ 13.41 $ 12.43 $ 11.38
__________________________________________________________________________________________________________________
==================================================================================================================
Total return(b) 17.20% 7.88% 9.23% 13.88%
__________________________________________________________________________________________________________________
==================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 854 $ 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 1.58%(c) 1.82% 2.26% 13.11%(d)
==================================================================================================================
Ratio of net investment income (loss) to average net assets (0.31)%(c) (0.64)% (0.71)% (0.59)%(d)
__________________________________________________________________________________________________________________
==================================================================================================================
Portfolio turnover rate(e) 52% 70% 156% 26%
__________________________________________________________________________________________________________________
==================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns are not annualized for periods
less than one year and do not reflect charges assessed in connection
with a variable product, which if included would reduce total returns.
(c) Ratios are based on average daily net assets of $769,948.
(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. 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 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 Cap Equity 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; 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. On September 15, 2006, the
MDL Court granted the AMVESCAP defendants' motion to dismiss the Amended Class
Action Complaint for Violations of ERISA and dismissed such Complaint. The
plaintiff has commenced an appeal from that decision.
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.
AIM V.I. Small Cap Equity Fund
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V.I. Small Cap Equity Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM V.I. Small Cap Equity Fund (one
of the funds constituting AIM Variable Insurance Funds, hereafter referred to as
the "Fund") at December 31, 2006, the results of its operations for the year
then ended, the changes in its net assets and financial highlights for each of
the two years in the period then ended, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
and financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 2006 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion. The financial
highlights for each of the periods ended on or before December 31, 2004 were
audited by another independent registered public accounting firm whose report,
dated February 4, 2005, expressed an unqualified opinion on those statements.
PRICEWATERHOUSECOOPERS LLP
February 14, 2007
Houston, Texas
AIM V.I. Small Cap Equity Fund
TAX INFORMATION
Form 1099-DIV, Form 1042-S and other year-end tax information provide
shareholders with actual calendar year amounts that should be included in their
tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as a required by
the Internal Revenue Code or to meet a specific state's requirement.
The Fund designates the following amounts or, if subsequently determined to
be different, the maximum amount allowable for its fiscal year ended December
31, 2006:
<Table>
FEDERAL AND STATE INCOME TAX
Long-Term Capital Gain Dividends $2,714,399
Corporate Dividends Received
Deduction* 32.00%
</Table>
* The above percentage is based on ordinary income dividends paid to
shareholders during the Fund's fiscal year.
AIM V.I. Small Cap Equity Fund
TRUSTEES AND OFFICERS
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management None
Trustee and Vice Chair Group Inc. (financial services holding
company); Director and Vice Chairman,
AMVESCAP PLC; Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm) and
Trustee and Vice Chair of The AIM Family
of Funds--Registered Trademark--
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer);
Chief Executive Officer, AMVESCAP
PLC -- Managed Products; and President
and Principal Executive Officer of The
AIM Family of Funds--Registered
Trademark--
- -------------------------------------------------------------------------------------------------------------------------------
Philip A. Taylor(2) -- 1954 2006 Director, Chief Executive Officer and None
Trustee, President and President, A I M Management Group Inc.,
Principal AIM Mutual Fund Dealer Inc. (registered
Executive Officer broker dealer), AIM Funds Management
Inc. (registered investment advisor) and
1371 Preferred Inc. (holding company);
Director and President, A I M Advisors,
Inc., INVESCO Funds Group, Inc.
(registered investment advisor and
register transfer agent) and AIM GP
Canada Inc. (general partner for a
limited partnership); Director, A I M
Capital Management, Inc. and A I M
Distributors, Inc.; Director and
Chairman, AIM Investment Services, Inc.,
Fund Management Company and INVESCO
Distributors, Inc. (registered broker
dealer); Director, President and
Chairman, AVZ Callco Inc. (holding
company); AMVESCAP Inc. (holding
company) and AIM Canada Holdings Inc.
(holding company); Director and Chief
Executive Officer, AIM Trimark Corporate
Class Inc. (formerly AIM Trimark Global
Fund Inc.) (corporate mutual fund
company) and AIM Trimark Canada Fund
Inc. (corporate mutual fund company);
Trustee, President and Principal
Executive Officer of The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); Trustee and
Executive Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); and Manager,
Powershares Capital Management LLC
Formerly: President and Principal
Executive Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); Chairman, AIM
Canada Holdings, Inc.; Executive Vice
President and Chief Operations Officer,
AIM Funds Management Inc.; President,
AIM Trimark Global Fund Inc. and AIM
Trimark Canada Fund Inc.; and Director,
Trimark Trust (federally regulated
Canadian Trust Company)
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company
Formerly: Partner, law firm of Baker & (2 portfolios))
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Founder, Green, Manning & Bunch Ltd., None
Trustee (investment banking firm); and Director,
Policy Studies, Inc. and Van Gilder
Insurance Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and None
Trustee private business corporations, including
the Boss Group Ltd. (private investment
and management); Cortland Trust, Inc.
(Chairman) (registered investment
company (3 portfolios)); Annuity and
Life Re (Holdings), Ltd. (insurance
company); CompuDyne Corporation
(provider of products and services to
the public security market); and
Homeowners of America Holding
Corporation (property casualty company)
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and Director of various
affiliated Volvo companies; and
Director, Magellan Insurance Company
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund
company); and Owner, Dos Angelos Ranch, (non-profit)
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- -------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company
(3 portfolios))
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired Director, Mainstay VP Series
Trustee Funds, Inc. (21 portfolios)
Formerly: Partner, Deloitte & Touche
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
(2) Mr. Taylor is considered an interested person of the Trust because he is an
officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
TRUSTEES AND OFFICERS--(CONTINUED)
AIM V.I. Small Cap Equity Fund
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Senior Vice President and Senior Officer N/A
Senior Vice President and of The AIM Family of Funds--Registered
Senior Officer Trademark--
Formerly: Director of Compliance and
Assistant General Counsel, ICON
Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
John M. Zerr -- 1962 2006 Director, Senior Vice President, N/A
Senior Vice President, Chief Secretary and General Counsel, A I M
Legal Officer and Secretary Management Group Inc. and A I M
Advisors, Inc.; Director, Vice President
and Secretary, INVESCO Distributors,
Inc.; Vice President and Secretary,
A I M Capital Management, Inc., AIM
Investment Services, Inc., and Fund
Management Company; Senior Vice
President and Secretary, A I M
Distributors, Inc.; Director and Vice
President, INVESCO Funds Group Inc.;
Senior Vice President, Chief Legal
Officer and Secretary of The AIM Family
of Funds--Registered Trademark--; and
Manager, Powershares Capital Management
LLC
Formerly: Chief Operating Officer,
Senior Vice President, General Counsel,
and Secretary, Liberty Ridge Capital,
Inc. (an investment adviser); Vice
President and Secretary, PBHG Funds (an
investment company); Vice President and
Secretary, PBHG Insurance Series Fund
(an investment company); General Counsel
and Secretary, Pilgrim Baxter Value
Investors (an investment adviser); Chief
Operating Officer, General Counsel and
Secretary, Old Mutual Investment
Partners (a broker-dealer); General
Counsel and Secretary, Old Mutual Fund
Services (an administrator); General
Counsel and Secretary, Old Mutual
Shareholder Services (a shareholder
servicing center); Executive Vice
President, General Counsel and
Secretary, Old Mutual Capital, Inc. (an
investment adviser); and Vice President
and Secretary, Old Mutual Advisors Funds
(an investment company)
- ------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Global Compliance Director, AMVESCAP N/A
Vice President PLC; and Vice President of The AIM
Family of Funds--Registered Trademark--
Formerly: Senior Vice President, A I M
Management Group Inc.; Senior Vice
President and Chief Compliance Officer,
A I M Advisors, Inc.; Vice President and
Chief Compliance Officer, A I M Capital
Management, Inc. and A I M Distributors,
Inc.; Vice President, AIM Investment
Services, Inc. and Fund Management
Company; Senior Vice President and Chief
Compliance Officer of The AIM Family of
Funds--Registered Trademark--; and
Senior Vice President and Compliance
Director, Delaware Investments Family of
Funds
- ------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Senior Vice President and General N/A
Vice President Counsel, AMVESCAP PLC; Director, INVESCO
Funds Group, Inc.; and Vice President of
The AIM Family of Funds--Registered
Trademark--
Formerly: Director, Vice President and
General Counsel, Fund Management
Company; Director, Senior Vice
President, Secretary and General
Counsel, A I M Management Group Inc. and
A I M Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Senior Vice President, A I M
Distributors, Inc.; Vice President,
A I M Capital Management, Inc. and AIM
Investment Services, Inc.; Senior Vice
President, Chief Legal Officer and
Secretary of The AIM Family of
Funds--Registered Trademark--; Chief
Executive Officer and President, INVESCO
Funds Group, Inc.; and Senior Vice
President, and General Counsel, Liberty
Financial Companies, Inc. and Senior
Vice President and General Counsel
Liberty Funds Group, LLC
- ------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President, Principal Advisors, Inc.; and Vice President,
Financial Officer and Treasurer and Principal Officer of The
Treasurer AIM Family of Funds--Registered
Trademark--
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
J. Philip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment Officer, A I M Advisors Inc.;
Director, Chairman, Chief Executive
Officer, President and Chief Investment
Officer, A I M Capital Management, Inc.;
Executive Vice President, A I M
Management Group Inc. and Vice President
of The AIM Family of Funds--Registered
Trademark--
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; and
Chief Equity Officer, Senior Vice
President and Senior Investment Officer,
A I M Capital Management, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc. and The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); and
President and Principal Executive
Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust Only)
Formerly: Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only)
- ------------------------------------------------------------------------------------------------------------------------------
Lance A. Rejsek -- 1967 2005 Anti-Money Laundering Compliance N/A
Anti-Money Laundering Officer, A I M Advisors, Inc., A I M
Compliance Officer Capital Management, Inc., A I M
Distributors, Inc., AIM Investment
Services, Inc., AIM Private Asset
Management, Inc., Fund Management
Company and The AIM Family of
Funds--Registered Trademark--
Formerly: Manager of the Fraud
Prevention Department, AIM Investment
Services, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
Todd L. Spillane -- 1958 2006 Senior Vice President, A I M Management N/A
Chief Compliance Officer Group Inc.; Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc.; and Vice President,
A I M Distributors, Inc., AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Global Head of Product
Development, AIG-Global Investment
Group, Inc.; Chief Compliance Officer
and Deputy General Counsel,
AIG-SunAmerica Asset Management; and
Chief Compliance Officer, Chief
Operating Officer and Deputy General
Counsel, American General Investment
Management
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers
Suite 100 11 Greenway Plaza Inc. LLP
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Ballard Spahr INDEPENDENT TRUSTEES AIM Investment State Street Bank and
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis Services, Inc. Trust Company
1735 Market Street, 51st & Frankel LLP P.O. Box 4739 225 Franklin Street
Floor 1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Philadelphia, PA 19103-7599 Americas
New York, NY 10036-2714
</Table>
DOMESTIC EQUITY AIM V.I. SMALL CAP GROWTH FUND
Small Cap FORMERLY AIM V.I. SMALL COMPANY GROWTH FUND
Annual Report to Shareholders - December 31, 2006
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 [COVER GLOBE IMAGE]
the SEC Public Reference Room in
Washington, D.C. 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 AIM V.I. SMALL CAP GROWTH FUND seeks
to portfolio securities is available long-term capital growth.
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 UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT
the About Us tab, click on Required IS AS OF DECEMBER 31, 2006, AND IS BASED ON TOTAL NET ASSETS.
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
[AIM INVESTMENTS LOGO] INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ
--Registered Trademark-- EACH CAREFULLY BEFORE INVESTING.
=========================================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE AIM V.I. SMALL CAP GROWTH FUND
PERFORMANCE SUMMARY 2. VALUATION ANALYSIS. Identifying
attractively valued stocks given their growth
For the year ended December 31, 2006, AIM V.I. Small Cap potential over a one- to two-year horizon.
Growth Fund, excluding variable product issuer charges, had
positive returns and outperformed its style-specific index, 3. TECHNICAL ANALYSIS. Identifying the
the Russell 2000 --REGISTERED TRADEMARK-- Growth Index, and its "timeliness" of a stock purchase. We review
peer group index, the Lipper Small Cap Growth Funds Index. It trading volume characteristics and trend
underperformed the broad market, as measured by the S&P 500 analysis to make sure there are no signs of
--Registered Trademark-- Index. the stock deterioration. This also serves as
a risk management measure that helps us
Stock selection across select sectors enabled the Fund confirm our high conviction candidates.
to outperform the Russell 2000 Growth Index. The Fund
underperformed the broad market, as represented by the S&P 500 We consider selling or trimming a stock
Index, primarily due to the large weighting in value stocks in when:
the index, as value stocks outperformed growth stocks by a
wide margin during the year. - The company's fundamental business
prospects deteriorate.
Your Fund's long-term performance appears on pages 4-5.
FUND VS. INDEXES - A stock hits its target price.
TOTAL RETURNS, 12/31/05-12/31/06, EXCLUDING VARIABLE PRODUCT
ISSUER CHARGES. IF VARIABLE PRODUCT ISSUER CHARGES WERE - The company's technical profile
INCLUDED, RETURNS WOULD BE LOWER. deteriorates.
Series I Shares 14.13% MARKET CONDITIONS AND YOUR FUND
Series II Shares 13.86
S&P 500 Index (Broad Market Index) 15.78 Domestic equities posted solid returns in
Russell 2000 Growth Index (Style-specific Index) 13.35 2006, leaving several major market indexes
Lipper Small-Cap Growth Funds Index (Peer Group Index) 10.65 near multi-year highs. Strong economic
SOURCE: LIPPER INC. growth, favorable corporate earnings results
================================================================== and continued benign inflation benefited
equities, offsetting high energy prices, a
HOW WE INVEST by keeping the Fund's sector slowing housing market and the U.S. Federal
weightings in line with the Reserve Board's (the Fed) tightening
We focus on small-cap growth benchmark by staying fully campaign.
companies with visible and diversified in all those sectors.
long-term growth opportunities, Although mixed signals from the Fed created
as demonstrated by consistent and STOCK SELECTION: We select some market volatility in May and June, the
accelerating earnings growth. Our stocks based on an analysis of market began to rally when the Fed left
investment philosophy involves: individual companies. Our interest rates unchanged at several meetings
three-step selection process beginning in August. In addition, the price
includes: of crude oil and other commodities
PORTFOLIO CONSTRUCTION: We stabilized, fostering optimism that a hard
align the fund with the Russell 1. FUNDAMENTAL ANALYSIS. landing for the U.S. economy could be
2000 Growth Index, the benchmark Building financial models and avoided. While small-cap stocks continued to
we believe represents the conducting in-depth interviews lead the market higher,
small-cap-growth asset class. We with company management.
seek to control risk
====================================================================================================================
PORTFOLIO COMPOSITION TOP FIVE INDUSTRIES* TOP 10 EQUITY HOLDINGS*
- --------------------------------------------------------------------------------------------------------------------
By sector
Information Technology 26.2% 1. Health Care Equipment 5.4% 1. THQ Inc. 1.4%
Health Care 21.1 2. Oil & Gas Equipment & 2. Polycom, Inc. 1.2
Consumer Discretionary 14.7 Services 5.0 3. F5 Networks, Inc. 1.2
Industrials 13.0 3. Apparel Retail 4.8 4. General Cable Corp. 1.2
Energy 8.3 4. Application Software 4.7 5. Core Laboratories N.V. (Netherlands) 1.2
Financials 8.2 5. Communications Equipment 4.1 6. Affiliated Managers Group, Inc. 1.2
Consumer Staples 2.5 7. Varian Semiconductor Equipment
Telecommunication Total Net Assets $19.73 million Associates, Inc. 1.1
Services 2.0 8. SBA Communications Corp.-Class A 1.1
Materials 1.6 Total Number of Holdings* 128 9. Medicis Pharmaceutical Corp-Class A 1.1
Utilities 0.5 10. Wright Medical Group, Inc. 1.1
Money Market Funds Plus
Other Assets Less
Liabilities 1.9
*Excluding money market fund holdings.
The Fund's holdings are subject to change, and there is no assurance that the
Fund will continue to hold any particular security.
====================================================================================================================
2
AIM V.I. SMALL CAP GROWTH FUND
large- and mid-cap stocks also had Solid stock selection was also THE VIEWS AND OPINIONS EXPRESSED IN
double-digit returns. Additionally, the primary driver of MANAGEMENT'S DISCUSSION OF FUND
value stocks outperformed growth outperformance in the consumer PERFORMANCE ARE THOSE OF A I M
stocks. Positive performance was discretionary sector. Within this ADVISORS, INC. THESE VIEWS AND
broad among Russell 2000 Growth sector, Fund holding TEMPUR-PEDIC OPINIONS ARE SUBJECT TO CHANGE AT
Index sectors, with the best was one of the leading contributors ANY TIME BASED ON FACTORS SUCH AS
returns found in utilities, to performance. Tempur-Pedic, a MARKET AND ECONOMIC CONDITIONS.
consumer staples and materials. leading manufacturer of THESE VIEWS AND OPINIONS MAY NOT BE
visco-elastic mattresses and RELIED UPON AS INVESTMENT ADVICE OR
The Fund benefited from positive pillows, appreciated due to strong RECOMMENDATIONS, OR AS AN OFFER FOR
absolute performance in all 10 growth in revenues and earnings A PARTICULAR SECURITY. THE
economic sectors, with the highest during the year. Several consumer INFORMATION IS NOT A COMPLETE
positive impact on performance services holdings also made key ANALYSIS OF EVERY ASPECT OF ANY
coming from holdings in the contributions to performance, MARKET, COUNTRY, INDUSTRY, SECURITY
industrials, information technology including quick service restaurant OR THE FUND. STATEMENTS OF FACT ARE
(IT), consumer discretionary and owner JACK IN THE BOX. Many quick FROM SOURCES CONSIDERED RELIABLE,
health care sectors. On a relative service restaurant operators such BUT A I M ADVISORS, INC. MAKES NO
basis, the Fund outperformed the as Jack In The Box benefited as REPRESENTATION OR WARRANTY AS TO
Russell 2000 Growth Index, with the higher energy prices influenced THEIR COMPLETENESS OR ACCURACY.
widest margin of outperformance in many consumers to seek lower cost ALTHOUGH HISTORICAL PERFORMANCE IS
the industrials, IT and consumer dining options during the year. NO GUARANTEE OF FUTURE RESULTS,
discretionary sectors. THESE INSIGHTS MAY HELP YOU
The Fund underperformed relative UNDERSTAND OUR INVESTMENT
The Fund benefited from strong to the Russell 2000 Growth Index in MANAGEMENT PHILOSOPHY.
stock selection in the industrials the financials, materials and
sector, where specific areas of energy sectors. In the financials [ELLIS PHOTO]
strength included the capital goods sector, underperformance was driven
and transportation industries. primarily by an underweight Juliet S.Ellis Chartered Financial
Within capital goods, holdings that position in real estate investment Analyst, senior portfolio manager,
made significant contributions to trust (REIT) holdings, an industry is lead manager of AIM V.I. Small
Fund performance included that performed very well during the Cap Growth Fund.
electrical distributors WESCO year, as well as an overweight
INTERNATIONAL and GENERAL CABLE. position in insurance holdings, an Ms. Ellis joined AIM in 2004. She
Both companies benefited from industry that had weak performance previously served as senior
acceleration in non-residential during the year. Underperformance portfolio manager of two small-cap
construction activity as well as in the materials sector was driven funds for another company and was
updates to utility grid equipment. largely by stock selection and responsible for the management of
In the transportation industry, overweight positions in two more than $2 billion in assets. Ms.
SWIFT TRANSPORTATION, one of the industries--construction Ellis began her investment career
largest publicly held trucking materials and containers and in 1981 as a financial consultant.
companies in the United States, packaging. Underperformance in the She is a Cum Laude and Phi Beta
appreciated after reporting higher energy sector was largely due to Kappa graduate of Indiana
than expected earnings. This the Fund's overweight position. University with a B.A. in economics
company is led by a new management and political science.
team that successfully implemented During the year, the most
a strategy focused on improving significant positioning changes [HARTSFIELD PHOTO]
profit margins and earnings growth. included additions in the health
The stock price also rose late in care, IT and energy sectors. These Juan R. Hartsfield Chartered
the year when the company's founder purchases were funded by reducing Financial Analyst, portfolio
made a bid to re-acquire the firm. exposure to the industrials and manager, is manager of AIM V.I.
materials sectors. All changes to Small Cap Growth Fund. Prior to
In the IT sector, the Fund the Fund were based on our joining AIM in 2004, he began his
benefited from stock selection in a bottom-up stock selection process investment career in 2000 as an
number of different industries, of identifying high quality growth equity analyst and most recently
including communications equipment, companies trading at what we served as a portfolio manager. Mr.
internet software and services and believe are attractive valuations. Hartsfield earned a B.S. in
semiconductors and semiconductor petroleum engineering from The
equipment. Within the semiconductor IN CLOSING University of Texas and his M.B.A.
industry, FORMFACTOR was one of the from the University of Michigan.
leading contributors to overall Although we are pleased to have
Fund performance during the year. provided positive returns for our Assisted by the Small Cap Core/
This company uses a cost effective investors for the year, we are Growth Team
process to test semiconductor always striving to improve
circuits, including memory chips. performance. We thank you for your
The stock price appreciated after commitment to AIM V.I. Small Cap
the company reported strong growth Growth Fund.
in revenues and earnings due to FOR A DISCUSSION OF THE RISKS OF
high demand for its services. Other INVESTING IN YOUR FUND, INDEXES
holdings that made key USED IN THIS REPORT AND YOUR FUND'S
contributions included CYBERSOURCE, LONG-TERM PERFORMANCE, PLEASE SEE
which we subsequently sold, PAGES 4-5.
POLYCOM and VARIAN SEMICONDUCTOR.
3
YOUR FUND'S LONG-TERM PERFORMANCE AIM V.I. SMALL CAP GROWTH FUND
===================================
AVERAGE ANNUAL TOTAL RETURNS ADJUSTED TO REFLECT THE RULE 12B-1 VARIABLE PRODUCTS. YOU CANNOT
- ----------------------------------- FEES APPLICABLE TO THE SERIES II PURCHASE SHARES OF THE FUND
As of 12/31/06 SHARES. DIRECTLY. PERFORMANCE FIGURES GIVEN
SERIES I SHARES REPRESENT THE FUND AND ARE NOT
Inception (8/22/97) 7.21% THE INCEPTION DATE OF SERIES I INTENDED TO REFLECT ACTUAL VARIABLE
5 Years 4.68 SHARES IS AUGUST 22, 1997. THE PRODUCT VALUES. THEY DO NOT REFLECT
1 Year 14.13 PERFORMANCE OF THE FUND'S SERIES I SALES CHARGES, EXPENSES AND FEES
AND SERIES II SHARE CLASSES WILL ASSESSED IN CONNECTION WITH A
SERIES II SHARES DIFFER PRIMARILY DUE TO DIFFERENT VARIABLE PRODUCT. SALES CHARGES,
Inception 6.95% CLASS EXPENSES. EXPENSES AND FEES, WHICH ARE
5 Years 4.44 DETERMINED BY THE VARIABLE PRODUCT
1 Year 13.86 THE PERFORMANCE DATA QUOTED ISSUERS, WILL VARY AND WILL LOWER
=================================== REPRESENT PAST PERFORMANCE AND THE TOTAL RETURN.
CANNOT GUARANTEE COMPARABLE FUTURE
=================================== RESULTS; CURRENT PERFORMANCE MAY BE PER NASD REQUIREMENTS, THE MOST
CUMULATIVE TOTAL RETURNS LOWER OR HIGHER. PLEASE CONTACT RECENT MONTH-END PERFORMANCE DATA
- ----------------------------------- YOUR VARIABLE PRODUCT ISSUER OR AT THE FUND LEVEL, EXCLUDING
6 months ended 12/31/06 FINANCIAL ADVISOR FOR THE MOST VARIABLE PRODUCT CHARGES, IS
Series I Shares 7.18% RECENT MONTH-END VARIABLE PRODUCT AVAILABLE ON THIS AIM AUTOMATED
Series II Shares 7.04 PERFORMANCE. PERFORMANCE FIGURES INFORMATION LINE, 866-702-4402. AS
=================================== REFLECT FUND EXPENSES, REINVESTED MENTIONED ABOVE, FOR THE MOST
DISTRIBUTIONS AND CHANGES IN NET RECENT MONTH-END PERFORMANCE
SERIES II SHARES' INCEPTION DATE IS ASSET VALUE. INVESTMENT RETURN AND INCLUDING VARIABLE PRODUCT CHARGES,
APRIL 30, 2004. RETURNS SINCE THAT PRINCIPAL VALUE WILL FLUCTUATE SO PLEASE CONTACT YOUR VARIABLE
DATE ARE HISTORICAL. ALL OTHER THAT YOU MAY HAVE A GAIN OR LOSS PRODUCT ISSUER OR FINANCIAL
RETURNS ARE THE BLENDED RETURNS OF WHEN YOU SELL SHARES. ADVISOR.
THE HISTORICAL PERFORMANCE OF
SERIES II SHARES SINCE THEIR AIM V.I. SMALL CAP GROWTH FUND, HAD THE ADVISOR NOT WAIVED FEES
INCEPTION AND THE RESTATED A SERIES PORTFOLIO OF AIM VARIABLE AND/OR REIMBURSED EXPENSES,
HISTORICAL PERFORMANCE OF SERIES I INSURANCE FUNDS, IS CURRENTLY PERFORMANCE WOULD HAVE BEEN LOWER.
SHARES (FOR PERIODS PRIOR TO OFFERED THROUGH INSURANCE COMPANIES
INCEPTION OF SERIES II SHARES) ISSUING
==================================================================================================================
PRINCIPAL RISKS OF INVESTING IN THE The prices of securities held by offerings (IPOs). There can be no
FUND the Fund may decline in response to assurance that the Fund will have
market risks. favorable IPO investment
Prices of equity securities change opportunities in the future.
in response to many factors The Fund may use enhanced Moreover, the prices of IPO
including the historical and investment techniques such as securities may go up and down more
prospective earnings of the issuer, derivatives. The principal risk of than the prices of companies with
the value of its assets, general investments in derivatives is that longer trading histories. In
economic conditions, interest the fluctuations in their values addition, companies offering
rates, investor perceptions and may not correlate perfectly with securities in IPOs may have less
market liquidity. the overall securities markets. experienced management or limited
Derivatives are subject to counter operating histories. For additional
Growth investing may be more party risk -- the risk that the information regarding the Fund's
volatile than other investment other party will not complete the performance, please see the Fund's
styles because growth stocks are transaction with the Fund. prospectus
more sensitive to investor
perceptions of an issuing company's The value of convertible To the extent the Fund holds
growth potential. securities in which the Fund cash or cash equivalents rather
invests may be affected by market than equity securities for risk
At any given time, the Fund may interest rates, the risk that the management purposes, the Fund may
be subject to sector risk, which issuer may default on interest or not achieve its investment
means a certain sector may under principal payments and the value of objective.
perform other sectors or the market the underlying common stock into
as a whole. The Fund is not limited which these securities may be If the seller of a repurchase
with respect to the sectors in converted. agreement in which the Fund invests
which it can invest. defaults on its obligation or
Foreign securities have declares bankruptcy, the Fund may
Investing in a fund that invests additional risks, including experience delays in selling the
in smaller companies involves risks exchange rate changes, political securities underlying the
not associated with investing in and economic upheaval, the relative repurchase agreement.
more established companies, such as lack of information about these
business risk, stock price companies, relatively low market There is no guarantee that the
fluctuations and illiquidity. liquidity and the potential lack of investment techniques and risk
strict financial and accounting analyses used by the Fund's
Investing in emerging markets controls and standards. portfolio managers will produce the
involves greater risk than desired results.
investing in more established The Fund's return during certain
markets. The risks include the periods was positively impacted by
relatively smaller size and lesser its investments in initial public
liquidity of these markets, high
inflation rates, adverse political Continued on page 5
developments and lack of timely
information.
4
AIM V.I. Small Cap Growth Fund
Past performance cannot guarantee that a logarithmic chart is more the value of the investment. In
comparable future results. effective than other types of this chart, each segment represents
charts in illustrating changes in a doubling, or 100% change, in the
This chart, which is a value during the early years shown value of the investment. In other
logarithmic chart, presents the in the chart. The vertical axis, words, the space between $5,000 and
fluctuations in the value of the the one that indicates the dollar $10,000 is the same size as the
Fund and its indexes. We believe value of an investment, is space between $10,000 and $20,000,
constructed with each segment and so on.
representing a percent change in
====================================================================================================================
Continued from page 4
ABOUT INDEXES USED IN THIS REPORT amended to reflect that the Fund transactions. Generally accepted
has elected to use the Lipper accounting principles require
The unmanaged STANDARD & POOR'S Variable Underlying Funds (VUF) adjustments to be made to the net
COMPOSITE INDEX OF 500 STOCKS (the Small-Cap Growth Funds Index as its assets of the fund at period end
S&P 500 Index) is an index of peer group rather than the Lipper for financial reporting purposes,
common stocks frequently used as a Small-Cap Growth Funds Index. The and as such, the net asset value
general measure of U.S. stock Lipper VUF Small-Cap Growth Funds for shareholder transactions and
market performance. Index, recently published by Lipper the returns based on those net
Inc., comprises the largest asset values may differ from the
The unmanaged LIPPER SMALL-CAP underlying funds in each variable net asset values and returns
GROWTH FUNDS INDEX represents an insurance category and does not reported in the Financial
average of the performance of the include mortality and expense fees. Highlights. Additionally, the
30 largest small-capitalization returns and net asset values shown
growth funds tracked by Lipper The Fund is not managed to track throughout this report are at the
Inc., an independent mutual fund the performance of any particular fund level only and do not include
performance monitor. index, including the indexes variable product issuer charges. If
defined here, and consequently, the such charges were included, the
The unmanaged RUSSELL 2000 performance of the fund may deviate total returns would be lower.
GROWTH INDEX is a subset of the significantly from the performance
unmanaged Russell 2000 --Registered of the indexes. Industry classifications used in
Trademark-- Index, which represents this report are generally according
the performance of the stocks of A direct investment cannot be to the Global Industry
small-capitalization companies; the made in an index. Unless otherwise Classification Standard, which was
Growth subset measures the indicated, index results include developed by and is the exclusive
performance of Russell 2000 reinvested dividends, and they do property and a service mark of
companies with higher price/book not reflect sales charges. Morgan Stanley Capital
ratios and higher forecasted growth Performance of an index of funds International Inc. and Standard &
values. The Russell 2000 Growth reflects fund expenses; performance Poor's.
Index is a trademark/service mark of a market index does not.
of the Frank Russell Company. The Chartered Financial Analyst
Russell --Registered Trademark-- is OTHER INFORMATION --Registered Trademark-- (CFA
a trademark of the Frank Russell --Registered Trademark--)
Company. The returns shown in the designation is a globally
Management's Discussion of Fund recognized standard for measuring
In conjunction with the annual Performance are based on net asset the competence and integrity of
prospectus update on or about May values calculated for shareholder investment professionals.
1, 2007, the AIM V.I Small Cap
Growth Fund prospectus will be
5
RESULTS OF A $10,000 INVESTMENT
Fund data from 8/22/97, index data from 8/31/97
[MOUNTAIN CHART]
AIM V.I. SMALL CAP GROWTH FUND
DATE -SERIES I SHARES S&P 500 INDEX RUSSELL 2000 GROWTH INDEX LIPPER SMALL-CAP GROWTH FUNDS INDEX
- --------------------------------------------------------------------------------------------------------------------------
8/22/97 $10000
8/97 10090 $10000 $10000 $10000
9/97 10820 10547 10798 10842
10/97 10110 10195 10149 10287
11/97 9809 10667 9907 10055
12/97 9910 10850 9913 9921
1/98 9770 10970 9781 9774
2/98 10710 11761 10644 10564
3/98 11249 12363 11091 11042
4/98 11299 12489 11159 11122
5/98 10499 12275 10348 10335
6/98 10929 12773 10454 10638
7/98 10120 12638 9581 9837
8/98 7969 10812 7369 7689
9/98 9039 11505 8116 8100
10/98 9449 12440 8540 8419
11/98 10489 13193 9202 9104
12/98 11532 13953 10035 10017
1/99 11682 14536 10486 10259
2/99 10551 14085 9527 9272
3/99 11232 14648 9866 9691
4/99 11612 15215 10738 10069
5/99 11673 14856 10755 10124
6/99 13054 15679 11321 11072
7/99 14164 15191 10971 11032
8/99 13854 15116 10561 10878
9/99 14895 14702 10764 11272
10/99 15556 15632 11040 11929
11/99 17948 15950 12208 13434
12/99 22032 16888 14359 16143
1/00 20961 16040 14226 15975
2/00 26465 15736 17535 20656
3/00 25153 17275 15692 19035
4/00 21548 16755 14108 16682
5/00 19107 16412 12872 15318
6/00 23740 16816 14535 18015
7/00 21699 16553 13290 16843
8/00 24721 17581 14687 18655
9/00 23391 16653 13958 17731
10/00 21770 16582 12825 16401
11/00 17259 15276 10496 13608
12/00 18732 15351 11138 14811
1/01 18659 15895 12040 15262
2/01 16099 14447 10390 13309
3/01 14627 13532 9445 12016
4/01 16846 14583 10601 13313
5/01 17011 14681 10847 13674
6/01 17229 14323 11143 14019
7/01 16057 14182 10192 13237
8/01 14678 13295 9556 12454
9/01 12159 12222 8014 10510
10/01 13341 12455 8785 11280
11/01 14419 13410 9518 12154
12/01 15258 13528 10111 12891
1/02 14584 13330 9751 12501
2/02 13267 13073 9120 11744
3/02 14086 13565 9912 12704
4/02 13764 12743 9698 12369
5/02 13257 12649 9131 11873
6/02 12272 11749 8357 10991
7/02 10603 10833 7072 9432
8/02 10572 10904 7069 9418
9/02 9992 9720 6558 8847
10/02 10613 10575 6890 9225
11/02 11235 11197 7573 9997
12/02 10509 10539 7051 9329
1/03 10188 10264 6859 9083
2/03 9991 10109 6676 8800
3/03 10095 10207 6778 8981
4/03 10685 11048 7419 9724
5/03 11691 11629 8255 10715
6/03 11846 11778 8414 11078
7/03 12593 11985 9050 11726
8/03 13256 12219 9536 12348
==========================================================================================================================
SOURCE: LIPPER INC.
==========================================================================================================================
[MOUNTAIN CHART]
9/03 12811 12089 9295 12045
10/03 13796 12773 10098 13138
11/03 14262 12885 10427 13487
12/03 14024 13560 10474 13507
1/04 14739 13809 11024 14139
2/04 14678 14001 11007 14085
3/04 14594 13790 11058 13988
4/04 13909 13574 10503 13305
5/04 14158 13760 10712 13582
6/04 14583 14027 11069 13969
7/04 13381 13563 10075 12737
8/04 13030 13617 9858 12324
9/04 13703 13765 10403 13028
10/04 14169 13975 10656 13394
11/04 15091 14540 11557 14331
12/04 15973 15035 11972 14964
1/05 15289 14669 11433 14398
2/05 15465 14977 11590 14682
3/05 15040 14712 11155 14189
4/05 14190 14433 10445 13396
5/05 14968 14892 11181 14284
6/05 15786 14913 11543 14783
7/05 16781 15468 12350 15685
8/05 16615 15327 12176 15414
9/05 16346 15451 12272 15498
10/05 15973 15193 11819 14973
11/05 16823 15767 12488 15776
12/05 16802 15773 12469 15763
1/06 18130 16190 13672 17047
2/06 18255 16234 13599 16981
3/06 18835 16436 14260 17688
4/06 18960 16657 14219 17748
5/06 17934 16178 13218 16643
6/06 17893 16199 13226 16505
7/06 17147 16299 12539 15605
8/06 17488 16686 12907 15919
9/06 17570 17116 12994 16127
10/06 18545 17674 13836 16856
11/06 19291 18009 14167 17424
12/06 19180 18262 14133 17442
==========================================================================================================================
CALCULATING YOUR ONGOING FUND EXPENSES AIM V.I. SMALL CAP GROWTH FUND
EXAMPLE ACTUAL EXPENSES expenses, which is not the Fund's
actual return. The Fund's actual
As a shareholder of the Fund, you The table below provides cumulative total returns at net
incur ongoing costs, including information about actual account asset value after expenses for the
management fees; distribution values and actual expenses. You may six months ended December 31, 2006,
and/or service (12b-1) fees; and use the information in this table, appear in the table "Cumulative
other Fund expenses. This example together with the amount you Total Returns" on page 4.
is intended to help you understand invested, to estimate the expenses
your ongoing costs (in dollars) of that you paid over the period. The hypothetical account values
investing in the Fund and to Simply divide your account value by and expenses may not be used to
compare these costs with ongoing $1,000 (for example, an $8,600 estimate the actual ending account
costs of investing in other mutual account value divided by $1,000 = balance or expenses you paid for
funds. The example is based on an 8.6), then multiply the result by the period. You may use this
investment of $1,000 invested at the number in the table under the information to compare the ongoing
the beginning of the period and heading entitled "Actual Expenses costs of investing in the Fund and
held for the entire period July 1, Paid During Period" to estimate the other funds. To do so, compare this
2006, through December 31, 2006. expenses you paid on your account 5% hypothetical example with the 5%
during this period. hypothetical examples that appear
The actual and hypothetical in the shareholder reports of the
expenses in the examples below do other funds.
not represent the effect of any HYPOTHETICAL EXAMPLE FOR COMPARISON
fees or other expenses assessed in PURPOSES Please note that the expenses
connection with a variable product; shown in the table are meant to
if they did, the expenses shown The table below also provides highlight your ongoing costs.
would be higher while the ending information about hypothetical Therefore, the hypothetical
account values shown would be account values and hypothetical information is useful in comparing
lower. expenses based on the Fund's actual ongoing costs, and will not help
expense ratio and an assumed rate you determine the relative total
of return of 5% per year before costs of owning different funds.
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (7/1/06) (12/31/06)(1) PERIOD(2) (12/31/06) PERIOD(2) RATIO
- -------------------------------------------------------------------------------------------------------------------
Series I $1,000.00 $1,071.80 $ 6.32 $1,019.11 $ 6.16 1.21%
Series II 1,000.00 1,070.40 7.62 1,017.85 7.43 1.46
===================================================================================================================
(1) The actual ending account value is based on the actual total return of the
Fund for the period July 1, 2006, through December 31, 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 December 31, 2006, appear in
the table "Cumulative Total Returns" on page 4.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above
multiplied by the average account value over the period, multiplied by
184/365 to reflect the most recent fiscal half year.
6
APPROVAL OF INVESTMENT ADVISORY AGREEMENT AIM V.I. SMALL CAP GROWTH FUND
The Board of Trustees of AIM - The nature and extent of the early results but need more time to
Variable Insurance Funds (the advisory services to be provided by be evaluated before a conclusion
"Board") oversees the management of AIM. The Board reviewed the can be made that the changes have
AIM V.I. Small Cap Growth Fund services to be provided by AIM addressed the Fund's under-performance.
(formerly named "AIM V.I. Small under the Advisory Agreement. Based Based on this review and after taking
Company Growth Fund") (the "Fund") on such review, the Board concluded account of all of the other factors
and, as required by law, determines that the range of services to be that the Board considered in determining
annually whether to approve the provided by AIM under the Advisory whether to continue the Advisory
continuance of the Fund's advisory Agreement was appropriate and that Agreement for the Fund, the Board
agreement with A I M Advisors, Inc. AIM currently is providing services concluded that no changes should be
("AIM"). Based upon the in accordance with the terms of the made to the Fund and that it was
recommendation of the Investments Advisory Agreement. not necessary to change the Fund's
Committee of the Board, at a portfolio management team at this
meeting held on June 27, 2006, the - The quality of services to be time. Although the independent
Board, including all of the provided by AIM. The Board reviewed written evaluation of the Fund's
independent trustees, approved the the credentials and experience of Senior Officer (discussed below)
continuance of the advisory the officers and employees of AIM only considered Fund performance
agreement (the "Advisory who will provide investment through the most recent calendar
Agreement") between the Fund and advisory services to the Fund. In year, the Board also reviewed more
AIM for another year, effective reviewing the qualifications of AIM recent Fund performance, which did
July 1, 2006. to provide investment advisory not change their conclusions.
services, the Board considered such
The Board considered the factors issues as AIM's portfolio and - Meetings with the Fund's portfolio
discussed below in evaluating the product review process, various managers and investment personnel.
fairness and reasonableness of the back office support functions With respect to the Fund, the Board
Advisory Agreement at the meeting provided by AIM and AIM's equity is meeting periodically with such
on June 27, 2006 and as part of the and fixed income trading Fund's portfolio managers and/or
Board's ongoing oversight of the operations. Based on the review of other investment personnel and
Fund. In their deliberations, the these and other factors, the Board believes that such individuals are
Board and the independent trustees concluded that the quality of competent and able to continue to
did not identify any particular services to be provided by AIM was carry out their responsibilities
factor that was controlling, and appropriate and that AIM currently under the Advisory Agreement.
each trustee attributed different is providing satisfactory services
weights to the various factors. in accordance with the terms of the - Overall performance of AIM. The
Advisory Agreement. Board considered the overall
One responsibility of the performance of AIM in providing
independent Senior Officer of the - The performance of the Fund investment advisory and portfolio
Fund is to manage the process by relative to comparable funds. The administrative services to the Fund
which the Fund's proposed Board reviewed the performance of and concluded that such performance
management fees are negotiated to the Fund during the past one, three was satisfactory.
ensure that they are negotiated in and five calendar years against the
a manner which is at arms' length performance of funds advised by - Fees relative to those of clients
and reasonable. To that end, the other advisors with investment of AIM with comparable investment
Senior Officer must either strategies comparable to those of strategies. The Board reviewed the
supervise a competitive bidding the Fund. The Board noted that the effective advisory fee rate (before
process or prepare an independent Fund's performance in such periods waivers) for the Fund under the
written evaluation. The Senior was below the median performance of Advisory Agreement. The Board noted
Officer has recommended an such comparable funds. The Board that this rate was (i) above the
independent written evaluation in also noted that AIM began serving effective advisory fee rate (before
lieu of a competitive bidding as investment advisor to the Fund waivers) for a mutual fund advised
process and, upon the direction of in April 2004. The Board noted that by AIM with investment strategies
the Board, has prepared such an AIM has recently made changes to comparable to those of the Fund;
independent written evaluation. the Fund's portfolio management and (ii) above the effective
Such written evaluation also team, which appear to be producing sub-advisory fee rates for four
considered certain of the factors encouraging early results but need variable insurance funds
discussed below. In addition, as more time to be evaluated before a sub-advised by an AIM affiliate and
discussed below, the Senior Officer conclusion can be made that the offered to insurance company
made a recommendation to the Board changes have addressed the Fund's separate accounts with investment
in connection with such written under-performance. Based on this strategies comparable to those of
evaluation. review and after taking account of the Fund, although the total
all of the other factors that the advisory fees for such variable
The discussion below serves as a Board considered in determining insurance funds were above those
summary of the Senior Officer's whether to continue the Advisory for the Fund. The Board noted that
independent written evaluation and Agreement for the Fund, the Board AIM has agreed to waive advisory
recommendation to the Board in concluded that no changes should be fees of the Fund and to limit the
connection therewith, as well as a made to the Fund and that it was Fund's total operating expenses, as
discussion of the material factors not necessary to change the Fund's discussed below. Based on this
and the conclusions with respect portfolio management team at this review, the Board concluded that
thereto that formed the basis for time. Although the independent the advisory fee rate for the Fund
the Board's approval of the written evaluation of the Fund's under the Advisory Agreement was
Advisory Agreement. After Senior Officer (discussed below) fair and reasonable.
consideration of all of the factors only considered Fund performance
below and based on its informed through the most recent calendar - Fees relative to those of
business judgment, the Board year, the Board also reviewed more comparable funds with other
determined that the Advisory recent Fund performance, which did advisors. The Board reviewed the
Agreement is in the best interests not change their conclusions. advisory fee rate for the Fund
of the Fund and its shareholders under the Advisory Agreement. The
and that the compensation to AIM - The performance of the Fund Board compared effective
under the Advisory Agreement is relative to indices. The Board contractual advisory fee rates at a
fair and reasonable and would have reviewed the performance of the common asset level at the end of
been obtained through arm's length Fund during the past one, three and the past calendar year and noted
negotiations. five calendar years against the that the Fund's rate was below the
performance of the Lipper Variable median rate of the funds advised by
Unless otherwise stated, Underlying Fund Small-Cap Growth other advisors with investment
information presented below is as Index. The Board noted that the strategies comparable to those of
of June 27, 2006 and does not Fund's performance in such periods the Fund that the Board reviewed.
reflect any changes that may have was below the performance of such The Board noted that AIM has agreed
occurred since June 27, 2006, Index. The Board also noted that to waive advisory fees of the Fund
including but not limited to AIM began serving as investment and to limit the Fund's total
changes to the Fund's performance, advisor to the Fund in April 2004. operating expenses, as discussed
advisory fees, expense limitations The Board noted that AIM has below. Based on this review, the
and/or fee waivers. recently made changes to the Fund's Board concluded that the advisory
portfolio management team, which fee rate for the Fund under the
appear to be producing encouraging
7
AIM V.I. SMALL CAP GROWTH FUND
Advisory Agreement was fair and advised by AIM pursuant to the Advisory Agreement was not
reasonable. terms of an SEC exemptive order. excessive.
The Board found that the Fund may
- - Expense limitations and fee realize certain benefits upon - Benefits of soft dollars to AIM.
waivers. The Board noted that AIM investing cash balances in AIM The Board considered the benefits
has contractually agreed to waive advised money market funds, realized by AIM as a result of
advisory fees of the Fund through including a higher net return, brokerage transactions executed
April 30, 2008 to the extent increased liquidity, increased through "soft dollar" arrangements.
necessary so that the advisory fees diversification or decreased Under these arrangements, brokerage
payable by the Fund do not exceed a transaction costs. The Board also commissions paid by the Fund and/or
specified maximum advisory fee found that the Fund will not other funds advised by AIM are used
rate, which maximum rate includes receive reduced services if it to pay for research and execution
breakpoints and is based on net invests its cash balances in such services. This research may be used
asset levels. The Board considered money market funds. The Board noted by AIM in making investment
the contractual nature of this fee that, to the extent the Fund decisions for the Fund. The Board
waiver and noted that it remains in invests uninvested cash in concluded that such arrangements
effect until April 30, 2008. The affiliated money market funds, AIM were appropriate.
Board noted that AIM has has voluntarily agreed to waive a
contractually agreed to waive fees portion of the advisory fees it - AIM's financial soundness in light
and/or limit expenses of the Fund receives from the Fund attributable of the Fund's needs. The Board
through April 30, 2008 in an amount to such investment. The Board considered whether AIM is
necessary to limit total annual further determined that the financially sound and has the
operating expenses to a specified proposed securities lending program resources necessary to perform its
percentage of average daily net and related procedures with respect obligations under the Advisory
assets for each class of the Fund. to the lending Fund is in the best Agreement, and concluded that AIM
The Board considered the interests of the lending Fund and has the financial resources
contractual nature of this fee its respective shareholders. The necessary to fulfill its
waiver/expense limitation and noted Board therefore concluded that the obligations under the Advisory
that it remains in effect until investment of cash collateral Agreement.
April 30, 2008. The Board received in connection with the
considered the effect these fee securities lending program in the - Historical relationship between
waivers/expense limitations would money market funds according to the the Fund and AIM. In determining
have on the Fund's estimated procedures is in the best interests whether to continue the Advisory
expenses and concluded that the of the lending Fund and its Agreement for the Fund, the Board
levels of fee waivers/expense respective shareholders. also considered the prior
limitations for the Fund were fair relationship between AIM and the
and reasonable. - Independent written evaluation and Fund, as well as the Board's
recommendations of the Fund's knowledge of AIM's operations, and
- - Breakpoints and economies of Senior Officer. The Board noted concluded that it was beneficial to
scale. The Board reviewed the that, upon their direction, the maintain the current relationship,
structure of the Fund's advisory Senior Officer of the Fund, who is in part, because of such knowledge.
fee under the Advisory Agreement, independent of AIM and AIM's The Board also reviewed the general
noting that it does not include any affiliates, had prepared an nature of the non-investment
breakpoints. The Board considered independent written evaluation in advisory services currently
whether it would be appropriate to order to assist the Board in performed by AIM and its
add advisory fee breakpoints for determining the reasonableness of affiliates, such as administrative,
the Fund or whether, due to the the proposed management fees of the transfer agency and distribution
nature of the Fund and the advisory AIM Funds, including the Fund. The services, and the fees received by
fee structures of comparable funds, Board noted that the Senior AIM and its affiliates for
it was reasonable to structure the Officer's written evaluation had performing such services. In
advisory fee without breakpoints. been relied upon by the Board in addition to reviewing such
Based on this review, the Board this regard in lieu of a services, the trustees also
concluded that it was not necessary competitive bidding process. In considered the organizational
to add advi sory fee breakpoints to determining whether to continue the structure employed by AIM and its
the Fund's advisory fee schedule. Advisory Agreement for the Fund, affiliates to provide those
The Board reviewed the level of the the Board considered the Senior services. Based on the review of
Fund's advisory fees, and noted Officer's written evaluation and these and other factors, the Board
that such fees, as a percentage of the recommendation made by the concluded that AIM and its
the Fund's net assets, would remain Senior Officer to the Board that affiliates were qualified to
constant under the Advisory the Board consider whether the continue to provide non-investment
Agreement because the Advisory advisory fee waivers for certain advisory services to the Fund,
Agreement does not include any equity AIM Funds, including the including administrative, transfer
breakpoints. The Board noted that Fund, should be simplified. The agency and distribution services,
AIM has contractually agreed to Board concluded that it would be and that AIM and its affiliates
waive advisory fees of the Fund advisable to consider this issue currently are providing
through April 30, 2008 to the and reach a decision prior to the satisfactory non-investment
extent necessary so that the expiration date of such advisory advisory services.
advisory fees payable by the Fund fee waivers.
do not exceed a specified maximum - Other factors and current trends.
advisory fee rate, which maximum - Profitability of AIM and its The Board considered the steps that
rate includes breakpoints and is affiliates. The Board reviewed AIM and its affiliates have taken
based on net asset levels. The information concerning the over the last several years, and
Board concluded that the Fund's fee profitability of AIM's (and its continue to take, in order to
levels under the Advisory Agreement affiliates') investment advisory improve the quality and efficiency
therefore would not reflect and other activities and its of the services they provide to the
economies of scale, although the financial condition. The Board Funds in the areas of investment
advisory fee waiver reflects considered the overall performance, product line
economies of scale. profitability of AIM, as well as diversification, distribution, fund
the profitability of AIM in operations, shareholder services
- - Investments in affiliated money connection with managing the Fund. and compliance. The Board concluded
market funds. The Board also took The Board noted that AIM's that these steps taken by AIM have
into account the fact that operations remain profitable, improved, and are likely to
uninvested cash and cash collateral although increased expenses in continue to improve, the quality
from securities lending recent years have reduced AIM's and efficiency of the services AIM
arrangements, if any (collectively, profitability. Based on the review and its affiliates provide to the
"cash balances") of the Fund may be of the profitability of AIM's and Fund in each of these areas, and
invested in money market funds its affiliates' investment advisory support the Board's approval of the
and other activities and its continuance of the Advisory
financial condition, the Board Agreement for the Fund.
concluded that the compensation to
be paid by the Fund to AIM under
its
8
AIM V.I. Small Cap Growth Fund
SCHEDULE OF INVESTMENTS
December 31, 2006
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------
COMMON STOCKS & OTHER EQUITY INTERESTS-98.07%
AEROSPACE & DEFENSE-1.24%
Ceradyne, Inc.(a) 2,698 $ 152,437
- --------------------------------------------------------------------
United Industrial Corp. 1,805 91,604
====================================================================
244,041
====================================================================
AIR FREIGHT & LOGISTICS-1.33%
Forward Air Corp. 4,429 128,131
- --------------------------------------------------------------------
Hub Group, Inc.-Class A(a) 4,895 134,857
====================================================================
262,988
====================================================================
APPAREL RETAIL-4.78%
bebe stores, inc. 6,368 126,023
- --------------------------------------------------------------------
Charlotte Russe Holding Inc.(a) 3,016 92,742
- --------------------------------------------------------------------
Children's Place Retail Stores, Inc. (The)(a) 2,378 151,051
- --------------------------------------------------------------------
DSW Inc.-Class A(a) 5,141 198,288
- --------------------------------------------------------------------
Hot Topic, Inc.(a) 14,456 192,843
- --------------------------------------------------------------------
Zumiez Inc.(a) 6,132 181,139
====================================================================
942,086
====================================================================
APPAREL, ACCESSORIES & LUXURY GOODS-0.73%
Warnaco Group, Inc. (The)(a) 5,668 143,854
====================================================================
APPLICATION SOFTWARE-4.66%
ANSYS, Inc.(a) 3,466 150,736
- --------------------------------------------------------------------
Blackboard Inc.(a) 6,017 180,751
- --------------------------------------------------------------------
Epicor Software Corp.(a) 3,052 41,232
- --------------------------------------------------------------------
Informatica Corp.(a) 16,498 201,441
- --------------------------------------------------------------------
Kronos Inc.(a) 4,024 147,842
- --------------------------------------------------------------------
MicroStrategy Inc.-Class A(a) 1,733 197,579
====================================================================
919,581
====================================================================
ASSET MANAGEMENT & CUSTODY BANKS-1.15%
Affiliated Managers Group, Inc.(a) 2,150 226,030
====================================================================
BIOTECHNOLOGY-2.78%
Alkermes, Inc.(a) 6,195 82,827
- --------------------------------------------------------------------
CV Therapeutics, Inc.(a) 4,515 63,030
- --------------------------------------------------------------------
Human Genome Sciences, Inc.(a) 7,005 87,142
- --------------------------------------------------------------------
Myriad Genetics, Inc.(a) 4,450 139,285
- --------------------------------------------------------------------
United Therapeutics Corp.(a) 3,230 175,615
====================================================================
547,899
====================================================================
CATALOG RETAIL-0.71%
Coldwater Creek Inc.(a) 5,720 140,254
====================================================================
COMMUNICATIONS EQUIPMENT-4.11%
F5 Networks, Inc.(a) 3,126 231,981
- --------------------------------------------------------------------
NETGEAR, Inc.(a) 7,079 185,824
- --------------------------------------------------------------------
</Table>
<Table>
SHARES VALUE
- --------------------------------------------------------------------
<Caption>
COMMUNICATIONS EQUIPMENT-(CONTINUED)
NICE Systems Ltd.-ADR (Israel)(a) 5,130 $ 157,901
- --------------------------------------------------------------------
Polycom, Inc.(a) 7,576 234,174
====================================================================
809,880
====================================================================
COMPUTER STORAGE & PERIPHERALS-0.96%
Emulex Corp.(a) 9,680 188,857
====================================================================
CONSTRUCTION & FARM MACHINERY & HEAVY
TRUCKS-0.85%
Bucyrus International, Inc.-Class A 3,244 167,909
====================================================================
CONSTRUCTION MATERIALS-0.74%
Eagle Materials Inc. 3,389 146,506
====================================================================
DATA PROCESSING & OUTSOURCED SERVICES-1.53%
Euronet Worldwide, Inc.(a) 6,355 188,680
- --------------------------------------------------------------------
Global Payments Inc. 2,437 112,833
====================================================================
301,513
====================================================================
DIVERSIFIED COMMERCIAL & PROFESSIONAL
SERVICES-2.05%
Advisory Board Co. (The)(a) 1,789 95,783
- --------------------------------------------------------------------
CoStar Group Inc.(a) 2,766 148,147
- --------------------------------------------------------------------
Pike Electric Corp.(a) 9,796 159,969
====================================================================
403,899
====================================================================
DRUG RETAIL-0.79%
Longs Drug Stores Corp. 3,663 155,238
====================================================================
ELECTRIC UTILITIES-0.51%
ITC Holdings Corp. 2,518 100,468
====================================================================
ELECTRICAL COMPONENTS & EQUIPMENT-4.03%
Acuity Brands, Inc. 3,830 199,313
- --------------------------------------------------------------------
General Cable Corp.(a) 5,299 231,619
- --------------------------------------------------------------------
Regal-Beloit Corp. 3,507 184,153
- --------------------------------------------------------------------
Thomas & Betts Corp.(a) 3,825 180,846
====================================================================
795,931
====================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-2.37%
Aeroflex Inc.(a) 13,195 154,645
- --------------------------------------------------------------------
Cogent Inc.(a) 5,592 61,568
- --------------------------------------------------------------------
Coherent, Inc.(a) 4,876 153,935
- --------------------------------------------------------------------
Orbotech, Ltd. (Israel)(a) 3,815 97,054
====================================================================
467,202
====================================================================
ELECTRONIC MANUFACTURING SERVICES-1.01%
Trimble Navigation Ltd.(a) 3,915 198,608
====================================================================
</Table>
AIM V.I. Small Cap Growth Fund
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------
FOOD DISTRIBUTORS-0.76%
Performance Food Group Co.(a) 5,432 $ 150,140
====================================================================
HEALTH CARE EQUIPMENT-5.39%
American Medical Systems Holdings, Inc.(a) 8,669 160,550
- --------------------------------------------------------------------
Home Diagnostics Inc.(a) 5,028 53,297
- --------------------------------------------------------------------
Integra LifeSciences Holdings(a) 3,856 164,227
- --------------------------------------------------------------------
Kyphon Inc.(a) 2,891 116,796
- --------------------------------------------------------------------
Mentor Corp. 3,120 152,474
- --------------------------------------------------------------------
NuVasive, Inc.(a) 7,339 169,531
- --------------------------------------------------------------------
Palomar Medical Technologies, Inc.(a) 754 38,205
- --------------------------------------------------------------------
Wright Medical Group, Inc.(a) 8,924 207,751
====================================================================
1,062,831
====================================================================
HEALTH CARE FACILITIES-2.43%
Genesis HealthCare Corp.(a) 3,386 159,921
- --------------------------------------------------------------------
LifePoint Hospitals, Inc.(a) 4,264 143,697
- --------------------------------------------------------------------
VCA Antech, Inc.(a) 5,438 175,049
====================================================================
478,667
====================================================================
HEALTH CARE SERVICES-1.57%
inVentiv Health Inc.(a) 4,458 157,591
- --------------------------------------------------------------------
Pediatrix Medical Group, Inc.(a) 3,098 151,492
====================================================================
309,083
====================================================================
HEALTH CARE SUPPLIES-0.73%
Gen-Probe Inc.(a) 2,749 143,965
====================================================================
HEALTH CARE TECHNOLOGY-1.75%
Allscripts Healthcare Solutions, Inc.(a) 6,797 183,451
- --------------------------------------------------------------------
Eclipsys Corp.(a) 7,900 162,424
====================================================================
345,875
====================================================================
HOME ENTERTAINMENT SOFTWARE-1.41%
THQ Inc.(a) 8,574 278,826
====================================================================
HOME FURNISHINGS-1.04%
Tempur-Pedic International Inc.(a) 10,043 205,480
====================================================================
HOTELS, RESORTS & CRUISE LINES-1.12%
Choice Hotels International, Inc. 2,967 124,911
- --------------------------------------------------------------------
Four Seasons Hotels Inc. (Canada) 1,169 95,846
====================================================================
220,757
====================================================================
HOUSEHOLD PRODUCTS-0.94%
Church & Dwight Co., Inc. 4,352 185,613
====================================================================
HUMAN RESOURCE & EMPLOYMENT SERVICES-0.96%
Korn/Ferry International(a) 8,216 188,639
====================================================================
INDUSTRIAL MACHINERY-0.62%
Actuant Corp.-Class A 2,571 122,508
====================================================================
INSURANCE BROKERS-0.72%
National Financial Partners Corp. 3,225 141,803
====================================================================
</Table>
<Table>
SHARES VALUE
- --------------------------------------------------------------------
<Caption>
INTEGRATED TELECOMMUNICATION SERVICES-0.83%
NeuStar, Inc.-Class A(a) 5,066 $ 164,341
====================================================================
INTERNET RETAIL-0.32%
Shutterfly, Inc.(a) 4,457 64,181
====================================================================
INTERNET SOFTWARE & SERVICES-2.14%
aQuantive, Inc.(a) 6,791 167,466
- --------------------------------------------------------------------
DealerTrack Holdings Inc.(a) 4,022 118,327
- --------------------------------------------------------------------
ValueClick, Inc.(a) 5,739 135,613
====================================================================
421,406
====================================================================
INVESTMENT BANKING & BROKERAGE-0.91%
Greenhill & Co., Inc. 2,433 179,555
====================================================================
IT CONSULTING & OTHER SERVICES-0.72%
MPS Group, Inc.(a) 9,974 141,431
====================================================================
LEISURE PRODUCTS-0.74%
Marvel Entertainment, Inc.(a) 5,412 145,637
====================================================================
LIFE SCIENCES TOOLS & SERVICES-2.89%
Millipore Corp.(a) 2,199 146,453
- --------------------------------------------------------------------
Nektar Therapeutics(a) 5,726 87,093
- --------------------------------------------------------------------
PAREXEL International Corp.(a) 4,735 137,173
- --------------------------------------------------------------------
Varian Inc.(a) 4,473 200,346
====================================================================
571,065
====================================================================
MANAGED HEALTH CARE-0.67%
Magellan Health Services, Inc.(a) 3,059 132,210
====================================================================
MULTI-LINE INSURANCE-0.94%
HCC Insurance Holdings, Inc. 5,812 186,507
====================================================================
OFFICE REIT'S-0.71%
BioMed Realty Trust, Inc. 4,885 139,711
====================================================================
OIL & GAS DRILLING-0.85%
Unit Corp.(a) 3,482 168,703
====================================================================
OIL & GAS EQUIPMENT & SERVICES-4.99%
Core Laboratories N.V. (Netherlands)(a) 2,834 229,554
- --------------------------------------------------------------------
Dril-Quip, Inc.(a) 3,558 139,331
- --------------------------------------------------------------------
FMC Technologies, Inc.(a) 2,147 132,320
- --------------------------------------------------------------------
Hydril(a) 2,519 189,404
- --------------------------------------------------------------------
Input/Output, Inc.(a) 9,255 126,146
- --------------------------------------------------------------------
Superior Energy Services, Inc.(a) 5,108 166,929
====================================================================
983,684
====================================================================
OIL & GAS EXPLORATION & PRODUCTION-2.46%
Bill Barrett Corp.(a) 6,054 164,729
- --------------------------------------------------------------------
Range Resources Corp. 5,786 158,884
- --------------------------------------------------------------------
Whiting Petroleum Corp.(a) 3,492 162,727
====================================================================
486,340
====================================================================
</Table>
AIM V.I. Small Cap Growth Fund
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------
PHARMACEUTICALS-2.87%
Medicines Co. (The)(a) 5,212 $ 165,325
- --------------------------------------------------------------------
Medicis Pharmaceutical Corp.-Class A 6,031 211,869
- --------------------------------------------------------------------
Santarus Inc.(a) 8,063 63,133
- --------------------------------------------------------------------
Sciele Pharma, Inc.(a) 5,235 125,640
====================================================================
565,967
====================================================================
PROPERTY & CASUALTY INSURANCE-0.74%
ProAssurance Corp.(a) 2,910 145,267
====================================================================
REGIONAL BANKS-3.02%
East West Bancorp, Inc. 2,241 79,376
- --------------------------------------------------------------------
PrivateBancorp, Inc. 2,644 110,070
- --------------------------------------------------------------------
SVB Financial Group(a) 3,226 150,396
- --------------------------------------------------------------------
Texas Capital Bancshares, Inc.(a) 5,066 100,712
- --------------------------------------------------------------------
UCBH Holdings, Inc. 5,513 96,809
- --------------------------------------------------------------------
Virginia Commerce Bancorp, Inc.(a) 2,981 59,262
====================================================================
596,625
====================================================================
RESTAURANTS-3.40%
Applebee's International, Inc. 7,125 175,774
- --------------------------------------------------------------------
Jack in the Box Inc.(a) 3,380 206,315
- --------------------------------------------------------------------
P.F. Chang's China Bistro, Inc.(a) 3,341 128,227
- --------------------------------------------------------------------
RARE Hospitality International, Inc.(a) 4,861 160,073
====================================================================
670,389
====================================================================
SEMICONDUCTOR EQUIPMENT-2.93%
FormFactor Inc.(a) 4,059 151,198
- --------------------------------------------------------------------
Tessera Technologies Inc.(a) 5,037 203,192
- --------------------------------------------------------------------
Varian Semiconductor Equipment Associates,
Inc.(a) 4,898 222,957
====================================================================
577,347
====================================================================
SEMICONDUCTORS-3.56%
Cirrus Logic, Inc.(a) 17,724 121,941
- --------------------------------------------------------------------
Microsemi Corp.(a) 7,062 138,768
- --------------------------------------------------------------------
Power Integrations, Inc.(a) 6,032 141,450
- --------------------------------------------------------------------
</Table>
<Table>
SHARES VALUE
- --------------------------------------------------------------------
<Caption>
SEMICONDUCTORS-(CONTINUED)
Silicon Laboratories Inc.(a) 4,353 $ 150,832
- --------------------------------------------------------------------
SiRF Technology Holdings, Inc.(a) 5,859 149,522
====================================================================
702,513
====================================================================
SPECIALIZED CONSUMER SERVICES-0.94%
Jackson Hewitt Tax Service Inc. 5,474 185,952
====================================================================
SPECIALTY STORES-0.89%
Dick's Sporting Goods, Inc.(a) 3,590 175,874
====================================================================
STEEL-0.91%
Carpenter Technology Corp. 1,759 180,333
====================================================================
SYSTEMS SOFTWARE-0.80%
MICROS Systems, Inc.(a) 2,997 157,942
====================================================================
TRADING COMPANIES & DISTRIBUTORS-1.27%
TransDigm Group, Inc.(a) 4,642 123,060
- --------------------------------------------------------------------
WESCO International, Inc.(a) 2,172 127,735
====================================================================
250,795
====================================================================
TRUCKING-0.68%
Swift Transportation Co., Inc.(a) 5,118 134,450
====================================================================
WIRELESS TELECOMMUNICATION SERVICES-1.12%
SBA Communications Corp.-Class A(a) 8,020 220,550
====================================================================
Total Common Stocks & Other Equity
Interests (Cost $17,612,181) 19,345,706
====================================================================
MONEY MARKET FUNDS-1.34%
Liquid Assets Portfolio-Institutional
Class(b) 132,413 132,413
- --------------------------------------------------------------------
Premier Portfolio-Institutional Class(b) 132,414 132,414
====================================================================
Total Money Market Funds (Cost $264,827) 264,827
====================================================================
TOTAL INVESTMENTS-99.41% (Cost $17,877,008) 19,610,533
====================================================================
OTHER ASSETS LESS LIABILITIES-0.59% 115,563
====================================================================
NET ASSETS-100.00% $19,726,096
____________________________________________________________________
====================================================================
</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) 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 Growth Fund
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2006
<Table>
ASSETS:
Investments, at value (cost $17,612,181) $19,345,706
- ------------------------------------------------------------
Investments in affiliated money market funds
(cost $264,827) 264,827
============================================================
Total investments (cost $17,877,008) 19,610,533
============================================================
Receivables for:
Investments sold 141,652
- ------------------------------------------------------------
Fund shares sold 20,623
- ------------------------------------------------------------
Dividends 8,853
- ------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 10,346
============================================================
Total assets 19,792,007
____________________________________________________________
============================================================
LIABILITIES:
Payables for:
Fund shares reacquired 2,957
- ------------------------------------------------------------
Trustee deferred compensation and retirement
plans 11,753
- ------------------------------------------------------------
Fund expenses advanced 5,967
- ------------------------------------------------------------
Accrued administrative services fees 12,056
- ------------------------------------------------------------
Accrued distribution fees-Series II 76
- ------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 3,264
- ------------------------------------------------------------
Accrued transfer agent fees 735
- ------------------------------------------------------------
Accrued operating expenses 29,103
============================================================
Total liabilities 65,911
============================================================
Net assets applicable to shares outstanding $19,726,096
____________________________________________________________
============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $15,012,899
- ------------------------------------------------------------
Undistributed net investment income (loss) (8,713)
- ------------------------------------------------------------
Undistributed net realized gain from investment
securities 2,988,385
- ------------------------------------------------------------
Unrealized appreciation of investment
securities 1,733,525
============================================================
19,726,096
____________________________________________________________
============================================================
NET ASSETS:
Series I $19,599,610
____________________________________________________________
============================================================
Series II $ 126,486
____________________________________________________________
============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 1,059,657
____________________________________________________________
============================================================
Series II 6,874
____________________________________________________________
============================================================
Series I:
Net asset value per share $ 18.50
____________________________________________________________
============================================================
Series II:
Net asset value per share $ 18.40
____________________________________________________________
============================================================
</Table>
STATEMENT OF OPERATIONS
For the year ended December 31, 2006
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of
$547) $ 66,506
- ------------------------------------------------------------
Dividends from affiliated money market funds
(includes securities lending income of $3,534) 47,191
============================================================
Total investment income 113,697
============================================================
EXPENSES:
Advisory fees 205,848
- ------------------------------------------------------------
Administrative services fees 118,228
- ------------------------------------------------------------
Custodian fees 16,962
- ------------------------------------------------------------
Distribution fees-Series II 235
- ------------------------------------------------------------
Transfer agent fees 8,712
- ------------------------------------------------------------
Trustees' and officer's fees and benefits 15,628
- ------------------------------------------------------------
Professional services fees 44,542
- ------------------------------------------------------------
Other 12,372
============================================================
Total expenses 422,527
============================================================
Less: Fees waived and expense offset
arrangements (93,427)
============================================================
Net expenses 329,100
============================================================
Net investment income (loss) (215,403)
============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES:
Net realized gain from investment securities
(includes net gains from securities sold to
affiliates of $632,437) 3,616,920
- ------------------------------------------------------------
Change in net unrealized appreciation
(depreciation) of investment securities (442,945)
============================================================
Net gain from investment securities 3,173,975
============================================================
Net increase in net assets resulting from
operations $2,958,572
____________________________________________________________
============================================================
</Table>
See accompanying Notes to Financial Statements which are an integral part of the
financial statements.
AIM V.I. Small Cap Growth Fund
STATEMENT OF CHANGES IN NET ASSETS
For the years ended December 31, 2006 and 2005
<Table>
<Caption>
2006 2005
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (215,403) $ (297,030)
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities, futures
contracts and options contracts 3,616,920 4,994,360
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and options contracts (442,945) (2,857,252)
==========================================================================================
Net increase in net assets resulting from operations 2,958,572 1,840,078
==========================================================================================
Share transactions-net:
Series l (14,488,518) (18,504,692)
- ------------------------------------------------------------------------------------------
Series ll 103,617 1,095
==========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (14,384,901) (18,503,597)
==========================================================================================
Net increase (decrease) in net assets (11,426,329) (16,663,519)
==========================================================================================
NET ASSETS:
Beginning of year 31,152,425 47,815,944
==========================================================================================
End of year (including undistributed net investment income
(loss) of $(8,713) and $(5,973), respectively) $ 19,726,096 $ 31,152,425
__________________________________________________________________________________________
==========================================================================================
</Table>
NOTES TO FINANCIAL STATEMENTS
December 31, 2006
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
AIM V.I. Small Cap Growth Fund, formerly AIM V.I. Small Company Growth Fund,
(the "Fund") is a series portfolio of AIM Variable Insurance Funds (the
"Trust"). The Trust is a Delaware statutory trust registered under the
Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end
series management investment company consisting of twenty-one 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.
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 or official closing price as of the close of
the customary trading session on the exchange where the security is
principally traded, or lacking any sales or official closing price on a
particular day, the security may be valued at the closing bid price on that
day. Securities traded in the over-the-counter market 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. 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 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 open-end and closed-end registered
investment companies that trade on an exchange are valued at the last sales
price or official closing price as of the close of the customary trading
session on the exchange where the security is principally traded.
Debt obligations (including convertible bonds) and unlisted equities 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.
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. If market quotations are available and reliable for
foreign exchange traded equity securities, the securities will be valued at
the market quotations. Because trading hours for certain foreign securities
end before the close of the NYSE, closing market quotations may become
unreliable. If between the time trading ends on a particular security and
the close of the customary trading session on the NYSE, events occur that
are significant and may make the closing price unreliable, the Fund may
fair value the security. 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
AIM V.I. Small Cap Growth Fund
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 prices are not provided by any of the above
methods may be valued based upon quotes furnished by independent sources
and are valued at the last bid price in the case of equity securities and
in the case of debt obligations, the mean between the last bid and asked
prices.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
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 the 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 to distribute substantially all of the
Fund's taxable earnings to shareholders. As such, the Fund will not be
subject to federal income taxes on otherwise taxable income (including net
realized capital gain) that 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. ACCOUNTING ESTIMATES -- 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.
H. INDEMNIFICATIONS -- 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.
I. COVERED CALL OPTIONS -- The Fund may write call options. A call option
gives the purchaser of such option the right to buy, and the writer (the
Fund) the obligation to sell, the underlying security at the stated
exercise price during the option period. Written call options are recorded
as a liability in the Statement of Assets and Liabilities. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. 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. Realized gains and losses on these contracts
are included in the Statement of Operations. A risk in writing a call
option is that the Fund gives up the opportunity for profit if the market
price of the security increases and the option is exercised.
J. FUTURES CONTRACTS -- The Fund may purchase or sell futures contracts.
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
AIM V.I. Small Cap Growth Fund
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. Risks may exceed amounts recognized in the Statement of Assets
and Liabilities.
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.
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 at least 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. In
addition, the Fund will also benefit from a one time credit to be used to offset
future custodian expenses. These credits are used to pay certain expenses
incurred by the Fund.
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in
the amount of 25% of the advisory fee AIM receives from the affiliated money
market funds on investments by the Fund in such affiliated money market funds
(excluding investments made in affiliated money market funds with cash
collateral from securities loaned by the fund). Voluntary fee waivers or
reimbursements may be modified or discontinued at any time upon consultation
with the Board of Trustees without further notice to investors.
For the year ended December 31, 2006, AIM waived advisory fees of $92,451.
At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the year ended December 31, 2006, AMVESCAP did not
reimburse any such expenses.
The Trust has entered into a master administrative services agreement with
AIM pursuant to which the Fund 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. The
Fund may reimburse AIM for up to 0.25% of average daily assets invested by each
insurance company providing administrative services to the Fund. Pursuant to
such agreement, for the year ended December 31, 2006, AIM was paid $50,000 for
accounting and fund administrative services and reimbursed $68,228 for services
provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with AIM
Investment Services, Inc. ("AIS") pursuant to which the Fund has agreed to pay
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 year ended December 31, 2006, expenses incurred under the
agreement are shown in the Statement of Operations as transfer agent fees.
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 Plan payments, 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. For the year ended December 31, 2006, expenses
incurred under the Plan are shown in the Statement of Operations as distribution
fees.
Certain officers and trustees of the Trust are officers and directors of
AIM, AIS and/or ADI.
AIM V.I. Small Cap Growth Fund
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to 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 year ended
December 31, 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) 12/31/06 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ -- $ 2,892,223 $ (2,759,810) $ -- $132,413 $ 8,507 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
Premier
Portfolio-
Institutional
Class 1,615,213 15,135,578 (16,618,377) -- 132,414 35,150 --
==================================================================================================================================
Subtotal $1,615,213 $18,027,801 $(19,378,187) $ -- $264,827 $43,657 $ --
==================================================================================================================================
</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) 12/31/06 INCOME* GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Premier
Portfolio-
Institutional
Class $ 233,040 $13,402,831 $(13,635,871) $ -- $ -- $ 3,534 $ --
==================================================================================================================================
Total
Investments
in
Affiliates $1,848,253 $31,430,632 $(33,014,058) $ -- $264,827 $47,191 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</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 year ended December 31, 2006, the Fund
engaged in securities sales of $10,228,970, which resulted in net realized gains
of $632,437, and securities purchases of $422,578.
NOTE 5--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) custodian credits which
result from periodic overnight cash balances at the custodian and (ii) a one
time custodian fee credit to be used to offset future custodian fees. For the
year ended December 31, 2006, the Fund received credits from these arrangements,
which resulted in the reduction of the Fund's total expenses of $976.
NOTE 6--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to each Trustee and Officer of the Fund who is not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Fund, and "Trustees' and Officer's Fees and Benefits" also
include amounts accrued by the Fund to fund such deferred compensation amounts.
Those Trustees who defer compensation have the option to select various AIM
Funds in which their deferral accounts shall be deemed to be invested. Finally,
current Trustees are eligible to participate in a retirement plan that provides
for benefits to be paid upon retirement to Trustees over a period of time based
on the number of years of service. The Fund may have certain former Trustees who
also participate in a retirement plan and receive benefits under such plan.
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to fund such retirement benefits. Obligations under the deferred compensation
and retirement plans represent unsecured claims against the general assets of
the Fund.
During the year ended December 31, 2006, the Fund paid legal fees of $3,878
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the Securities and Exchange Commission, the
Fund may participate in an interfund lending facility that AIM has established
for temporary borrowings by the AIM Funds. An interfund loan will be made under
this facility only if the loan rate (an average of the rate available on bank
loans and the rate available on investments in overnight repurchase agreements)
is favorable to both the lending fund and the borrowing fund. A loan will be
secured by collateral if the Fund's aggregate borrowings from all sources
exceeds 10% of the Fund's total assets. To the extent that the loan is required
to be secured by collateral, the collateral is marked to market daily to ensure
that the market value is at least 102% of the outstanding principal value of the
loan.
AIM V.I. Small Cap Growth Fund
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended December 31, 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 bank 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 contractually agreed upon rate.
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 December 31, 2006, there were no securities on loan to brokers. For the
year ended December 31, 2006, the Fund received dividends on cash collateral
investments of $3,534 for securities lending transactions, which are net of
compensation to counterparties.
NOTE 9--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
There were no ordinary income or long-term capital gain distributions paid
during the years ended December 31, 2006 and 2005.
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2006, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2006
- ---------------------------------------------------------------------------
Undistributed ordinary income $ 1,633,466
- ---------------------------------------------------------------------------
Undistributed long-term gain 1,493,409
- ---------------------------------------------------------------------------
Unrealized appreciation - investments 1,595,035
- ---------------------------------------------------------------------------
Temporary book/tax differences (8,713)
- ---------------------------------------------------------------------------
Shares of beneficial interest 15,012,899
===========================================================================
Total net assets $19,726,096
___________________________________________________________________________
===========================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan benefits.
The Fund utilized $372,789 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund does not have a capital loss carryforward as of December 31, 2006.
AIM V.I. Small Cap Growth Fund
NOTE 10--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities,
U.S. Treasury obligations and money market funds, if any) purchased and sold by
the Fund during the year ended December 31, 2006 was $25,946,951 and
$38,942,741, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- ------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $2,432,269
- ------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (837,234)
==============================================================================
Net unrealized appreciation of investment securities $1,595,035
______________________________________________________________________________
==============================================================================
Cost of investments for tax purposes is $18,015,498.
</Table>
NOTE 11--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of net operating losses,
on December 31, 2006, undistributed net investment income (loss) was increased
by $212,663 and undistributed net realized gain was decreased by $212,663. This
reclassification had no effect on the net assets of the Fund.
NOTE 12--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
2006(A) 2005
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Series I 358,747 $ 6,241,274 513,619 $ 7,854,216
- ----------------------------------------------------------------------------------------------------------------------
Series II 6,535 112,043 68 1,095
======================================================================================================================
Reacquired:
Series I (1,219,978) (20,729,792) (1,694,646) (26,358,908)
- ----------------------------------------------------------------------------------------------------------------------
Series II (474) (8,426) -- --
======================================================================================================================
(855,170) $(14,384,901) (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 own 78% of
the outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with
these entities whereby these entities sell units of interest in separate
accounts funding variable products that are invested in the Fund. The
Fund, AIM, and/or AIM affiliates may make payments to these entities,
which are considered to be related to the Fund, for providing services
to the Fund, AIM and/or AIM affiliates including but not limited to
services such as, securities brokerage, third party record keeping and
account servicing and administrative services. The Trust has no
knowledge as to whether all or any portion of the shares owned of record
by these entities are also owned beneficially.
NOTE 13--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 for 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
currently intends for the Fund to adopt FIN 48 provisions during the fiscal year
ending December 31, 2007.
NOTE 14--SIGNIFICANT EVENT
The Board of Trustees of the Trust unanimously approved, on December 13, 2006, a
Plan of Reorganization pursuant to which the Fund would transfer all of its
assets to AIM V.I. Small Cap Equity Fund ("Buying Fund"), a series of the Trust
("the Reorganization"). Upon closing of the Reorganization, shareholders of the
Fund will receive a corresponding class of shares of Buying Fund in exchange for
their shares of the Fund, and the Fund will cease operations.
The Plan of Reorganization requires approval of the Fund's shareholders. The
Fund will submit the Plan of Reorganization to the shareholders for their
consideration at a meeting to be held on March 19, 2007. If approved by the
Fund's shareholders, the Reorganization is expected to be completed on or about
May 1, 2007.
AIM V.I. Small Cap Growth Fund
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
------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------
2006 2005 2004 2003 2002
- --------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 16.21 $ 15.41 $ 13.52 $ 10.14 $ 14.72
- --------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.14)(a) (0.11)(a) (0.14) (0.08) (0.00)(b)
- --------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 2.43 0.91 2.03 3.46 (4.58)
====================================================================================================================
Total from investment operations 2.29 0.80 1.89 3.38 (4.58)
====================================================================================================================
Net asset value, end of period $ 18.50 $ 16.21 $ 15.41 $ 13.52 $ 10.14
____________________________________________________________________________________________________________________
====================================================================================================================
Total return(c) 14.13% 5.19% 13.98% 33.33% (31.11)%
____________________________________________________________________________________________________________________
====================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $19,600 $31,139 $47,804 $49,598 $32,990
____________________________________________________________________________________________________________________
====================================================================================================================
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%
- --------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.54%(d) 1.39% 1.36% 1.30% 1.31%
====================================================================================================================
Ratio of net investment income (loss) to average net assets (0.78)%(d) (0.70)% (0.96)% (0.75)% (0.87)%
____________________________________________________________________________________________________________________
====================================================================================================================
Portfolio turnover rate 97% 203% 198% 133% 95%
____________________________________________________________________________________________________________________
====================================================================================================================
</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, 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) for the year ended December 31, 2002.
(c) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns do not reflect charges assessed
in connection with a variable product, which if included would reduce
total returns.
(d) Ratios are based on average daily net assets of $27,352,338.
<Table>
<Caption>
{SERIES II
-------------------------------------
APRIL 30, 2004
YEAR ENDED (DATE SALES
DECEMBER 31, COMMENCED) TO
------------------- 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) (0.18)(a) (0.14)(a) (0.10)
- ---------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 2.42 0.90 2.08
===================================================================================================
Total from investment operations 2.24 0.76 1.98
===================================================================================================
Net asset value, end of period $18.40 $16.16 $15.40
___________________________________________________________________________________________________
===================================================================================================
Total return(b) 13.86% 4.93% 14.75%
___________________________________________________________________________________________________
===================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 126 $ 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 1.79%(c) 1.64% 1.61%(d)
===================================================================================================
Ratio of net investment income (loss) to average net assets (1.03)%(c) (0.90)% (1.13)%(d)
___________________________________________________________________________________________________
===================================================================================================
Portfolio turnover rate(e) 97% 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 based on average daily net assets of $94,051.
(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 Growth Fund
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. 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 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; 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. On September 15, 2006, the
MDL Court granted the AMVESCAP defendants' motion to dismiss the Amended Class
Action Complaint for Violations of ERISA and dismissed such Complaint. The
plaintiff has commenced an appeal from that decision.
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.
AIM V.I. Small Cap Growth Fund
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V.I. Small Cap Growth Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM V.I. Small Cap Growth Fund,
formerly known as AIM V.I. Small Company Growth Fund, (one of the funds
constituting AIM Variable Insurance Funds, hereafter referred to as the "Fund")
at December 31, 2006, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended and
the financial highlights for the each of the periods indicated, in conformity
with accounting principles generally accepted in the United States of America.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at December 31, 2006 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
AS DESCRIBED IN NOTE 14, THE BOARD OF TRUSTEES HAS APPROVED A PLAN OF
REORGANIZATION UNDER WHICH THE FUND WILL MERGE WITH AIM V.I. SMALL CAP EQUITY
FUND. THIS MERGER IS EXPECTED TO TAKE PLACE FOLLOWING THE APPROVAL BY THE FUND'S
SHAREHOLDERS, AT WHICH TIME THE FUND WILL CEASE TO OPERATE.
PRICEWATERHOUSECOOPERS LLP
February 14, 2007
Houston, Texas
AIM V.I. Small Cap Growth Fund
TRUSTEES AND OFFICERS
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management None
Trustee and Vice Chair Group Inc. (financial services holding
company); Director and Vice Chairman,
AMVESCAP PLC; Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm) and
Trustee and Vice Chair of The AIM Family
of Funds--Registered Trademark--
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer);
Chief Executive Officer, AMVESCAP
PLC -- Managed Products; and President
and Principal Executive Officer of The
AIM Family of Funds--Registered
Trademark--
- -------------------------------------------------------------------------------------------------------------------------------
Philip A. Taylor(2) -- 1954 2006 Director, Chief Executive Officer and None
Trustee, President and President, A I M Management Group Inc.,
Principal AIM Mutual Fund Dealer Inc. (registered
Executive Officer broker dealer), AIM Funds Management
Inc. (registered investment advisor) and
1371 Preferred Inc. (holding company);
Director and President, A I M Advisors,
Inc., INVESCO Funds Group, Inc.
(registered investment advisor and
register transfer agent) and AIM GP
Canada Inc. (general partner for a
limited partnership); Director, A I M
Capital Management, Inc. and A I M
Distributors, Inc.; Director and
Chairman, AIM Investment Services, Inc.,
Fund Management Company and INVESCO
Distributors, Inc. (registered broker
dealer); Director, President and
Chairman, AVZ Callco Inc. (holding
company); AMVESCAP Inc. (holding
company) and AIM Canada Holdings Inc.
(holding company); Director and Chief
Executive Officer, AIM Trimark Corporate
Class Inc. (formerly AIM Trimark Global
Fund Inc.) (corporate mutual fund
company) and AIM Trimark Canada Fund
Inc. (corporate mutual fund company);
Trustee, President and Principal
Executive Officer of The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); Trustee and
Executive Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); and Manager,
Powershares Capital Management LLC
Formerly: President and Principal
Executive Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); Chairman, AIM
Canada Holdings, Inc.; Executive Vice
President and Chief Operations Officer,
AIM Funds Management Inc.; President,
AIM Trimark Global Fund Inc. and AIM
Trimark Canada Fund Inc.; and Director,
Trimark Trust (federally regulated
Canadian Trust Company)
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company
Formerly: Partner, law firm of Baker & (2 portfolios))
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Founder, Green, Manning & Bunch Ltd., None
Trustee (investment banking firm); and Director,
Policy Studies, Inc. and Van Gilder
Insurance Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and None
Trustee private business corporations, including
the Boss Group Ltd. (private investment
and management); Cortland Trust, Inc.
(Chairman) (registered investment
company (3 portfolios)); Annuity and
Life Re (Holdings), Ltd. (insurance
company); CompuDyne Corporation
(provider of products and services to
the public security market); and
Homeowners of America Holding
Corporation (property casualty company)
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and Director of various
affiliated Volvo companies; and
Director, Magellan Insurance Company
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund
company); and Owner, Dos Angelos Ranch, (non-profit)
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- -------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company
(3 portfolios))
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired Director, Mainstay VP Series
Trustee Formerly: Partner, Deloitte & Touche Funds, Inc. (21 portfolios)
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
(2) Mr. Taylor is considered an interested person of the Trust because he is an
officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
TRUSTEES AND OFFICERS--(CONTINUED)
AIM V.I. Small Cap Growth Fund
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Senior Vice President and Senior Officer N/A
Senior Vice President and of The AIM Family of Funds--Registered
Senior Officer Trademark--
Formerly: Director of Compliance and
Assistant General Counsel, ICON
Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
John M. Zerr -- 1962 2006 Director, Senior Vice President, N/A
Senior Vice President, Chief Secretary and General Counsel, A I M
Legal Officer and Secretary Management Group Inc. and A I M
Advisors, Inc.; Director, Vice President
and Secretary, INVESCO Distributors,
Inc.; Vice President and Secretary,
A I M Capital Management, Inc., AIM
Investment Services, Inc., and Fund
Management Company; Senior Vice
President and Secretary, A I M
Distributors, Inc.; Director and Vice
President, INVESCO Funds Group Inc.;
Senior Vice President, Chief Legal
Officer and Secretary of The AIM Family
of Funds--Registered Trademark--; and
Manager, Powershares Capital Management
LLC
Formerly: Chief Operating Officer,
Senior Vice President, General Counsel,
and Secretary, Liberty Ridge Capital,
Inc. (an investment adviser); Vice
President and Secretary, PBHG Funds (an
investment company); Vice President and
Secretary, PBHG Insurance Series Fund
(an investment company); General Counsel
and Secretary, Pilgrim Baxter Value
Investors (an investment adviser); Chief
Operating Officer, General Counsel and
Secretary, Old Mutual Investment
Partners (a broker-dealer); General
Counsel and Secretary, Old Mutual Fund
Services (an administrator); General
Counsel and Secretary, Old Mutual
Shareholder Services (a shareholder
servicing center); Executive Vice
President, General Counsel and
Secretary, Old Mutual Capital, Inc. (an
investment adviser); and Vice President
and Secretary, Old Mutual Advisors Funds
(an investment company)
- ------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Global Compliance Director, AMVESCAP N/A
Vice President PLC; and Vice President of The AIM
Family of Funds--Registered Trademark--
Formerly: Senior Vice President, A I M
Management Group Inc. (financial
services holding company); Senior Vice
President and Chief Compliance Officer,
A I M Advisors, Inc. and The AIM Family
of Funds--Registered Trademark--; Vice
President and Chief Compliance Officer,
A I M Capital Management, Inc. and A I M
Distributors, Inc.; Vice President, AIM
Investment Services, Inc. and Fund
Management Company; Senior Vice
President and Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; and Senior Vice President
and Compliance Director, Delaware
Investments Family of Funds
- ------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Senior Vice President and General
Vice President Counsel, AMVESCAP PLC; Director, INVESCO
Funds Group, Inc.; and Vice President of
The AIM Family of Funds--Registered
Trademark--
Formerly: Director, Vice President and N/A
General Counsel, Fund Management
Company; Director, Senior Vice
President, Secretary and General
Counsel, A I M Management Group Inc. and
A I M Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Senior Vice President, A I M
Distributors, Inc.; Vice President,
A I M Capital Management, Inc. and AIM
Investment Services, Inc.; Senior Vice
President, Chief Legal Officer and
Secretary of The AIM Family of
Funds--Registered Trademark--; Chief
Executive Officer and President, INVESCO
Funds Group, Inc.; and Senior Vice
President, and General Counsel, Liberty
Financial Companies, Inc. and Senior
Vice President and General Counsel
Liberty Funds Group, LLC
- ------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President, Principal Advisors, Inc.; and Vice President,
Financial Officer and Treasurer and Principal Officer of The
Treasurer AIM Family of Funds--Registered
Trademark--
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
J. Philip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment Officer, A I M Advisors Inc.;
Director, Chairman, Chief Executive
Officer, President and Chief Investment
Officer, A I M Capital Management, Inc.;
Executive Vice President, A I M
Management Group Inc. and Vice President
of The AIM Family of Funds--Registered
Trademark--
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; and
Chief Equity Officer, Senior Vice
President and Senior Investment Officer,
A I M Capital Management, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc. and The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); and
President and Principal Executive
Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust Only)
Formerly: Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only)
- ------------------------------------------------------------------------------------------------------------------------------
Lance A. Rejsek -- 1967 2005 Anti-Money Laundering Compliance N/A
Anti-Money Laundering Officer, A I M Advisors, Inc., A I M
Compliance Officer Capital Management, Inc., A I M
Distributors, Inc., AIM Investment
Services, Inc., AIM Private Asset
Management, Inc., Fund Management
Company and The AIM Family of
Funds--Registered Trademark--
Formerly: Manager of the Fraud
Prevention Department, AIM Investment
Services, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
Todd L. Spillane -- 1958 2006 Senior Vice President, A I M Management N/A
Chief Compliance Officer Group Inc.; Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc.; and Vice President,
A I M Distributors, Inc., AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Global Head of Product
Development, AIG-Global Investment
Group, Inc.; Chief Compliance Officer
and Deputy General Counsel,
AIG-SunAmerica Asset Management; and
Chief Compliance Officer, Chief
Operating Officer and Deputy General
Counsel, American General Investment
Management
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers
Suite 100 11 Greenway Plaza Inc. LLP
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Ballard Spahr INDEPENDENT TRUSTEES AIM Investment State Street Bank and
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis Services, Inc. Trust Company
1735 Market Street, 51st & Frankel LLP P.O. Box 4739 225 Franklin Street
Floor 1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Philadelphia, PA 19103-7599 Americas
New York, NY 10036-2714
</Table>
SECTOR EQUITY AIM V.I. TECHNOLOGY FUND
Annual Report to Shareholders - December 31, 2006
Sectors
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 in Washington, [COVER GLOBE IMAGE]
D.C. 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 AIM V.I. TECHNOLOGY FUND seeks capital growth.
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 UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT IS AS OF
site. Go to AIMinvestments.com, access DECEMBER 31, 2006, AND IS BASED ON TOTAL NET ASSETS.
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
[AIM INVESTMENTS LOGO] INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ
--Registered Trademark-- EACH CAREFULLY BEFORE INVESTING.
=========================================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE AIM V.I. Technology Fund
======================================================================================
- Companies with defensible business
PERFORMANCE SUMMARY models.
The information technology (IT) sector produced positive returns for the year ended We use a bottom-up investment
December 31, 2006, but trailed the broad market. For the year, and excluding variable approach, focusing on company
product issuer charges, AIM V.I. Technology Fund underperformed its broad market index fundamentals and growth prospects in
but outperformed its peer group index and style-specific indexes. The Fund industries such as hardware, software,
underperformed the S&P 500 --Registered Trademark-- Index because information semiconductors, telecommunications
technology was one of the weakest sectors of the broad market. The Fund outperformed equipment and services and
the Goldman Sachs Technology Composite Index mainly due to strong stock selection in service-related companies in the IT
the internet software and services and semiconductors and semiconductor equipment sector.
industries.
We use our proprietary
Your Fund's long-term performance appears on pages 4-5. quantitative sector model to rank
companies based on several factors such
FUND VS. INDEXES as earnings growth, cash flow
sustainability, quality of financial
TOTAL RETURNS, 12/31/05-12/31/06, EXCLUDING VARIABLE PRODUCT ISSUER CHARGES. IF metrics and valuation. The model serves
VARIABLE PRODUCT ISSUER CHARGES WERE INCLUDED, RETURNS WOULD BE LOWER. both as a source of ideas and as a
confirmation tool of our fundamental
Series I Shares 10.48% analysis.
Series II Shares 10.22
S&P 500 Index (Broad Market Index) 15.78 We then apply our valuation
Goldman Sachs Technology Composite Index (Style-Specific Index) 8.37 analysis, comparing a stock's current
Lipper Science & Technology Funds Index (Peer Group Index) 6.73 valuation to its historical valuations
as well as to the valuations of its
Source: AIM Management Group Inc., Factset Research Systems Inc., Lipper Inc. competitors.
====================================================================================== The Fund's portfolio normally
consists of approximately 65-85 stocks
HOW WE INVEST demand, a new product cycle or greater and is constructed to take advantage of
visibility among investors and the both long- and short-term opportunities.
We seek attractively valued, public. Within each industry, we look We typically invest 60-80% of the Fund's
well-managed companies in the for: assets in core holdings--companies that
information technology sector with the demonstrate both the fundamental and
potential to generate sustainable - Companies addressing growing markets quantitative stock selection
earnings and free cash flow growth that with unique product offerings. requirements. The tactical portion of
is not yet anticipated by the market. We the portfolio typically represents
begin by identifying industries in the - Companies with strong and experienced 20-40% of the Fund's assets.
sector we believe may benefit over the management teams.
next 12 to 24 months from strong We manage risk through
fundamentals, such as increased - Companies that are profitable and that diversification within the sector and by
have, over time, grown their market allocating a portion of assets to core
share. holdings, which generally have more
favorable return and valuation
====================================================================================== characteristics.
PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS* We may reduce or eliminate
exposure to a stock when:
By industry 1. American Movil S.A. de C.V.-
Semiconductors 20.0% Series L-ADR (Mexico) 3.2% - We identify a more attractive
Communications Equipment 13.7 2. Hewlett-Packard Co. 3.1 investment opportunity.
Systems Software 9.7 3. Adobe Systems Inc. 3.0
Computer Hardware 8.3 4. Accenture Ltd.-Class A 2.9 - A company's fundamentals change.
Wireless Telecommunication 5. Microsoft Corp. 2.9
Services 8.1 6. Google Inc.-Class A 2.9 - A catalyst does not materialize in the
Computer Storage & Peripherals 7.2 7. Cisco Systems, Inc. 2.8 case of tactical holdings.
Application Software 7.0 8. Verifone Holdings, Inc. 2.7
Internet Software & Services 6.6 9. Digital River, Inc. 2.6 - A stock's price target has been met.
IT Consulting & Other Services 5.0 10. Apple Computer, Inc. 2.6
Data Processing & Outsourced Early in 2006, several changes
Services 3.0 Total Net Assets $173.45 million were made to our investment process.
10 Other Industries, Each With These changes included refining our
Less than 3% of Total Net Assets 10.0 Total Number of Holdings* 72 stock selection process by incorporating
Money Market Funds a proprietary quantitative sector model,
Plus Other Assets Less Liabilities 1.4 as well as reducing the number of
portfolio holdings and concentrating on
The Fund's holdings are subject to change, and there is no assurance that the Fund those in which we have greater
will continue to hold any particular security. conviction.
*Excluding money market fund holdings.
======================================================================================
2
MARKET CONDITIONS AND YOUR FUND AIM V.I. TECHNOLOGY FUND
Stocks that enhanced Fund The views and opinions expressed in
performance included AKAMAI TECHNOLOGIES management's discussion of Fund
The year started off on a positive note and FREESCALE SEMICONDUCTOR. Akamai performance are those of AIM Advisors,
as the markets were encouraged by strong provides services to help accelerate and Inc. These views and opinions are
economic data. However, tensions in the secure the end-user experience for subject to change at any time based on
Middle East escalated with the internet applications such as e-commerce factors such as market and economic
Israel-Lebanon conflict, residential and video. Akamai reported favorable conditions. These views and opinions
housing markets showed signs of cooling financial results throughout the year may not he relied upon as investment
and rising energy prices heightened with increased sales and profits. advice or recommendations, or as an
inflation concerns. These factors led to offer for a particular security. The
a slight sell-off in the markets mid way Freescale, a global leader of information is not a complete analysis
through the year as investors became embedded semiconductors for cars, mobile of every aspect of any market,
concerned about an economic downturn. phones and networks, also contributed country, industry, security or the
positively to Fund performance. Fund. Statements of fact are from
However, the markets staged a Freescale's management was able to sources considered reliable, but AIM
rally beginning in August after the U.S. expand its customer base while improving Advisors, Inc. makes no representation
Federal Reserve Board held interest margins. In December, a consortium of or warranty as to their completeness
rates steady after 17 consecutive private equity firms bought the company or accuracy. Although historical
increases. Also contributing to the at a 30% premium to its September 8th performance is no guarantee of future
rally was a series of solid economic stock price. results, these insights may help you
reports that indicated the economy, understand our investment management
while slowing, continued to expand and Detractors from Fund performance philosophy.
inflation remained within manageable included internet service provider
levels. YAHOO! and software developer RED HAT. Michelle Espelien
Shares of Yahoo! declined after the Fenton
Against this backdrop, company delayed the release of its new [FENTON Chartered Financial
telecommunication services and energy search platform and lowered its guidance PHOTO] Analyst,portfolio
were the best-performing sectors of the on advertising-related sales. GOOGLE'S manager, is manager of
S&P 500 Index. Health care and entrance into areas other than search AIM V.I. Technology
information technology were the weakest functions, such as e-mail and instant Fund. She began her investment career
sectors of the broad market. messaging, also created uncertainty in 1995 and joined the Fund's advisor
around Yahoo!'s competitive positioning. in 1998. Ms. Fenton earned her B.S. in
======================================== We sold the position due to these finance from Montana State University.
developments.
THE IT SECTOR STAGED Assisted by the Technology Team
A RALLY DURING THE THIRD During the fourth quarter, ORACLE,
QUARTER AS OIL PRICES a long time partner and reseller of Red Effective May 1, 2006, William R.
DECLINED FROM RECORD Hat's Linux operating system, announced Keithler retired from AIM. On the same
HIGHS AND THE FED KEPT it would begin offering its own version date, Michelle Espelien Fenton, assisted
INTEREST RATES UNCHANGED of Linux, competing directly with Red by the Technology Team, assumed
FOR THE FIRST TIME IN MORE Hat. This increased competition hurt management of the Fund.
THAN TWO YEARS. Red Hat's stock price and prompted us to
sell the stock.
========================================
Changes in the Fund's holdings
Technology stocks were battered during the year were primarily a result
during the second quarter of 2006 amid of our refined investment process and
fears of a recession and inflation shifting of responsibilities among our
pressures. The IT sector staged a rally management team.
during the third quarter as oil prices
declined from record highs and the Fed IN CLOSING
kept interest rates unchanged for the
first time in more than two years. As always, we thank you for your
Relative to the Fund's style-specific continued investment and welcome any new FOR A DISCUSSION OF THE RISKS OF
index, our stock selection and investors to AIM V.I. Technology Fund. INVESTING IN YOUR FUND, INDEXES USED IN
underweight position in software THIS REPORT AND YOUR FUND'S LONG-TERM
detracted from performance. On the other PERFORMANCE, PLEASE SEE PAGES 4-5.
hand, our stock selection in internet
software and services and semiconductors
and semiconductor equipment were
positive relative contributors.
3
YOUR FUND'S LONG-TERM PERFORMANCE AIM V.I. Technology Fund
========================================
SERIES I SHARES (FOR PERIODS PRIOR TO INSURANCE COMPANIES ISSUING VARIABLE
AVERAGE ANNUAL TOTAL RETURNS INCEPTION OF SERIES II SHARES) ADJUSTED PRODUCTS. YOU CANNOT PURCHASE SHARES OF
TO REFLECT THE RULE 12B-1 FEES THE FUND DIRECTLY. PERFORMANCE FIGURES
AS OF 12/31/06 APPLICABLE TO SERIES II SHARES. THE GIVEN REPRESENT THE FUND AND ARE NOT
SERIES 1 SHARES INCEPTION DATE OF SERIES I SHARES IS MAY INTENDED TO REFLECT ACTUAL VARIABLE
Inception (5/20/97) 3.67% 20, 1997. THE PERFORMANCE OF THE FUND'S PRODUCT VALUES. THEY DO NOT REFLECT
5 Years -1.82 SERIES I AND SERIES II SHARE CLASSES SALES CHARGES, EXPENSES AND FEES
1 Year 10.48 WILL DIFFER PRIMARILY DUE TO DIFFERENT ASSESSED IN CONNECTION WITH A VARIABLE
CLASS EXPENSES. PRODUCT. SALES CHARGES, EXPENSES AND
SERIES II SHARES FEES, WHICH ARE DETERMINED BY THE
Inception 3.39% THE PERFORMANCE DATA QUOTED VARIABLE PRODUCT ISSUERS, WILL VARY AND
5 Years -2.09 REPRESENT PAST PERFORMANCE AND CANNOT WILL LOWER THE TOTAL RETURN.
1 Year 10.22 GUARANTEE COMPARABLE FUTURE RESULTS;
======================================== CURRENT PERFORMANCE MAY BE LOWER OR PER NASD REQUIREMENTS, THE MOST
HIGHER. PLEASE CONTACT YOUR VARIABLE RECENT MONTH-END PERFORMANCE DATA AT THE
======================================== PRODUCT ISSUER OR FINANCIAL ADVISOR FOR FUND LEVEL, EXCLUDING VARIABLE PRODUCT
THE MOST RECENT MONTH-END VARIABLE CHARGES, IS AVAILABLE ON THIS AIM
CUMULATIVE TOTAL RETURNS PRODUCT PERFORMANCE. PERFORMANCE FIGURES AUTOMATED INFORMATION LINE,
REFLECT FUND EXPENSES, REINVESTED 866-702-4402. AS MENTIONED ABOVE, FOR
6 months ended 12/31/06 DISTRIBUTIONS AND CHANGES IN NET ASSET THE MOST RECENT MONTH-END PERFORMANCE
Series 1 Shares 10.83% VALUE. INVESTMENT RETURN AND PRINCIPAL INCLUDING VARIABLE PRODUCT CHARGES,
Series II Shares 10.75 VALUE WILL FLUCTUATE SO THAT YOU MAY PLEASE CONTACT YOUR VARIABLE PRODUCT
======================================== HAVE A GAIN OR LOSS WHEN YOU SELL ISSUER OR FINANCIAL ADVISOR.
SHARES.
SERIES II SHARES' INCEPTION DATE IS
APRIL 30, 2004. RETURNS SINCE THAT DATE AIM V.I. TECHNOLOGY 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
THEIR INCEPTION AND THE RESTATED
HISTORICAL PERFORMANCE OF
====================================================================================================================================
PRINCIPAL RISKS OF INVESTING
IN THE FUND
Foreign securities have additional Investing in a fund that invests The Fund's investments may be
risks, including exchange rate changes, in smaller companies involves risks not bought and sold relatively frequently. A
political and economic upheaval, the associated with investing in more high turnover rate may affect the Fund's
relative lack of information about these established companies, such as business performance because it results in higher
companies, relatively low market risk, stock price fluctuations and brokerage commissions.
liquidity and the potential lack of illiquidity.
strict financial and accounting controls Many of the products and services
and standards. The Fund may use enhanced offered by information
investment techniques such as technology-related companies are subject
Investing in emerging markets derivatives. The principal risk of to rapid obsolescence, which may lower
involves greater risk than investing in investments in derivatives is that the the value of the securities of the comp-
more established markets. The risks fluctuations in their values may not anies in this sector.
include the relatively smaller size and correlate perfectly with the overall
lesser liquidity of these markets, high securities markets. Derivatives are ABOUT INDEXES USED IN THIS REPORT
inflation rates, adverse political subject to counter party risk--the risk
developments and lack of timely that the other party will not complete The GOLDMAN SACHS TECHNOLOGY COMPOSITE
information. the transaction with the Fund. INDEX is a modified capitalization-
weighted index composed of companies
If the seller of a repurchase The prices of securities held by involved in the technology industry.
agreement in which the Fund invests the Fund may decline in response to The index is rebalanced semiannually.
defaults on its obligation or declares market risks.
bankruptcy, the Fund may experience The unmanaged LIPPER SCIENCE AND
delays in selling the securities The prices of initial public TECHNOLOGY FUNDS INDEX represents an
underlying the repurchase agreement. offering (IPO) securities may go up and average of the performance of the 30
down more than prices of equity largest science and technology funds
There is no guarantee that the securities of companies with longer tracked by Lipper Inc., an independent
investment techniques and risk analyses trading histories. In addition, mutual fund performance monitor.
used by the Fund's portfolio managers companies offering securities in IPOs
will produce the desired results. may have less experienced management or
limited operating histories. There can
be no assurance that the Fund will have
favorable IPO investment opportunities.
Continued on page 5
4
AIM V.I. TECHNOLOGY FUND
Past performance cannot guarantee value of an investment, is constructed
comparable future results. with each segment representing a percent
change in the value of the investment.
This chart, which is a logarithmic In this chart, each segment represents a
chart, presents the fluctuations in the doubling, or 100% change, in the value
value of the Fund and its indexes. We of the investment. In other words, the
believe that a logarithmic chart is more space between $5,000 and $10,000 is the
effective than other types of charts in same size as the space between $10,000
illustrating changes in value during the and $20,000, and so on.
early years shown in the chart. The
vertical axis, the one that indicates
the dollar
====================================================================================================================================
Continued from page 4
The unmanaged STANDARD & POOR'S including the indexes defined here, and transactions and the returns based on
COMPOSITE INDEX OF 500 STOCKS (the S&P consequently, the performance of the those net asset values may differ from
500 Index) is an index of common stocks Fund may deviate significantly from the the net asset values and returns
frequently used as a general measure of performance of the indexes. reported in the Financial Highlights.
U.S. stock market performance. Additionally, the returns and net asset
A direct investment cannot be made values shown throughout this report are
In conjunction with the annual in an index. Unless otherwise indicated, at the Fund level only and do not
prospectus update on or about May 1, index results include reinvested include variable product issuer charges.
2007, the AIM V.I. Technology Fund dividends, and they do not reflect sales If such charges were included, the total
prospectus will be amended to reflect charges. Performance of an index of returns would be lower.
that the Fund has elected to use the funds reflects fund expenses;
Lipper Variable Underlying Funds (VUF) performance of a market index does not. Industry classifications used in
Science & Technology Funds Category this report are generally according to
Average as its peer group index rather OTHER INFORMATION the Global Industry Classification
than the Lipper Science & Technology Standard, which was developed by and is
Funds Index. The Lipper VUF Science & The returns shown in the management's the exclusive property and a service
Technology Funds Category Average, discussion of Fund performance are based mark of Morgan Stanley Capital
recently published by Lipper Inc., on net asset values calculated for International Inc. and Standard &
comprises the underlying funds in each shareholder transactions. Generally Poor's.
variable insurance category and does not accepted accounting principles require
include mortality and expense fees. adjustments to be made to the net assets The Chartered Financial Analyst
of the Fund at period end for financial --Registered Trademark-- (CFA
The Fund is not managed to track reporting purposes, and as such, the net --Registered Trademark--) designation is
the performance of any particular index, asset values for shareholder a globally recognized standard for
measuring the competence and integrity
of investment professionals.
5
================================================================================
[MOUNTAIN CHART]
RESULTS OF A $10,000 INVESTMENT
Fund data from 5/20/97, index data from 5/31/97
DATE AIM V.I. TECHNOLOGY FUND-SERIES 1 SHARES S&P 500 INDEX LIPPER SCIENCE & TECHNOLOGY FUNDS INDEX
5/20/97 $10000
5/97 10000 $10000 $10000
6/97 10000 10445 10093
7/97 11870 11275 11508
8/97 11970 10644 11580
9/97 12510 11227 12071
10/97 11799 10852 10795
11/97 11699 11354 10703
12/97 11479 11549 10202
1/98 11529 11677 10382
2/98 12569 12518 11618
3/98 13059 13159 11712
4/98 13300 13294 12215
5/98 12590 13066 11320
6/98 13680 13596 11983
7/98 12650 13452 11871
8/98 10299 11509 9642
9/98 11100 12247 10780
10/98 11569 13241 11603
11/98 12450 14043 12903
12/98 14429 14852 14990
1/99 16865 15473 16932
2/99 15165 14992 15165
3/99 17600 15592 16710
4/99 18104 16196 16919
5/99 17953 15813 16895
6/99 20499 16689 19090
7/99 20198 16170 19084
8/99 21747 16090 20134
9/99 22421 15649 20407
10/99 25733 16639 22557
11/99 30120 16977 25902
12/99 37367 17976 32067
1/00 37337 17073 31731
2/00 49796 16750 40278
3/00 47087 18388 39052
4/00 41804 17835 34493
5/00 37043 17469 30331
6/00 43214 17899 34928
7/00 41382 17620 33081
8/00 48317 18713 38101
9/00 44998 17726 34194
10/00 40669 17650 30444
11/00 28387 16260 22595
12/00 28620 16340 22359
1/01 30990 16919 24626
2/01 21256 15377 18209
3/01 16807 14404 15541
4/01 21225 15522 18575
5/01 19793 15626 17709
6/01 19419 15246 17416
7/01 17906 15096 16021
8/01 15182 14152 14020
9/01 11227 13009 11011
10/01 13235 13257 12679
11/01 15555 14274 14525
12/01 15505 14399 14595
1/02 15454 14189 14340
2/02 13083 13916 12425
3/02 14536 14439 13556
4/02 12618 13564 11943
5/02 11922 13464 11318
6/02 10207 12506 9827
7/02 8997 11531 8778
8/02 8614 11607 8570
9/02 7161 10346 7379
10/02 8261 11256 8495
11/02 9552 11918 9792
12/02 8240 11218 8555
1/03 8221 10925 8505
2/03 8322 10761 8539
3/03 8150 10865 8533
4/03 8917 11759 9331
5/03 9926 12378 10406
================================================================================
Source: Lipper Inc.
================================================================================
[MOUNTAIN CHART]
6/03 9824 12536 10479
7/03 10258 12758 11042
8/03 11074 13006 11849
9/03 10661 12868 11533
10/03 11862 13596 12693
11/03 12074 13715 12885
12/03 11971 14434 12946
1/04 12445 14699 13582
2/04 12233 14903 13368
3/04 11911 14678 13085
4/04 11184 14448 12184
5/04 11719 14646 12791
6/04 11920 14931 13014
7/04 10720 14437 11593
8/04 10326 14495 11126
9/04 10811 14652 11644
10/04 11517 14875 12302
11/04 12172 15477 12988
12/04 12525 16004 13478
1/05 11818 15614 12670
2/05 11889 15942 12703
3/05 11516 15660 12364
4/05 11022 15363 11868
5/05 11960 15851 12923
6/05 11738 15874 12773
7/05 12313 16464 13543
8/05 12192 16314 13458
9/05 12333 16446 13718
10/05 12111 16172 13421
11/05 12867 16783 14164
12/05 12796 16789 14202
1/06 13573 17233 15076
2/06 13442 17280 14829
3/06 13916 17495 15198
4/06 14108 17730 15196
5/06 12919 17220 14045
6/06 12757 17243 13789
7/06 12163 17349 13125
8/06 12858 17761 13856
9/06 13544 18219 14305
10/06 13775 18812 14686
11/06 14280 19169 15317
12/06 14140 19438 15159
================================================================================
CALCULATING YOUR ONGOING FUND EXPENSES AIM V.I. TECHNOLOGY FUND
EXAMPLE ACTUAL EXPENSES actual return. The Fund's actual
cumulative total returns at net asset
As a shareholder of the Fund, you incur The table below provides information value after expenses for the six months
ongoing costs, including management about actual account values and actual ended December 31, 2006, appear in the
fees; distribution and/or service expenses. You may use the information in table "Cumulative Total Returns" on page
(12b-l) fees; and other Fund expenses. this table, together with the amount you 4.
This 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
dollars) of investing in the Fund and to your account value by $1,000 (for and expenses may not be used to estimate
compare these costs with ongoing costs example, an $8,600 account value divided the actual ending account balance or
of investing in other mutual funds. The by $1,000 = 8.6), then multiply the expenses you paid for the period. You
example is based on an investment of result by the number in the table under may use this information to compare the
$1,000 invested at the beginning of the the heading entitled "Actual Expenses ongoing costs of investing in the Fund
period and held for the entire period Paid During Period" to estimate the and other funds. To do so. compare this
July 1, 2006, through December 31, 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 shareholder reports of the other funds.
expenses in the examples below do not HYPOTHETICAL EXAMPLE FOR COMPARISON
represent the effect of any fees or PURPOSES Please note that the expenses
other expenses assessed in connection shown in the table are meant to
with a variable product; if they did, The table below also provides highlight your ongoing costs. Therefore,
the expenses shown would be higher while information about hypothetical account the hypothetical information is useful
the ending account values shown would be values and hypothetical expenses based in comparing ongoing costs, and will not
lower. on the Fund's actual expense ratio and help you determine the relative total
an assumed rate of return of 5% per year costs of owning different funds.
before expenses, which is not the Fund's
====================================================================================================================================
HYPOTHETICAL
ACTUAL (5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (7/1/06) (12/31/06)(1) PERIOD(2) (12/31/06) PERIOD(2) RATIO
Series I $ 1,000.00 $1,108.30 $5.95 $1,019.56 $5.70 1.12%
Series II 1,000.00 1,107.50 7.28 1,018.30 6.97 1.37
(1) The actual ending account value is based on the actual total return of the Fund for the period July 1, 2006, through December
31, 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 December 31, 2006, appear in the table "Cumulative Total Returns" on page 4.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated above multiplied by the average account value over the
period, multiplied by 184/365 to reflect the most recent fiscal half year.
====================================================================================================================================
6
APPROVAL OF INVESTMENT ADVISORY AGREEMENT AIM V.I. TECHNOLOGY FUND
The Board of Trustees of AIM Variable services to be provided by AIM under the more time to be evaluated before a
Insurance Funds (the "Board") oversees Advisory Agreement was appropriate and conclusion can be made that the changes
the management of AIM V.I. Technology that AIM currently is providing services 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 AIM Advisors, - 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. - Meetings with the Fund's portfolio
controlling, and each trustee attributed managers and investment personnel. With
different weights to the various - The performance of the Fund relative to respect to the Fund, the Board is
factors. comparable funds. The Board reviewed the meeting periodically with such Fund's
performance of the Fund during the past portfolio managers and/or other
One responsibility of the one, three and five calendar years investment personnel and believes that
independent Senior Officer of the Fund against the performance of funds advised such individuals are competent and able
is to manage the process by which the by other advisors with investment to continue to carry out their
Fund's proposed management fees are strategies comparable to those of the responsibilities under the Advisory
negotiated to ensure that they are Fund. The Board noted that the Fund's Agreement.
negotiated in a manner which is at arms' performance in such periods was below
length and reasonable. To that end, the the median performance of such - Overall performance of AIM. The Board
Senior Officer must either supervise a comparable funds. The Board also noted considered the overall performance of
competitive bidding process or prepare that AIM began serving as investment AIM in providing investment advisory
an independent written evaluation. The advisor to the Fund in April 2004. The and portfolio administrative services to
Senior Officer has recommended an Board noted that AIM has recently made the Fund and concluded that such
independent written evaluation in lieu changes to the Fund's portfolio manage- performance was satisfactory.
of a competitive bidding process and, ment team, which need more time to be
upon the direction of the Board, has evaluated before a conclusion can be - Fees relative to those of clients of
prepared such an independent written made that the changes have addressed the AIM with comparable investment
evaluation. Such written evaluation also Fund's under-performance. Based on this strategies. The Board reviewed the
considered certain of the factors review and after taking account of all effective advisory fee rate (before
discussed below. In addition, as of the other factors that the Board waivers) for the Fund under the Advisory
discussed below, the Senior Officer made considered in determining whether to Agreement. The Board noted that this
a recommendation to the Board in continue the Advisory Agreement for the rate was (i) above the effective
connection with such 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
the conclusions with respect thereto monitor and review the performance of with investment strategies comparable
that formed the basis for the Board's the Fund. Although the independent to those of the Fund; and (iii) above
approval of the Advisory Agreement. written evaluation of the Fund's Senior the effective sub-advisory fee rates
After consideration of all of the Officer (discussed below) only for two offshore funds advised and
factors below and based on its informed considered Fund performance through the sub-advised by AIM affiliates with
business judgment, the Board determined most recent calendar year, the Board investment strategies comparable to
that the Advisory Agreement is in the also reviewed more recent Fund those of the Fund, although the total
best interests of the Fund and its performance, which did not change their advisory fees for one such offshore fund
shareholders and that the compensation conclusions. were above those for the Fund and the
to AIM under the Advisory Agreement is total advisory fees for the other
fair and reasonable and would have been - The performance of the Fund relative to offshore fund were comparable to those
obtained through arm's length indices. The Board reviewed the for the Fund. The Board noted that AIM
negotiations. performance of the Fund during the past has agreed to waive advisory fees of the
one, three and five calendar years Fund and to limit the Fund's total
Unless otherwise stated, against the performance of the Lipper operating expenses, as discussed below.
information presented below is as of Science & Technology Fund Index. The Based on this review, the Board
June 27, 2006 and does not reflect any Board noted that the Fund's performance concluded that the advisory fee rate for
changes that may have occurred since in such periods was below the the Fund under the Advisory Agreement
June 27, 2006, including but not limited performance of such Index. The Board was fair and reasonable.
to changes to the Fund's performance, also noted that AIM began serving as
advisory fees, expense limitations investment advisor to the Fund in April - Fees relative to those of comparable
and/or fee waivers. 2004. The Board noted that AIM has funds with other advisors. The Board
recently made changes to the Fund's reviewed the advisory fee rate for the
- - The nature and extent of the advisory portfolio management team, which need Fund under the Advisory Agreement, The
services to be provided by AIM. The
Board reviewed the services to be
provided by AIM under the Advisory
Agreement. Based on such review, the
Board concluded that the range of
(continued)
7
AIM V.I. Technology Fund
Board compared effective contractual - Investments in affiliated money market condition, the Board concluded that the
advisory fee rates at a common asset funds. The Board also took into account compensation to be paid by the Fund to
level at the end of the past calendar the fact that uninvested cash and cash AIM under its Advisory Agreement was not
year and noted that the Fund's rate was collateral from securities lending 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 - 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 broker age
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
the Fund under the Advisory Agreement transaction costs. The Board also found be 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 concluded that such arrangements were
- - Expense limitations and fee waivers. balances in such money market funds. appropriate.
The Board noted that AIM has The Board noted that, to the extent the
contractually agreed to waive advisory Fund invests uninvested cash in - AIM'S financial soundness in light of
fees of the Fund through April 30, 2008 affiliated money market funds, AIM has the Fund's needs. The Board considered
to the extent necessary so that the voluntarily agreed to waive a portion whether AIM is financially sound and
advisory fees payable by the Fund do not of the advisory fees it receives from has the resources necessary to perform
exceed a specified maximum advisory fee the Fund attributable to such its obligations under the Advisory
rate, which maximum rate includes investment. The Board further determined Agreement, and concluded that AIM has
breakpoints and is based on net asset that the proposed securities lending pro the financial resources necessary to
levels. The Board considered the gram and related procedures with respect fulfill its obligations under the
contractual nature of this fee waiver to the lending Fund is in the best Advisory Agreement.
and noted that it remains in effect interests of the lending Fund and its
until April 30, 2008. The Board noted respective shareholders. The Board - Historical relationship between the
that AIM has contractually agreed to therefore concluded that the investment Fund and AIM. In determining whether to
waive fees and/or limit expenses of the of cash collateral received in continue the Advisory Agreement for the
Fund through April 30, 2008 in an amount connection with the securities lending Fund, the Board also considered the
necessary to limit total annual program in the money market funds prior relationship between AIM and the
operating expenses to a specified according to the procedures is in the Fund, as well as the Board's knowledge
percentage of average daily net assets best interests of the lending Fund and of AIM'S operations, and concluded that
for each class of the Fund. The Board its respective 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 - 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 Officer. The Board noted that, upon advisory services currently performed by
the 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 limi- independent written evaluation in order received by AIM and its affiliates for
tations for the Fund were fair and to assist the Board in determining the performing such services. In addition to
reasonable. reason ableness of the proposed reviewing such services, the trustees
management fees of the AIM Funds, also considered the organizational
- - 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 - 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 adviso- expiration date of such advisory fee several years, and continue to take, in
ry fees, and noted that such fees, as a waivers. order to improve the quality and
percentage of the Fund's net assets, efficiency of the services they provide
would remain constant under the Advisory - Profitability of AIM and its to the Funds in the areas of investment
Agreement because the Advisory Agreement affiliates. The Board reviewed performance, product line
does not include any breakpoints. The information concerning the profitability diversification, distribution, fund
Board noted that AIM has contractually of AIM'S (and its affiliates') operations, shareholder services and
agreed to waive advisory fees of the investment advisory and other activities compliance. The Board concluded that
Fund through April 30, 2008 to the and its financial condition. The Board these steps taken by AIM have improved,
extent necessary so that the advisory considered the overall profitability of and are likely to continue to improve,
fees payable by the Fund do not exceed a AIM, as well as the profitability of AIM the quality and efficiency of the servi-
specified maximum advisory fee rate, in connection with managing the Fund. ces AIM and its affiliates provide to
which maximum rate includes breakpoints The Board noted that AIM'S operations the Fund in each of these areas, and
and is based on net asset levels. The remain profitable, although increased support the Board's approval of the
Board concluded that the Fund's fee expenses in recent years have reduced continuance of the Advisory Agreement
levels under the Advisory Agreement AIM'S profitability. Based on the review for the Fund.
therefore would not reflect economies of of the profitability of AIM's and its
scale, although the advisory fee waiver affiliates' investment advisory and
reflects economies of scale. other activities and its financial
8
AIM V.I. Technology Fund
SCHEDULE OF INVESTMENTS
December 31, 2006
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------
COMMON STOCKS AND OTHER EQUITY
INTERESTS-80.34%
ADVERTISING-0.68%
Omnicom Group Inc. 11,210 $ 1,171,893
==========================================================================
APPLICATION SOFTWARE-6.97%
Adobe Systems Inc.(a) 126,165 5,187,905
- --------------------------------------------------------------------------
Amdocs Ltd.(a) 88,054 3,412,093
- --------------------------------------------------------------------------
BEA Systems, Inc.(a) 35,335 444,514
- --------------------------------------------------------------------------
Citrix Systems, Inc.(a) 32,003 865,681
- --------------------------------------------------------------------------
TIBCO Software Inc.(a) 231,087 2,181,461
==========================================================================
12,091,654
==========================================================================
BROADCASTING & CABLE TV-0.84%
Comcast Corp.-Class A(a) 34,387 1,455,602
==========================================================================
COMMUNICATIONS EQUIPMENT-9.38%
Avocent Corp.(a) 45,514 1,540,649
- --------------------------------------------------------------------------
Cisco Systems, Inc.(a) 180,236 4,925,850
- --------------------------------------------------------------------------
F5 Networks, Inc.(a) 35,852 2,660,577
- --------------------------------------------------------------------------
Harris Corp. 31,299 1,435,372
- --------------------------------------------------------------------------
Juniper Networks, Inc.(a) 100,234 1,898,432
- --------------------------------------------------------------------------
Motorola, Inc. 81,372 1,673,008
- --------------------------------------------------------------------------
Polycom, Inc.(a) 68,883 2,129,174
==========================================================================
16,263,062
==========================================================================
COMPUTER HARDWARE-8.30%
Apple Computer, Inc.(a) 52,352 4,441,544
- --------------------------------------------------------------------------
Dell Inc.(a) 41,234 1,034,561
- --------------------------------------------------------------------------
Hewlett-Packard Co. 128,898 5,309,308
- --------------------------------------------------------------------------
International Business Machines Corp. 37,200 3,613,980
==========================================================================
14,399,393
==========================================================================
COMPUTER STORAGE & PERIPHERALS-7.20%
Brocade Communications Systems, Inc.(a) 56,655 465,137
- --------------------------------------------------------------------------
EMC Corp.(a) 246,373 3,252,124
- --------------------------------------------------------------------------
McDATA Corp.-Class A(a) 149,423 829,298
- --------------------------------------------------------------------------
Network Appliance, Inc.(a) 68,208 2,679,210
- --------------------------------------------------------------------------
QLogic Corp.(a) 120,068 2,631,891
- --------------------------------------------------------------------------
Seagate Technology 99,425 2,634,762
==========================================================================
12,492,422
==========================================================================
DATA PROCESSING & OUTSOURCED SERVICES-2.97%
Alliance Data Systems Corp.(a) 8,689 542,802
- --------------------------------------------------------------------------
VeriFone Holdings, Inc.(a) 130,393 4,615,912
==========================================================================
5,158,714
==========================================================================
ELECTRONIC EQUIPMENT MANUFACTURERS-2.03%
Amphenol Corp.-Class A 41,289 2,563,221
- --------------------------------------------------------------------------
Itron, Inc.(a) 18,385 953,079
==========================================================================
3,516,300
==========================================================================
HOME ENTERTAINMENT SOFTWARE-0.76%
Activision, Inc.(a) 76,757 1,323,291
==========================================================================
</Table>
<Table>
SHARES VALUE
- --------------------------------------------------------------------------
<Caption>
HUMAN RESOURCE & EMPLOYMENT SERVICES-0.72%
Monster Worldwide Inc.(a) 26,835 $ 1,251,584
==========================================================================
INTERNET RETAIL-0.44%
IAC/InterActiveCorp.(a) 20,517 762,412
==========================================================================
INTERNET SOFTWARE & SERVICES-6.57%
Akamai Technologies, Inc.(a) 35,224 1,871,099
- --------------------------------------------------------------------------
Digital River, Inc.(a) 81,504 4,547,108
- --------------------------------------------------------------------------
Google Inc.-Class A(a) 10,804 4,975,026
==========================================================================
11,393,233
==========================================================================
IT CONSULTING & OTHER SERVICES-5.04%
Accenture Ltd.-Class A 138,298 5,107,345
- --------------------------------------------------------------------------
Acxiom Corp. 39,252 1,006,814
- --------------------------------------------------------------------------
Cognizant Technology Solutions Corp.-Class
A(a) 34,146 2,634,705
==========================================================================
8,748,864
==========================================================================
OTHER DIVERSIFIED FINANCIAL SERVICES-0.86%
BlueStream Ventures L.P. (Acquired
08/03/00-11/28/06; Cost
$2,913,405)(a)(b)(c)(d) 3,037,500 1,488,952
==========================================================================
SEMICONDUCTOR EQUIPMENT-0.52%
FormFactor Inc.(a) 24,140 899,215
==========================================================================
SEMICONDUCTORS-15.12%
Broadcom Corp.-Class A(a) 78,088 2,523,023
- --------------------------------------------------------------------------
Integrated Device Technology, Inc.(a) 187,509 2,902,639
- --------------------------------------------------------------------------
Intel Corp. 169,914 3,440,759
- --------------------------------------------------------------------------
Intersil Corp.-Class A 110,340 2,639,333
- --------------------------------------------------------------------------
Marvell Technology Group Ltd.(a) 53,613 1,028,833
- --------------------------------------------------------------------------
National Semiconductor Corp. 121,312 2,753,782
- --------------------------------------------------------------------------
Netlogic Microsystems Inc.(a) 28,708 622,677
- --------------------------------------------------------------------------
NVIDIA Corp.(a) 80,584 2,982,414
- --------------------------------------------------------------------------
Silicon Image, Inc.(a) 139,320 1,772,150
- --------------------------------------------------------------------------
SiRF Technology Holdings, Inc.(a) 77,803 1,985,533
- --------------------------------------------------------------------------
Texas Instruments Inc. 45,921 1,322,525
- --------------------------------------------------------------------------
Xilinx, Inc. 94,915 2,259,926
==========================================================================
26,233,594
==========================================================================
SYSTEMS SOFTWARE-9.59%
Macrovision Corp.(a) 30,772 869,617
- --------------------------------------------------------------------------
McAfee Inc.(a) 30,035 852,393
- --------------------------------------------------------------------------
Microsoft Corp. 168,241 5,023,676
- --------------------------------------------------------------------------
Oracle Corp.(a) 221,028 3,788,420
- --------------------------------------------------------------------------
Sybase, Inc.(a) 107,450 2,654,015
- --------------------------------------------------------------------------
Symantec Corp.(a) 164,917 3,438,520
==========================================================================
16,626,641
==========================================================================
</Table>
AIM V.I. Technology Fund
<Table>
<Caption>
SHARES VALUE
- --------------------------------------------------------------------------
WIRELESS TELECOMMUNICATION SERVICES-2.35%
American Tower Corp.-Class A(a) 51,419 $ 1,916,900
- --------------------------------------------------------------------------
NII Holdings Inc.(a) 33,631 2,167,182
==========================================================================
4,084,082
==========================================================================
Total Common Stocks and Other Equity
Interests (Cost $121,839,762) 139,360,908
==========================================================================
FOREIGN COMMON STOCKS & OTHER EQUITY
INTERESTS-18.24%
CANADA-0.98%
Research In Motion Ltd. (Communications
Equipment)(a) 13,277 1,696,535
==========================================================================
FINLAND-1.30%
Nokia Oyj-ADR (Communications Equipment) 110,742 2,250,278
==========================================================================
FRANCE-2.40%
Silicon-On-Insulator Technologies
(Semiconductors)(a)(e)(f) 118,019 4,167,251
==========================================================================
HONG KONG-0.44%
Hutchison Telecommunications International
Ltd. (Wireless Telecommunication
Services)(a)(f) 301,000 766,746
==========================================================================
ISRAEL-0.13%
Allot Communications Ltd. (Systems
Software)(a) 19,094 223,591
==========================================================================
JAPAN-0.81%
Canon Inc. (Office Electronics)(e)(f) 24,900 1,410,219
==========================================================================
LUXEMBOURG-0.94%
Millicom International Cellular S.A.
(Wireless Telecommunication Services)(a)(e) 26,499 1,633,398
==========================================================================
MEXICO-3.22%
America Movil S.A. de C.V.-Series L-ADR
(Wireless Telecommunication Services) 123,611 5,589,689
==========================================================================
NETHERLANDS-0.50%
ASML Holding N.V.-New York Shares
(Semiconductor Equipment)(a) 35,339 870,400
==========================================================================
</Table>
<Table>
SHARES VALUE
- --------------------------------------------------------------------------
<Caption>
RUSSIA-1.11%
Vimpel-Communications-ADR (Wireless
Telecommunication Services)(a) 24,316 $ 1,919,748
==========================================================================
SWEDEN-2.07%
Telefonaktiebolaget LM Ericsson-ADR
(Communications Equipment) 89,356 3,594,792
==========================================================================
SWITZERLAND-2.43%
STMicroelectronics N.V.-New York Shares
(Semiconductors) 228,762 4,209,221
==========================================================================
TAIWAN-1.91%
Hon Hai Precision Industry Co., Ltd.
(Electronic Manufacturing Services)(f) 463,041 3,306,097
==========================================================================
Total Foreign Common Stocks & Other
Equity Interests (Cost $23,956,832) 31,637,965
==========================================================================
MONEY MARKET FUNDS-1.78%
Liquid Assets Portfolio-Institutional
Class(g) 1,538,853 1,538,853
- --------------------------------------------------------------------------
Premier Portfolio-Institutional Class(g) 1,538,853 1,538,853
==========================================================================
Total Money Market Funds (Cost
$3,077,706) 3,077,706
==========================================================================
TOTAL INVESTMENTS (excluding investments
purchased with cash collateral from
securities loaned)-100.36% (Cost
$148,874,300) 174,076,579
==========================================================================
INVESTMENTS PURCHASED WITH CASH COLLATERAL
FROM SECURITIES LOANED
MONEY MARKET FUNDS-3.07%
Premier Portfolio-Institutional Class(g)(h) 5,333,168 5,333,168
==========================================================================
Total Money Market Funds (purchased with
cash collateral from securities loaned)
(Cost $5,333,168) 5,333,168
==========================================================================
TOTAL INVESTMENTS-103.43% (Cost $154,207,468) 179,409,747
==========================================================================
OTHER ASSETS LESS LIABILITIES-(3.43)% (5,955,124)
==========================================================================
NET ASSETS-100.00% $173,454,623
__________________________________________________________________________
==========================================================================
</Table>
Investment Abbreviations:
<Table>
ADR - American Depositary Receipt
</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 December
31, 2006 represented 0.86% of the Fund's Net Assets. See Note 1A.
(c) The Fund has a remaining commitment of $337,500 to purchase additional
interests in BlueStream Ventures L.P., which is subject to the terms of the
limited partnership agreement.
(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 December 31, 2006 represented 0.86% of the
Fund's Net Assets. Security considered to be illiquid. 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 December 31, 2006.
(f) In accordance with the procedures established by the Board of Trustees, the
foreign security is fair valued using adjusted closing market prices. The
aggregate value of these securities at December 31, 2006 was $9,650,313,
which represented 5.56% 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
December 31, 2006
<Table>
ASSETS:
Investments at value (cost $145,796,594)* $ 170,998,873
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $8,410,874) 8,410,874
=============================================================
Total investments (cost $154,207,468) 179,409,747
=============================================================
Foreign currencies, at value (cost $582,285) 588,435
- -------------------------------------------------------------
Receivables for:
Investments sold 393,161
- -------------------------------------------------------------
Fund shares sold 44,538
- -------------------------------------------------------------
Dividends 49,394
- -------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 44,451
- -------------------------------------------------------------
Other assets 2,915
=============================================================
Total assets 180,532,641
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Investments purchased 1,273,148
- -------------------------------------------------------------
Fund shares reacquired 246,104
- -------------------------------------------------------------
Trustee deferred compensation and retirement
plans 54,209
- -------------------------------------------------------------
Collateral upon return of securities loaned 5,333,168
- -------------------------------------------------------------
Accrued administrative services fees 117,167
- -------------------------------------------------------------
Accrued distribution fees--Series II 85
- -------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 3,753
- -------------------------------------------------------------
Accrued transfer agent fees 5,570
- -------------------------------------------------------------
Accrued operating expenses 44,814
=============================================================
Total liabilities 7,078,018
=============================================================
Net assets applicable to shares outstanding $ 173,454,623
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 638,457,778
- -------------------------------------------------------------
Undistributed net investment income (loss) (59,795)
- -------------------------------------------------------------
Undistributed net realized gain (loss) from
investment securities, foreign currencies
and option contracts (490,151,773)
- -------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 25,208,413
=============================================================
$ 173,454,623
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $ 173,321,116
_____________________________________________________________
=============================================================
Series II $ 133,507
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER
SHARE, UNLIMITED NUMBER OF SHARES
AUTHORIZED:
Series I 12,361,859
_____________________________________________________________
=============================================================
Series II 9,597
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 14.02
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 13.91
_____________________________________________________________
=============================================================
</Table>
* At December 31, 2006, securities with an aggregate value of $5,114,853 were on
loan to brokers.
STATEMENT OF OPERATIONS
For the year ended December 31, 2006
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of
$51,170) $ 766,179
- ------------------------------------------------------------
Dividends from affiliated money market funds
(includes securities lending income of
$33,706) 275,632
============================================================
Total investment income 1,041,811
============================================================
EXPENSES:
Advisory fees 1,365,254
- ------------------------------------------------------------
Administrative services fees 499,415
- ------------------------------------------------------------
Custodian fees 55,201
- ------------------------------------------------------------
Distribution fees--Series II 360
- ------------------------------------------------------------
Transfer agent fees 30,947
- ------------------------------------------------------------
Trustees' and officer's fees and benefits 19,493
- ------------------------------------------------------------
Other 61,926
============================================================
Total expenses 2,032,596
============================================================
Less: Fees waived and expense offset
arrangements (6,127)
============================================================
Net expenses 2,026,469
============================================================
Net investment income (loss) (984,658)
============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES, FOREIGN CURRENCIES AND
OPTION CONTRACTS:
Net realized gain (loss) from:
Investment securities (includes net gains
(losses) from securities sold to affiliates
of $(35,425)) 21,825,915
- ------------------------------------------------------------
Foreign currencies (24,585)
- ------------------------------------------------------------
Option contracts written 82,750
============================================================
21,884,080
============================================================
Change in net unrealized appreciation
(depreciation) of:
Investment securities (3,853,234)
- ------------------------------------------------------------
Foreign currencies 3,557
- ------------------------------------------------------------
Option contracts written 85,597
============================================================
(3,764,080)
============================================================
Net gain from investment securities, foreign
currencies and option contracts 18,120,000
============================================================
Net increase in net assets resulting from
operations $17,135,342
____________________________________________________________
============================================================
</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 years ended December 31, 2006 and 2005
<Table>
<Caption>
2006 2005
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (984,658) $ (1,077,606)
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities, foreign
currencies and option contracts 21,884,080 7,137,416
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities, foreign currencies and option
contracts (3,764,080) (2,919,636)
==========================================================================================
Net increase in net assets resulting from operations 17,135,342 3,140,174
==========================================================================================
Share transactions-net:
Series I (34,499,934) (13,115,433)
- ------------------------------------------------------------------------------------------
Series II (22,638) (26,030)
==========================================================================================
Net increase (decrease) in net assets resulting from
share transactions (34,522,572) (13,141,463)
==========================================================================================
Net increase (decrease) in net assets (17,387,230) (10,001,289)
==========================================================================================
NET ASSETS:
Beginning of year 190,841,853 200,843,142
==========================================================================================
End of year (including undistributed net investment income
(loss) of $(59,795) and $(42,432), respectively) $173,454,623 $190,841,853
__________________________________________________________________________________________
==========================================================================================
</Table>
NOTES TO FINANCIAL STATEMENTS
December 31, 2006
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-one 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.
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 or official closing price as of the close of
the customary trading session on the exchange where the security is
principally traded, or lacking any sales or official closing price on a
particular day, the security may be valued at the closing bid price on that
day. Securities traded in the over-the-counter market 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. 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 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 open-end and closed-end registered
investment companies that trade on an exchange are valued at the last sales
price or official closing price as of the close of the customary trading
session on the exchange where the security is principally traded.
Debt obligations (including convertible bonds) and unlisted equities 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.
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. If market quotations are available and reliable for
foreign exchange traded equity securities, the securities will be valued at
the market quotations. Because trading hours for certain foreign securities
end before the close of the NYSE, closing market quotations may become
unreliable. If
AIM V.I. Technology Fund
between the time trading ends on a particular security and the close of the
customary trading session on the NYSE, events occur that are significant
and may make the closing price unreliable, the Fund may fair value the
security. 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 prices are not provided by any of the above
methods may be valued based upon quotes furnished by independent sources
and are valued at the last bid price in the case of equity securities and
in the case of debt obligations, the mean between the last bid and asked
prices.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date.
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 the 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 to distribute substantially all of the
Fund's taxable earnings to shareholders. As such, the Fund will not be
subject to federal income taxes on otherwise taxable income (including net
realized capital gain) that 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. ACCOUNTING ESTIMATES -- 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.
H. INDEMNIFICATIONS -- 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.
I. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in
foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held. The combined results of changes in foreign
exchange rates and the fluctuation of market prices on investments (net of
estimated foreign tax withholding) are included with the net realized and
unrealized gain or loss from investments in the Statement of Operations.
Reported net realized foreign currency gains or losses arise from (i) sales
of foreign currencies, (ii) currency gains or losses realized between the
trade and settlement dates on securities transactions, and (iii) the
difference between the amounts of dividends, interest, and foreign
withholding taxes recorded on the Fund's books
AIM V.I. Technology 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.
The Fund may invest in foreign securities which may be subject to foreign
taxes on income, gains on investments or currency repatriation, a portion
of which may be recoverable. Taxes are accrued based on the Fund's current
interpretation of tax regulations and rates that exist in the foreign
markets in which the Fund invests.
J. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security.
Fluctuations in the value of these contracts are recorded as unrealized
appreciation (depreciation) until the contracts are closed. When these
contracts are closed, realized gains (losses) are recorded. Realized and
unrealized gains and losses on these contracts are included in the
Statement of Operations. The Fund could be exposed to risk, which may be in
excess of the amount reflected in the Statement of Assets and Liabilities,
if counterparties to the contracts are unable to meet the terms of their
contracts or if the value of the foreign currency changes unfavorably.
K. COVERED CALL OPTIONS -- The Fund may write call options. A call option
gives the purchaser of such option the right to buy, and the writer (the
Fund) the obligation to sell, the underlying security at the stated
exercise price during the option period. Written call options are recorded
as a liability in the Statement of Assets and Liabilities. The amount of
the liability is subsequently "marked-to-market" to reflect the current
market value of the option written. 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. Realized gains and losses on these contracts
are included in the Statement of Operations. 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.
L. PUT OPTIONS PURCHASED -- The Fund may purchase put options including
options on securities indexes and/or futures contracts. By purchasing a put
option, the Fund obtains the right (but not the obligation) to sell the
option's underlying instrument at a fixed strike price. In return for this
right, the Fund pays an option premium. The option's underlying instrument
may be a security, securities index, or a futures contract. Put options may
be used by the Fund to hedge securities it owns by locking in a minimum
price at which the Fund can sell. If security prices fall, the put option
could be exercised to offset all or a portion of the Fund's resulting
losses. At the same time, because the maximum the Fund has at risk is the
cost of the option, purchasing put options does not eliminate the potential
for the Fund to profit from an increase in the value of the securities
hedged. 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.
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.
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 at least 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. In addition, the Fund may also benefit from a one time credit to be used
to offset future custodian expenses. These credits are used to pay certain
expenses incurred by the Fund. AIM did not waive fees and/or reimburse expenses
during the period under this expense limitation.
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in
the amount of 25% of the advisory fee AIM receives from the affiliated money
market funds on investments by the Fund in such affiliated money market funds
(excluding investments made in affiliated money market funds with cash
collateral from securities loaned by the fund). Voluntary fee waivers or
reimbursements may be modified or discontinued at any time upon consultation
with the Board of Trustees without further notice to investors.
For the year ended December 31, 2006, AIM waived advisory fees of $1,278.
At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the year ended December 31, 2006, AMVESCAP did not
reimburse any such expenses.
The Trust has entered into a master administrative services agreement with
AIM pursuant to which the Fund 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
AIM V.I. Technology Fund
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. The
Fund may reimburse AIM for up to 0.25% of average daily assets invested by each
insurance company providing administrative services to the Fund. Pursuant to
such agreement, for the year ended December 31, 2006, AIM was paid $50,000 for
accounting and fund administrative services and reimbursed $449,415 for services
provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with AIM
Investment Services, Inc. ("AIS") pursuant to which the Fund has agreed to pay
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 year ended December 31, 2006, expenses incurred under the
agreement are shown in the Statement of Operations as transfer agent fees.
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 Plan payments, 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. For the year ended December 31, 2006, expenses
incurred under the Plan are shown in the Statement of Operations as distribution
fees.
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 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 year ended
December 31, 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) 12/31/06 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ -- $22,316,665 $(20,777,812) $ -- $1,538,853 $ 45,331 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
Premier
Portfolio-
Institutional
Class 6,911,034 69,428,347 (74,800,528) -- 1,538,853 196,595 --
==================================================================================================================================
Subtotal $6,911,034 $91,745,012 $(95,578,340) $ -- $3,077,706 $241,926 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</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) 12/31/06 INCOME* GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Premier
Portfolio-
Institutional
Class $1,989,759 $105,804,234 $(102,460,825) $ -- $5,333,168 $ 33,706 $ --
==================================================================================================================================
Total
Investments
in
Affiliates $8,900,793 $197,549,246 $(198,039,165) $ -- $8,410,874 $275,632 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</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 year ended December 31, 2006, the Fund
engaged in securities sales of $492,336, which resulted in net realized gains
(losses) of $(35,425), and securities purchases of $2,085,540.
NOTE 5--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) custodian credits which
result from periodic overnight cash balances at the custodian and (ii) a one
time custodian fee credit to be used to offset future custodian fees. For the
year ended December 31, 2006, the Fund received credits from these arrangements,
which resulted in the reduction of the Fund's total expenses of $4,849.
AIM V.I. Technology Fund
NOTE 6--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to each Trustee and Officer of the Fund who is not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Fund, and "Trustees' and Officer's Fees and Benefits" also
include amounts accrued by the Fund to fund such deferred compensation amounts.
Those Trustees who defer compensation have the option to select various AIM
Funds in which their deferral accounts shall be deemed to be invested. Finally,
current Trustees are eligible to participate in a retirement plan that provides
for benefits to be paid upon retirement to Trustees over a period of time based
on the number of years of service. The Fund may have certain former Trustees who
also participate in a retirement plan and receive benefits under such plan.
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to fund such retirement benefits. Obligations under the deferred compensation
and retirement plans represent unsecured claims against the general assets of
the Fund.
During the year ended December 31, 2006, the Fund paid legal fees of $4,436
for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the
Independent Trustees. A member of that firm is a Trustee of the Trust.
NOTE 7--BORROWINGS
Pursuant to an exemptive order from the SEC, the Fund may participate in an
interfund lending facility that AIM has established for temporary borrowings by
the AIM Funds. An interfund loan will be made under this facility only if the
loan rate (an average of the rate available on bank loans and the rate available
on investments in overnight repurchase agreements) is favorable to both the
lending fund and the borrowing fund. A loan will be secured by collateral if the
Fund's aggregate borrowings from all sources exceeds 10% of the Fund's total
assets. To the extent that the loan is required to be secured by collateral, the
collateral is marked to market daily to ensure that the market value is at least
102% of the outstanding principal value of the loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended December 31, 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 bank 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 contractually agreed upon rate.
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 December 31, 2006, securities with an aggregate value of $5,114,853 were
on loan to brokers. The loans were secured by cash collateral of $5,333,168
received by the Fund and subsequently invested in an affiliated money market
fund. For the year ended December 31, 2006, the Fund received dividends on cash
collateral investments of $33,706 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 1,859 169,790
- ------------------------------------------------------------------------------------
Closed (66) (15,971)
- ------------------------------------------------------------------------------------
Exercised (1,469) (119,786)
- ------------------------------------------------------------------------------------
Expired (489) (73,506)
====================================================================================
End of period -- $ --
____________________________________________________________________________________
====================================================================================
</Table>
AIM V.I. Technology Fund
NOTE 10--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
There were no ordinary income or long-term capital gain distributions paid
during the years ended December 31, 2006 and 2005.
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2006, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2006
- -----------------------------------------------------------------------------
Net unrealized appreciation-investments $ 26,203,151
- -----------------------------------------------------------------------------
Temporary book/tax differences (42,575)
- -----------------------------------------------------------------------------
Capital loss carryover (491,146,511)
- -----------------------------------------------------------------------------
Post-October currency loss deferral (17,220)
- -----------------------------------------------------------------------------
Shares of beneficial interest 638,457,778
=============================================================================
Total net assets $ 173,454,623
_____________________________________________________________________________
=============================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales and certain straddles and the treatment of partnerships. The
tax-basis net unrealized appreciation on investments amount includes
appreciation (depreciation) on foreign currencies of $6,133.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan benefits.
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, 2006 to utilizing $487,453,426 of capital loss carryforward in the fiscal
year ended December 31, 2007.
The Fund utilized $21,010,598 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of December 31, 2006 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
December 31, 2007 $ 47,350,013
- -----------------------------------------------------------------------------
December 31, 2008 256,455,919
- -----------------------------------------------------------------------------
December 31, 2009 153,547,080
- -----------------------------------------------------------------------------
December 31, 2010 33,793,499
=============================================================================
Total capital loss carryforward $491,146,511
_____________________________________________________________________________
=============================================================================
</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 at such date, the capital loss carryforward may be further limited
for up to five years from the date of the reorganization.
NOTE 11--INVESTMENT SECURITIES
The aggregate amount of investment securities (other than short-term securities,
U.S. Treasury obligations and money market funds, if any) purchased and sold by
the Fund during the year ended December 31, 2006 was $206,663,450 and
$236,876,292, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $ 28,311,268
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities (2,114,250)
===============================================================================
Net unrealized appreciation of investment securities $ 26,197,018
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $153,212,729.
</Table>
NOTE 12--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of foreign currency
transactions, net operating losses and partnerships, on December 31, 2006,
undistributed net investment income (loss) was increased by $967,295,
undistributed net realized gain (loss) was increased by $80,924 and shares of
beneficial interest decreased by $1,048,219. This reclassification had no effect
on the net assets of the Fund.
AIM V.I. Technology Fund
NOTE 13--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED
DECEMBER 31,
--------------------------------------------------------
2006(A) 2005
-------------------------- --------------------------
SHARES AMOUNT SHARES AMOUNT
- ----------------------------------------------------------------------------------------------------------------------
Sold:
Series I 1,867,275 $ 24,826,913 4,018,565 $ 48,024,772
- ----------------------------------------------------------------------------------------------------------------------
Series II 870 10,943 11,967 142,892
======================================================================================================================
Reacquired:
Series I (4,533,608) (59,326,847) (5,144,542) (61,140,205)
- ----------------------------------------------------------------------------------------------------------------------
Series II (2,551) (33,581) (14,093) (168,922)
======================================================================================================================
(2,668,014) $(34,522,572) (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 the aggregate they own 69% of the
outstanding shares of the Fund. The Fund and the Fund's principal
underwriter or advisor, are parties to participation agreements with these
entities whereby these entities sell units of interest in separate accounts
funding variable products that are invested in the Fund. The Fund, AIM,
and/or AIM affiliates may make payments to these entities, which are
considered to be related to the Fund, for providing services to the Fund,
AIM and/or AIM affiliates including but not limited to services such as,
securities brokerage, third party record keeping and account servicing and
administrative services. The Trust has no knowledge as to whether all or any
portion of the shares owned of record by these entities are also owned
beneficially.
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 for 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
currently intends for the Fund to adopt FIN 48 provisions during the fiscal year
ended December 31, 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
-----------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
2006 2005 2004 2003 2002
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 12.69 $ 12.42 $ 11.87 $ 8.17 $ 15.37
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) (0.08) (0.07) (0.04)(a) (0.08) (0.00)(b)
- -------------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 1.41 0.34 0.59 3.78 (7.20)
=========================================================================================================================
Total from investment operations 1.33 0.27 0.55 3.70 (7.20)
=========================================================================================================================
Net asset value, end of period $ 14.02 $ 12.69 $ 12.42 $ 11.87 $ 8.17
_________________________________________________________________________________________________________________________
=========================================================================================================================
Total return(c) 10.48% 2.17% 4.63% 45.29% (46.84)%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $173,321 $190,700 $200,556 $171,546 $105,508
_________________________________________________________________________________________________________________________
=========================================================================================================================
Ratio of expenses to average net assets 1.12%(d) 1.12% 1.15% 1.10% 1.11%
=========================================================================================================================
Ratio of net investment income (loss) to average net assets (0.54)%(d) (0.60)% (0.39)%(a) (0.85)% (0.96)%
_________________________________________________________________________________________________________________________
=========================================================================================================================
Portfolio turnover rate 116% 114% 137% 89% 92%
_________________________________________________________________________________________________________________________
=========================================================================================================================
</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) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns do not reflect charges assessed
in connection with a variable product, which if included would reduce
total returns.
(d) Ratios are based on average daily net assets of $181,889,717.
AIM V.I. Technology Fund
NOTE 15--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
SERIES II
------------------------------------------
APRIL 30, 2004
YEAR ENDED (DATE SALES
DECEMBER 31, COMMENCED) TO
--------------------- 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) (0.12) (0.11) (0.05)(a)
- --------------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 1.41 0.34 1.35
========================================================================================================
Total from investment operations 1.29 0.23 1.30
========================================================================================================
Net asset value, end of period $ 13.91 $ 12.62 $12.39
________________________________________________________________________________________________________
========================================================================================================
Total return(b) 10.22% 1.86% 11.72%
________________________________________________________________________________________________________
========================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $ 134 $ 142 $ 166
________________________________________________________________________________________________________
========================================================================================================
Ratio of expenses to average net assets 1.37%(c) 1.37% 1.40%(d)
========================================================================================================
Ratio of net investment income (loss) to average net assets (0.79)%(c) (0.85)% (0.64)%(a)(d)
________________________________________________________________________________________________________
========================================================================================================
Portfolio turnover rate(e) 116% 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 based on average daily net assets of $144,092.
(d) Annualized.
(e) Portfolio turnover is calculated at the fund level and is not annualized
for periods less than one year.
AIM V.I. Technology Fund
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. 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 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; 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. On September 15, 2006, the
MDL Court granted the AMVESCAP defendants' motion to dismiss the Amended Class
Action Complaint for Violations of ERISA and dismissed such Complaint. The
plaintiff has commenced an appeal from that decision.
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.
AIM V.I. Technology Fund
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V.I. Technology Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM V.I. Technology Fund (one of
the funds constituting AIM Variable Insurance Funds, hereafter referred to as
the "Fund") at December 31, 2006, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for the each of the periods
indicated, in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 2006 by correspondence with the custodian and brokers, provide a
reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
February 14, 2007
Houston, Texas
AIM V.I. Technology Fund
TRUSTEES AND OFFICERS
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management None
Trustee and Vice Chair Group Inc. (financial services holding
company); Director and Vice Chairman,
AMVESCAP PLC; Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm) and
Trustee and Vice Chair of The AIM Family
of Funds--Registered Trademark--
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer);
Chief Executive Officer, AMVESCAP
PLC -- Managed Products; and President
and Principal Executive Officer of The
AIM Family of Funds--Registered
Trademark--
- -------------------------------------------------------------------------------------------------------------------------------
Philip A. Taylor(2) -- 1954 2006 Director, Chief Executive Officer and None
Trustee, President and President, A I M Management Group Inc.,
Principal AIM Mutual Fund Dealer Inc. (registered
Executive Officer broker dealer), AIM Funds Management
Inc. (registered investment advisor) and
1371 Preferred Inc. (holding company);
Director and President, A I M Advisors,
Inc., INVESCO Funds Group, Inc.
(registered investment advisor and
register transfer agent) and AIM GP
Canada Inc. (general partner for a
limited partnership); Director, A I M
Capital Management, Inc. and A I M
Distributors, Inc.; Director and
Chairman, AIM Investment Services, Inc.,
Fund Management Company and INVESCO
Distributors, Inc. (registered broker
dealer); Director, President and
Chairman, AVZ Callco Inc. (holding
company); AMVESCAP Inc. (holding
company) and AIM Canada Holdings Inc.
(holding company); Director and Chief
Executive Officer, AIM Trimark Corporate
Class Inc. (formerly AIM Trimark Global
Fund Inc.) (corporate mutual fund
company) and AIM Trimark Canada Fund
Inc. (corporate mutual fund company);
Trustee, President and Principal
Executive Officer of The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); Trustee and
Executive Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); and Manager,
Powershares Capital Management LLC
Formerly: President and Principal
Executive Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); Chairman, AIM
Canada Holdings, Inc.; Executive Vice
President and Chief Operations Officer,
AIM Funds Management Inc.; President,
AIM Trimark Global Fund Inc. and AIM
Trimark Canada Fund Inc.; and Director,
Trimark Trust (federally regulated
Canadian Trust Company)
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company
Formerly: Partner, law firm of Baker & (2 portfolios))
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Founder, Green, Manning & Bunch Ltd., None
Trustee (investment banking firm); and Director,
Policy Studies, Inc. and Van Gilder
Insurance Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and None
Trustee private business corporations, including
the Boss Group Ltd. (private investment
and management); Cortland Trust, Inc.
(Chairman) (registered investment
company (3 portfolios)); Annuity and
Life Re (Holdings), Ltd. (insurance
company); CompuDyne Corporation
(provider of products and services to
the public security market); and
Homeowners of America Holding
Corporation (property casualty company)
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and Director of various
affiliated Volvo companies; and
Director, Magellan Insurance Company
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund
company); and Owner, Dos Angelos Ranch, (non-profit)
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- -------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company
(3 portfolios))
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired Director, Mainstay VP Series
Trustee Formerly: Partner, Deloitte & Touche Funds, Inc. (21 portfolios)
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
(2) Mr. Taylor is considered an interested person of the Trust because he is an
officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
TRUSTEES AND OFFICERS--(CONTINUED)
AIM V.I. Technology Fund
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Senior Vice President and Senior Officer N/A
Senior Vice President and of The AIM Family of Funds--Registered
Senior Officer Trademark--
Formerly: Director of Compliance and
Assistant General Counsel, ICON
Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
John M. Zerr -- 1962 2006 Director, Senior Vice President, N/A
Senior Vice President, Chief Secretary and General Counsel, A I M
Legal Officer and Secretary Management Group Inc. and A I M
Advisors, Inc.; Director, Vice President
and Secretary, INVESCO Distributors,
Inc.; Vice President and Secretary,
A I M Capital Management, Inc., AIM
Investment Services, Inc., and Fund
Management Company; Senior Vice
President and Secretary, A I M
Distributors, Inc.; Director and Vice
President, INVESCO Funds Group Inc.;
Senior Vice President, Chief Legal
Officer and Secretary of The AIM Family
of Funds--Registered Trademark--; and
Manager, Powershares Capital Management
LLC
Formerly: Chief Operating Officer,
Senior Vice President, General Counsel,
and Secretary, Liberty Ridge Capital,
Inc. (an investment adviser); Vice
President and Secretary, PBHG Funds (an
investment company); Vice President and
Secretary, PBHG Insurance Series Fund
(an investment company); General Counsel
and Secretary, Pilgrim Baxter Value
Investors (an investment adviser); Chief
Operating Officer, General Counsel and
Secretary, Old Mutual Investment
Partners (a broker-dealer); General
Counsel and Secretary, Old Mutual Fund
Services (an administrator); General
Counsel and Secretary, Old Mutual
Shareholder Services (a shareholder
servicing center); Executive Vice
President, General Counsel and
Secretary, Old Mutual Capital, Inc. (an
investment adviser); and Vice President
and Secretary, Old Mutual Advisors Funds
(an investment company)
- ------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Global Compliance Director, AMVESCAP N/A
Vice President PLC; and Vice President of The AIM
Family of Funds--Registered Trademark--
Formerly: Senior Vice President, A I M
Management Group Inc. (financial
services holding company); Senior Vice
President and Chief Compliance Officer,
A I M Advisors, Inc. and The AIM Family
of Funds--Registered Trademark--; Vice
President and Chief Compliance Officer,
A I M Capital Management, Inc. and A I M
Distributors, Inc.; Vice President, AIM
Investment Services, Inc. and Fund
Management Company; Senior Vice
President and Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; and Senior Vice President
and Compliance Director, Delaware
Investments Family of Funds
- ------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Senior Vice President and General
Vice President Counsel, AMVESCAP PLC; Director, INVESCO
Funds Group, Inc.; and Vice President of
The AIM Family of Funds--Registered
Trademark--
Formerly: Director, Vice President and N/A
General Counsel, Fund Management
Company; Director, Senior Vice
President, Secretary and General
Counsel, A I M Management Group Inc. and
A I M Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Senior Vice President, A I M
Distributors, Inc.; Vice President,
A I M Capital Management, Inc. and AIM
Investment Services, Inc.; Senior Vice
President, Chief Legal Officer and
Secretary of The AIM Family of
Funds--Registered Trademark--; Chief
Executive Officer and President, INVESCO
Funds Group, Inc.; and Senior Vice
President, and General Counsel, Liberty
Financial Companies, Inc. and Senior
Vice President and General Counsel
Liberty Funds Group, LLC
- ------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President, Principal Advisors, Inc.; and Vice President,
Financial Officer and Treasurer and Principal Officer of The
Treasurer AIM Family of Funds--Registered
Trademark--
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
J. Philip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment Officer, A I M Advisors Inc.;
Director, Chairman, Chief Executive
Officer, President and Chief Investment
Officer, A I M Capital Management, Inc.;
Executive Vice President, A I M
Management Group Inc. and Vice President
of The AIM Family of Funds--Registered
Trademark--
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; and
Chief Equity Officer, Senior Vice
President and Senior Investment Officer,
A I M Capital Management, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc. and The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); and
President and Principal Executive
Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust Only)
Formerly: Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only)
- ------------------------------------------------------------------------------------------------------------------------------
Lance A. Rejsek -- 1967 2005 Anti-Money Laundering Compliance N/A
Anti-Money Laundering Officer, A I M Advisors, Inc., A I M
Compliance Officer Capital Management, Inc., A I M
Distributors, Inc., AIM Investment
Services, Inc., AIM Private Asset
Management, Inc., Fund Management
Company and The AIM Family of
Funds--Registered Trademark--
Formerly: Manager of the Fraud
Prevention Department, AIM Investment
Services, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
Todd L. Spillane -- 1958 2006 Senior Vice President, A I M Management N/A
Chief Compliance Officer Group Inc.; Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc.; and Vice President,
A I M Distributors, Inc., AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Global Head of Product
Development, AIG-Global Investment
Group, Inc.; Chief Compliance Officer
and Deputy General Counsel,
AIG-SunAmerica Asset Management; and
Chief Compliance Officer, Chief
Operating Officer and Deputy General
Counsel, American General Investment
Management
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers
Suite 100 11 Greenway Plaza Inc. LLP
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Ballard Spahr INDEPENDENT TRUSTEES AIM Investment State Street Bank and
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis Services, Inc. Trust Company
1735 Market Street, 51st & Frankel LLP P.O. Box 4739 225 Franklin Street
Floor 1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Philadelphia, PA 19103-7599 Americas
New York, NY 10036-2714
</Table>
SECTOR EQUITY AIM V.I. UTILITIES FUND
Annual Report to Shareholders - December 31, 2006
Sectors
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 [COVER GLOBE IMAGE]
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 in
Washington, D.C. 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 AIM V.I. UTILITIES FUND seeks
to portfolio securities is available capital growth and income.
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 UNLESS OTHERWISE STATED, INFORMATION PRESENTED IN THIS REPORT
site. Go to AIMinvestments.com, access IS AS OF DECEMBER 31, 2006, AND IS BASED ON TOTAL NET ASSETS.
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
[AIM INVESTMENTS LOGO] CHARGES AND EXPENSES. INVESTORS SHOULD READ EACH CAREFULLY
--Registered Trademark-- BEFORE INVESTING.
==========================================================
NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE
Management's discussion of Fund performance AIM V.I. UTILITIES FUND
===================================================================================
An investor preference for dividend-paying equities boosted the performance of - Owning both regulated and unregulated
utilities stocks, helping the Fund post positive returns for the year ended utilities -- unregulated companies
December 31, 2006. The Fund, excluding variable product issuer charges, provide greater growth potential, while
outperformed its broad market index, the S&P 500 --Registered Trademark-- Index, regulated firms provide more stable
as utilities was one of the better performing sectors during the year. Utilities dividends and principal.
stocks benefited from an increase in merger and acquisition activity, as well as
investor preference for their generally more defensive character and their - Generally avoiding excessive
tendency to pay dividends. concentration of assets in a small
number of stocks.
Your Fund's long-term performance appears on pages 4-5.
- Maintaining a reasonable cash position
FUND VS. INDEXES to avoid having to sell stocks during
market downturns.
Total returns, 12/31/05 - 12/31/06, excluding variable product issuer charges.
If variable product issuer charges were included, returns would be lower. We may sell a stock for any of the
following reasons:
Series I Shares 25.46%
Series II Shares 25.25 - Earnings growth is threatened because
S&P 500 Index (Broad Market Index) 15.78 of deterioration in the firm's
Lipper Utility Funds Index (Peer Group Index) 26.89 fundamentals or change in the operating
environment.
SOURCE: LIPPER INC. - Valuation becomes too high.
===================================================================================
- Corporate strategy changes.
HOW WE INVEST
MARKET CONDITIONS AND YOUR FUND
We invest primarily in natural gas, state markets, and that are attractively
electricity and telecommunication valued relative to the rest of the The year started off on a positive note
services companies, selecting stocks market. We also monitor and may adjust as the markets were encouraged by strong
based on our quantitative and industry and position weights according economic data. However, tensions in the
fundamental analysis of individual to prevailing economic trends such as Middle East escalated with the
companies. Our quantitative analysis gross domestic product (GDP) growth and Israel-Lebanon conflict, residential
focuses on positive cash flows and interest rate changes. housing markets showed signs of cooling
predictable earnings. Our fundamental and rising energy prices heightened
analysis seeks strong balance sheets, We control risk by: inflation concerns. These factors led to
competent management and sustainable a slight sell-off in the markets mid way
dividends and distributions. - Diversifying across most industries through the year as investors became
and sub-industries within the utilities concerned about an economic downturn.
We look for companies that could sector. However, the markets staged a rally
potentially benefit from industry beginning in August after the Fed held
trends, such as increased demand for interest rates steady after 17
certain products and deregulation of consecutive increases. Also contributing
=================================================================================== to the rally was a series of solid
economic reports that indicated the
PORTFOLIO COMPOSITION TOP 10 EQUITY HOLDINGS* economy, while slowing, continued to
- ----------------------------------------------------------------------------------- expand, and inflation remained within
By industry 1. AT&T Inc. 5.2% manageable levels.
Electric Utilities 29.8% 2. TXU Corp. 5.2
Multi-Utilities 26.7 3. Duke Energy Corp. 4.9 Against this backdrop,
Integrated Telecommunication 4. Exelon Corp. 4.7 telecommunication services, energy and
Services 11.2 5. NRG Energy, Inc. 4.4 utilities were the best-performing
Independent Power Producers & 6. Sempra Energy 4.3 sectors of the S&P 500 Index. Investor
Energy Traders 11.0 7. Entergy Corp. 4.2 preference for utilities stocks, based
Gas Utilities 8.3 8. Verizon Communications Inc. 4.2 on their generally more defensive
Oil & Gas Storage & 9. FPL Group, Inc. 4.0 character and tendency to pay dividends,
Transportation 6.4 10. Edison International 4.0 increased during the year, bolstered by
Water Utilities 1.6 evidence of a slowing economy, low
Money Market Funds Plus Total Net Assets $141.54 million interest rates and lower energy costs.
Other Assets Less Liabilities 5.0 Utilities stocks tend to be sensitive to
Total Number of Holdings* 33 interest rate
*Excluding money market fund holdings.
The Fund's holdings are subject to change, and there is no assurance that the
Fund will continue to hold any particular security.
===================================================================================================================================
2
AIM V.I. UTILITIES FUND
movements because they generally pay lower financial results. We continued to
dividends and are particularly own the stock, as we believe the company John S. Segner
attractive when interest rates are low. is making progress and acquiring new [SEGNER Senior portfolio manager
An increase in merger and acquisition water systems. PHOTO] is lead manager of AIM V.I.
activity, particularly in the integrated Utilities Fund. Mr. Segner
telecommunication services industry, During the year, the reduced has more than 20 years of
also helped to strengthen stocks within federal income tax rate for qualified experience in the energy and investment
the utilities sector. For the year, our dividends, which has made utilities industries. Before joining the Fund's advisor
holdings in electric utilities, stocks attractive to investors, was in 1997, he was managing director and
multi-utilities and integrated extended. However, we remained modestly principal with an investment management
telecommunication services companies had concerned about interest rate and company that focused exclusively on
the most positive impact on Fund inflationary trends. We continued to publicly-traded energy stocks. Prior to that,
performance. maintain our focus on holding what we he held positions with several energy
believed were the favorably priced companies. Mr. Segner holds a B.S. in civil
A number of the Fund's integrated stocks of strong companies with engineering from the University of
telecommunications holdings performed reasonable growth prospects and Alabama and an M.B.A. with a
well during the year; our largest attractive dividend yields. concentration in finance from The
holding, AT&T, in particular was a University of Texas at Austin.
notable contributor. The company IN CLOSING
provides various landline Assisted by the Energy/Gold/Utilities Team
telecommunication services, as well as Over the past 12 months, the Fund has
satellite television services and experienced strong double-digit returns.
wireless voice and data communication It would be imprudent for us to suggest
services in the United States. Recently, that such a level of performance is
the company completed its acquisition of sustainable over the long term.
BellSouth, thus consolidating its
ownership and management of joint As always, we thank you for your
venture Cingular Wireless. With the continued investment and welcome any new
merger complete, we believe AT&T may be investors to AIM V.I. Utilities Fund.
able to expand its broadband, wireless
and television services while preserving THE VIEWS AND OPINIONS EXPRESSED IN
its core phone business. MANAGEMENT'S DISCUSSION OF FUND
PERFORMANCE ARE THOSE OF A I M ADVISORS,
Electric utility provider FPL INC. THESE VIEWS AND OPINIONS ARE
GROUP also contributed positively to SUBJECT TO CHANGE AT ANY TIME BASED ON
performance over the year. A FACTORS SUCH AS MARKET AND ECONOMIC
Florida-based company, FPL is one of the CONDITIONS. THESE VIEWS AND OPINIONS MAY
largest and fastest growing domestic NOT BE RELIED UPON AS INVESTMENT ADVICE
utilities. FPL operates in a variety of OR RECOMMENDATIONS, OR AS AN OFFER FOR A
growing non-regulated businesses and is PARTICULAR SECURITY. THE INFORMATION IS
aggressively growing that part of the NOT A COMPLETE ANALYSIS OF EVERY ASPECT
business. OF ANY MARKET, COUNTRY, INDUSTRY,
SECURITY OR THE FUND. STATEMENTS OF FACT
Detractors to Fund performance ARE FROM SOURCES CONSIDERED RELIABLE,
were minimal. Our exposure to water BUT A I M ADVISORS, INC. MAKES NO
utilities was the only detractor from REPRESENTATION OR WARRANTY AS TO THEIR
performance. In fact, only one holding, COMPLETENESS OR ACCURACY. ALTHOUGH
AQUA AMERICA, was down for the year. HISTORICAL PERFORMANCE IS NO GUARANTEE
Aqua America is a holding company for OF FUTURE RESULTS, THESE INSIGHTS MAY
regulated utilities providing water or HELP YOU UNDERSTAND OUR INVESTMENT
wastewater services primarily in the MANAGEMENT PHILOSOPHY.
United States. Shares of the stock
declined after the company reported
FOR A DISCUSSION OF THE RISKS OF
INVESTING IN YOUR FUND, INDEXES USED IN
THIS REPORT AND YOUR FUND'S LONG-TERM
PERFORMANCE, PLEASE SEE PAGES 4-5.
3
AIM V.I. UTILITIES FUND
YOUR FUND'S LONG-TERM PERFORMANCE
========================================
AVERAGE ANNUAL TOTAL RETURNS SHARES (FOR PERIODS PRIOR TO INCEPTION ASSESSED IN CONNECTION WITH A VARIABLE
OF SERIES II SHARES) ADJUSTED TO REFLECT PRODUCT. SALES CHARGES, EXPENSES AND
As of 12/31/06 THE RULE 12b-1 FEES APPLICABLE TO SERIES FEES, WHICH ARE DETERMINED BY THE
SERIES I SHARES II SHARES. THE PERFORMANCE OF THE FUND'S VARIABLE PRODUCT ISSUERS, WILL VARY AND
Inception (12/30/94) 8.75% SERIES I AND SERIES II SHARE CLASSES WILL LOWER THE TOTAL RETURN.
10 Years 8.33 WILL DIFFER PRIMARILY DUE TO DIFFERENT
5 Years 11.13 CLASS EXPENSES. THE PERFORMANCE DATA PER NASD REQUIREMENTS, THE MOST
1 Year 25.46 QUOTED REPRESENT PAST PERFORMANCE AND RECENT MONTH-END PERFORMANCE DATA AT THE
CANNOT GUARANTEE COMPARABLE FUTURE FUND LEVEL, EXCLUDING VARIABLE PRODUCT
Series II Shares RESULTS; CURRENT PERFORMANCE MAY BE CHARGES, IS AVAILABLE ON THIS AIM
10 Years 8.07% LOWER OR HIGHER. PLEASE CONTACT YOUR AUTOMATED INFORMATION LINE,
5 Years 10.87 VARIABLE PRODUCT ISSUER OR FINANCIAL 866-702-4402. AS MENTIONED ABOVE, FOR
1 Year 25.25 ADVISOR FOR THE MOST RECENT MONTH-END THE MOST RECENT MONTH-END PERFORMANCE
======================================== VARIABLE PRODUCT PERFORMANCE. INCLUDING VARIABLE PRODUCT CHARGES,
PERFORMANCE FIGURES REFLECT FUND PLEASE CONTACT YOUR VARIABLE PRODUCT
CUMULATIVE TOTAL RETURNS EXPENSES, REINVESTED DISTRIBUTIONS AND ISSUER OR FINANCIAL ADVISOR.
CHANGES IN NET ASSET VALUE. INVESTMENT
6 months ended 12/31/06 RETURN AND PRINCIPAL VALUE WILL
FLUCTUATE SO THAT YOU MAY HAVE A GAIN OR
Series I Shares 16.51% LOSS WHEN YOU SELL SHARES.
Series II Shares 16.40
========================================
AIM V.I. UTILITIES FUND, A SERIES
SERIES II SHARES' INCEPTION DATE IS PORTFOLIO OF AIM VARIABLE INSURANCE
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 NOT
HISTORICAL PERFORMANCE OF SERIES I INTENDED TO REFLECT ACTUAL VARIABLE
PRODUCT VALUES. THEY DO NOT REFLECT
SALES CHARGES, EXPENSES AND FEES
===================================================================================================================================
PRINCIPAL RISKS OF INVESTING IN THE FUND Investing in emerging markets In conjunction with the annual
involves greater risk than investing in prospectus update on or about May 1,
The prices of securities held by the more established markets. The risks 2007, the AIM V.I Utilities Fund
Fund may decline in response to market include the relatively smaller size and prospectus will be amended to reflect
risks. lesser liquidity of these markets, high that the Fund has elected to use the
inflation rates, adverse political Lipper VUF Utilities Funds Index as its
Investing in a fund that invests developments and lack of timely peer group rather than the Lipper
in smaller companies involves risks not information. Utilities Funds Index. The Lipper
associated with investing in more Variable Underlying Funds (VUF)
established companies, such as business If the seller of a repurchase Utilities Funds Index, recently
risk, stock price fluctuations and agreement in which the Fund invests published by Lipper Inc., comprises the
illiquidity. defaults on its obligation or declares underlying funds in each variable
bankruptcy, the Fund may experience insurance category and does not include
Foreign securities have additional delays in selling the securities mortality and expense fees.
risks, including exchange rate changes, underlying there purchase agreement.
political and economic upheaval, the The Fund is not managed to track
relative lack of information about these There is no guarantee that the the performance of any particular index,
companies, relatively low market investment techniques and risk analyses including the indexes defined here, and
liquidity and the potential lack of used by the Fund's portfolio managers consequently, the performance of the
strict financial and accounting controls will produce the desired results. Fund may deviate significantly from the
and standards. performance of the indexes.
ABOUT INDEXES USED IN THIS REPORT
The Fund may use enhanced A direct investment cannot be made
investment techniques such as The unmanaged STANDARD & POOR'S in an index. Unless otherwise indicated,
derivatives. The principal risk of COMPOSITE INDEX OF 500 STOCKS (the S&P index results include reinvested
investments in derivatives is that the 500 Index) is an index of common stocks dividends, and they do not reflect sales
fluctuations in their values may not frequently used as a general measure of charges. Performance of an index of
correlate perfectly with the overall U.S. stock market performance. funds reflects fund expenses;
securities markets. Derivatives are performance of a market index does not.
subject to counter party risk -- the The unmanaged LIPPER UTILITY FUNDS
risk that the other party will not INDEX represents an average of the 10
complete the transaction with the Fund. largest utility funds tracked by Lipper
Inc., an independent mutual fund
performance monitor.
Continued on page 5
4
AIM V.I. UTILITIES FUND
Past performance cannot guarantee
comparable future results.
This chart, which is a logarithmic representing a percent change in the
chart, presents the fluctuations in the value of the investment. In this chart,
value of the Fund and its indexes. We each segment represents a doubling, or
believe that a logarithmic chart is more 100% change, in the value of the
effective than other types of charts in investment. In other words, the space
illustrating changes in value during the between $5,000 and $10,000 is the same
early years shown in the chart. The size as the space between $10,000 and
vertical axis, the one that indicates $20,000, and so on.
the dollar value of an investment, is
constructed with each segment
===================================================================================================================================
Continued from page 4
OTHER INFORMATION Industry classifications used in
this report are generally according to
The returns shown in management's the Global Industry Classification
discussion of Fund performance are based Standard, which was developed by and is
on net asset values calculated for the exclusive property and a service
shareholder transactions. Generally mark of Morgan Stanley Capital
accepted accounting principles require International Inc. and Standard &
adjustments to be made to the net assets Poor's.
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.
5
==================================================================================================================================
[MOUNTAIN CHART]
RESULTS OF A $10,000 INVESTMENT
Fund data from 12/30/94, index data from 12/31/94
Date AIM V.I. Utilities Fund-Series I Shares S&P 500 Index Lipper Utility Funds Index
- ----------------------------------------------------------------------------------------------------------------------------------
12/30/94 $10000
12/94 10000 $10000 $10000
1/95 10040 10259 10360
2/95 10090 10659 10456
3/95 10090 10973 10447
4/95 10100 11295 10676
5/95 10120 11746 11101
6/95 10110 12019 11131
7/95 10110 12417 11273
8/95 10131 12448 11404
9/95 10180 12973 11900
10/95 10240 12927 11998
11/95 10601 13493 12231
12/95 10909 13753 12711
1/96 10969 14221 12936
2/96 10889 14353 12726
3/96 11050 14491 12662
4/96 11453 14705 12688
5/96 11644 15083 12758
6/96 11815 15141 13122
7/96 11362 14472 12526
8/96 11514 14778 12705
9/96 11634 15609 12826
10/96 11977 16039 13268
11/96 12329 17251 13776
12/96 12302 16909 13897
1/97 12405 17965 14161
2/97 12343 18106 14188
3/97 11942 17363 13761
4/97 12024 18399 13886
5/97 12590 19524 14539
6/97 13095 20392 14984
7/97 13280 22014 15359
8/97 12961 20782 14880
9/97 13754 21919 15739
10/97 13754 21188 15604
11/97 14547 22168 16617
12/97 15182 22548 17470
1/98 15372 22798 17382
2/98 16015 24441 17893
3/98 17185 25691 19202
4/98 16795 25955 18801
5/98 16711 25509 18541
6/98 17059 26544 18906
7/98 17016 26264 18650
8/98 15214 22469 17437
9/98 16258 23910 18712
10/98 17102 25852 19151
11/98 17671 27418 19637
12/98 19051 28997 20684
1/99 19522 30209 20590
2/99 19276 29270 19935
3/99 19480 30441 19914
4/99 20445 31620 21240
5/99 20960 30874 21784
6/99 21270 32583 22085
7/99 21227 31570 22026
8/99 20264 31414 21380
9/99 20436 30554 21335
10/99 21153 32486 22460
11/99 21432 33147 22613
12/99 22699 35096 23690
1/00 23997 33333 24127
2/00 25092 32703 24197
3/00 25925 35900 25372
4/00 24333 34820 24359
5/00 23498 34106 24106
6/00 23672 34946 24078
7/00 23163 34400 23968
8/00 24593 36536 25659
9/00 25166 34608 26485
10/00 24257 34461 25790
11/00 22166 31746 24440
12/00 23895 31902 25721
===================================================================================================================================
Source: Lipper Inc.
===================================================================================================================================
[MOUNTAIN CHART]
1/01 23417 33033 25068
2/01 22759 30023 24548
3/01 21999 28122 24024
4/01 23541 30306 25352
5/01 22077 30509 24798
6/01 19955 29767 23249
7/01 18798 29473 22522
8/01 17640 27630 21719
9/01 15643 25399 20392
10/01 15892 25884 19927
11/01 16065 27869 19823
12/01 16147 28113 20231
1/02 14954 27703 19154
2/02 14438 27169 18618
3/02 15343 28191 19792
4/02 14930 26482 19024
5/02 14335 26288 18418
6/02 13681 24416 17233
7/02 12545 22513 15391
8/02 12729 22661 15727
9/02 11822 20200 14295
10/02 12373 21976 14920
11/02 12591 23268 15496
12/02 12864 21902 15638
1/03 12427 21330 15168
2/03 12081 21009 14658
3/03 12289 21212 14983
4/03 12866 22959 16004
5/03 13995 24167 17327
6/03 14076 24476 17562
7/03 13430 24908 16934
8/03 13569 25393 17000
9/03 13938 25124 17339
10/03 14099 26544 17755
11/03 14273 26778 17942
12/03 15113 28181 19012
1/04 15230 28698 19413
2/04 15568 29097 19820
3/04 15498 28658 19818
4/04 15120 28209 19350
5/04 15251 28595 19422
6/04 15515 29151 19817
7/04 15779 28186 19994
8/04 16162 28299 20516
9/04 16557 28606 20981
10/04 17214 29043 21832
11/04 18255 30217 22852
12/04 18673 31245 23555
1/05 18662 30484 23559
2/05 19237 31125 24154
3/05 19248 30574 24192
4/05 19393 29995 24390
5/05 19703 30948 24804
6/05 20611 30993 25946
7/05 21388 32145 26744
8/05 22058 31852 27183
9/05 23026 32109 28071
10/05 21543 31574 26646
11/05 21520 32767 26901
12/05 21817 32778 27089
1/06 22685 33646 28191
2/06 22832 33737 28417
3/06 22294 34157 28068
4/06 22697 34616 28563
5/06 22942 33620 28581
6/06 23493 33665 29154
7/06 24569 33873 30389
8/06 25242 34677 31091
9/06 24863 35570 31047
10/06 26014 36729 32586
11/06 26993 37426 33788
12/06 27370 37951 34373
===================================================================================================================================
AIM V.I. UTILITIES FUND
CALCULATING YOUR ONGOING FUND EXPENSES
EXAMPLE ACTUAL EXPENSES cumulative total returns at net asset
value after expenses for the six months
As a shareholder of the Fund, you incur The table below provides information ended December 31, 2006, appear in the
ongoing costs, including management about actual account values and actual table "Cumulative Total Returns" on page 4.
fees; distribution and/or service expenses. You may use the information in
(12b-1) fees; and other Fund expenses. this table, together with the amount you The hypothetical account values
This example is intended to help you invested, to estimate the expenses that and expenses may not be used to estimate
understand your ongoing costs (in you paid over the period. Simply divide the actual ending account balance or
dollars) of investing in the Fund and to your account value by $1,000 (for expenses you paid for the period. You
compare these costs with ongoing costs example, an $8,600 account value divided may use this information to compare the
of investing in other mutual funds. The by $1,000 = 8.6), then multiply the ongoing costs of investing in the Fund
example is based on an investment of result by the number in the table under and other funds. To do so, compare this
$1,000 invested at the beginning of the the heading entitled "Actual Expenses 5% hypothetical example with the 5%
period and held for the entire period Paid During Period" to estimate the hypothetical examples that appear in the
July 1, 2006, through December 31, 2006. expenses you paid on your account during shareholder reports of the other funds.
this period.
The actual and hypothetical Please note that the expenses
expenses in the examples below do not HYPOTHETICAL EXAMPLE FOR COMPARISON shown in the table are meant to
represent the effect of any fees or PURPOSES highlight your ongoing costs. Therefore,
other expenses assessed in connection the hypothetical information is useful
with a variable product; if they did, The table below also provides in comparing ongoing costs, and will not
the expenses shown would be higher while information about hypothetical account help you determine the relative total
the ending account values shown would be values and hypothetical expenses based costs of owning different funds.
lower. on the Fund's actual expense ratio and
an assumed rate of return of 5% per year
before expenses, which is not the Fund's
actual return. The Fund's actual
===================================================================================================================================
ACTUAL HYPOTHETICAL
(5% ANNUAL RETURN BEFORE EXPENSES)
BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED
SHARE ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE
CLASS (7/1/06) (12/31/06)(1) PERIOD(2) (12/31/06) PERIOD(2) RATIO
- -----------------------------------------------------------------------------------------------------------------------------------
Series I $ 1,000.00 $ 1,165.10 $ 5.08 $ 1,020.52 $ 4.74 0.93%
Series II 1,000.00 1,164.00 6.44 1,019.26 6.01 1.18
===================================================================================================================================
(1) The actual ending account value is based on the actual total return of the
Fund for the period July 1, 2006, through December 31, 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 December 31, 2006,
appear in the table "Cumulative Total Returns" on page 4.
(2) Expenses are equal to the Fund's annualized expense ratio as indicated
above multiplied by the average account value over the period, multiplied
by 184/365 to reflect the most recent fiscal half year.
6
AIM V.I. UTILITIES FUND
APPROVAL OF INVESTMENT ADVISORY AGREEMENT
The Board of Trustees of AIM Variable - The nature and extent of the advisory taking account of all of the other
Insurance Funds (the "Board") oversees services to be provided by AIM. The factors that the Board considered in
the management of AIM V.I. Utilities Board reviewed the services to be determining whether to continue the
Fund (the "Fund") and, as required by provided by AIM under the Advisory Advisory Agreement for the Fund, the
law, determines annually whether to Agreement. Based on such review, the Board concluded that no changes should
approve the continuance of the Fund's Board concluded that the range of be made to the Fund and that it was not
advisory agreement with A I M Advisors, services to be provided by AIM under the necessary to change the Fund's portfolio
Inc. ("AIM"). Based upon the Advisory Agreement was appropriate and management team at this time. Although
recommendation of the Investments that AIM currently is providing services the independent written evaluation of
Committee of the Board, at a meeting in accordance with the terms of the the Fund's Senior Officer (discussed
held on June 27, 2006, the Board, Advisory Agreement. below) only considered Fund performance
including all of the independent through the most recent calendar year,
trustees, approved the continuance of - The quality of services to be provided the Board also reviewed more recent Fund
the advisory agreement (the "Advisory by AIM. The Board reviewed the performance, which did not change their
Agreement") between the Fund and AIM for credentials and experience of the conclusions.
another year, effective July 1, 2006. officers and employees of AIM who will
provide investment advisory services to - 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 - 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 - The performance of the Fund relative
negotiated to ensure that they are to comparable funds. The Board reviewed - 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 below the effective advisory
independent written evaluation in lieu performance was above the median fee rate (before waivers) for one mutual
of a competitive bidding process and, performance of such comparable funds for fund advised by AIM with investment
upon the direction of the Board, has the one year period and below such strategies comparable to those of the
prepared such an independent written median performance for the three and Fund. The Board noted that AIM has
evaluation. Such written evaluation also five year periods. The Board also noted agreed to limit the Fund's total
considered certain of the factors that AIM began serving as investment operating expenses, as discussed below.
discussed below. In addition, as advisor to the Fund in April 2004. Based Based on this review, the Board
discussed below, the Senior Officer made on this review and after taking account concluded that the advisory fee rate for
a recommendation to the Board in of all of the other factors that the the Fund under the Advisory Agreement
connection with such written evaluation. Board considered in determining whether was fair and reasonable.
to continue the Advisory Agreement for
The discussion below serves as a the Fund, the Board concluded that no - Fees relative to those of comparable
summary of the Senior Officer's changes should be made to the Fund and funds with other advisors. The Board
independent written evaluation and that it was not necessary to change the reviewed the advisory fee rate for the
recommendation to the Board in Fund's portfolio management team at this Fund under the Advisory Agreement. The
connection therewith, as well as a time. Although the independent written Board compared effective contractual
discussion of the material factors and evaluation of the Fund's Senior Officer advisory fee rates at a common asset
the conclusions with respect thereto (discussed below) only considered Fund level at the end of the past calendar
that formed the basis for the Board's performance through the most recent year and noted that the Fund's rate was
approval of the Advisory Agreement. calendar year, the Board also reviewed below the median rate of the funds
After consideration of all of the more recent Fund performance, which did advised by other advisors 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 that the Board
that the Advisory Agreement is in the - The performance of the Fund relative reviewed. The Board noted that AIM has
best interests of the Fund and its to indices. The Board reviewed the agreed to limit the Fund's total
shareholders and that the compensation performance of the Fund during the past operating expenses, as discussed below.
to AIM under the Advisory Agreement is one, three and five calendar years Based on this review, the Board
fair and reasonable and would have been against the performance of the Lipper concluded that the advisory fee rate for
obtained through arm's length Variable Underlying Fund Utility Index. the Fund under the Advisory Agreement
negotiations. The Board noted that the Fund's was fair and reasonable.
performance was above the performance of
Unless otherwise stated, such Index for the one year period,
information presented below is as of comparable to such Index for the three
June 27, 2006 and does not reflect any year period, and below such Index for
changes that may have occurred since the five year period. The Board also
June 27, 2006, including but not limited noted that AIM began serving as
to changes to the Fund's performance, investment advisor to the Fund in April
advisory fees, expense limitations 2004. Based on this review and after
and/or fee waivers.
(continued)
7
AIM V.I. UTILITIES FUND
- - Expense limitations and fee waivers. money market funds, AIM has voluntarily concluded that such arrangements were
The Board noted that AIM has agreed to waive a portion of the appropriate.
contractually agreed to waive fees advisory fees it receives from the Fund
and/or limit expenses of the Fund attributable to such investment. The - AIM's financial soundness in light of
through April 30, 2008 in an amount Board further determined that the the Fund's needs. The Board considered
necessary to limit total annual proposed securities lending program and whether AIM is financially sound and has
operating expenses to a specified related procedures with respect to the the resources necessary to perform its
percentage of average daily net assets lending Fund is in the best interests of obligations under the Advisory
for each class of the Fund. The Board the lending Fund and its respective Agreement, and concluded that AIM has
considered the contractual nature of shareholders. The Board therefore the financial resources necessary to
this fee waiver/expense limitation and concluded that the investment of cash fulfill its obligations under the
noted that it remains in effect until collateral received in connection with Advisory Agreement.
April 30, 2008. The Board considered the the securities lending program in the
effect this fee waiver/expense money market funds according to the - Historical relationship between the
limitation would have on the Fund's procedures is in the best interests of Fund and AIM. In determining whether to
estimated expenses and concluded that the lending Fund and its respective continue the Advisory Agreement for the
the levels of fee waivers/expense shareholders. Fund, the Board also considered the
limitations for the Fund were fair and prior relationship between AIM and the
reasonable. - Independent written evaluation and Fund, as well as the Board's knowledge
recommendations of the Fund's Senior of AIM's operations, and concluded that
- - Breakpoints and economies of scale. Officer. The Board noted that, upon it was beneficial to maintain the
The Board reviewed the structure of the their direction, the Senior Officer of current relationship, in part, because
Fund's advisory fee under the Advisory the Fund, who is independent of AIM and of such knowledge. The Board also
Agreement, noting that it does not AIM's affiliates, had prepared an reviewed the general nature of the
include any breakpoints. The Board independent written evaluation in order non-investment advisory services
considered whether it would be to assist the Board in determining the currently performed by AIM and its
appropriate to add advisory fee reasonableness of the proposed affiliates, such as administrative,
breakpoints for the Fund or whether, due management fees of the AIM Funds, transfer agency and distribution
to the nature of the Fund and the including the Fund. The Board noted that services, and the fees received by AIM
advisory fee structures of comparable the Senior Officer's written evaluation and its affiliates for performing such
funds, it was reasonable to structure had been relied upon by the Board in services. In addition to reviewing such
the advisory fee without breakpoints. this regard in lieu of a competitive services, the trustees also considered
Based on this review, the Board bidding process. In determining whether the organizational structure employed by
concluded that it was not necessary to to continue the Advisory Agreement for AIM and its affiliates to provide those
add advisory fee breakpoints to the the Fund, the Board considered the services. Based on the review of these
Fund's advisory fee schedule. The Board Senior Officer's written evaluation. and other factors, the Board concluded
reviewed the level of the Fund's that AIM and its affiliates were
advisory fees, and noted that such fees, - Profitability of AIM and its qualified to continue to provide
as a percentage of the Fund's net affiliates. The Board reviewed non-investment advisory services to the
assets, would remain constant under the information concerning the profitability Fund, including administrative, transfer
Advisory Agreement because the Advisory of AIM's (and its affiliates') agency and distribution services, and
Agreement does not include any investment advisory and other activities that AIM and its affiliates currently
breakpoints. The Board concluded that and its financial condition. The Board are providing satisfactory
the Fund's fee levels under the Advisory considered the overall profitability of non-investment advisory services.
Agreement therefore would not reflect AIM, as well as the profitability of AIM
economies of scale, although the in connection with managing the Fund. - Other factors and current trends. The
advisory fee waiver reflects economies The Board noted that AIM's operations Board considered the steps that AIM and
of scale. remain profitable, although increased its affiliates have taken over the last
expenses in recent years have reduced several years, and continue to take, in
- - Investments in affiliated money market AIM's profitability. Based on the review order to improve the quality and
funds. The Board also took into account of the profitability of AIM's and its efficiency of the services they provide
the fact that uninvested cash and cash affiliates' investment advisory and to the Funds in the areas of investment
collateral from securities lending other activities and its financial performance, product line
arrangements, if any (collectively, condition, the Board concluded that the diversification, distribution, fund
"cash balances") of the Fund may be compensation to be paid by the Fund to operations, shareholder services and
invested in money market funds advised AIM under its Advisory Agreement was not compliance. The Board concluded that
by AIM pursuant to the terms of an SEC excessive. these steps taken by AIM have improved,
exemptive order. The Board found that and are likely to continue to improve,
the Fund may realize certain benefits - Benefits of soft dollars to AIM. The the quality and efficiency of the
upon investing cash balances in AIM Board considered the benefits realized services AIM and its affiliates provide
advised money market funds, including a by AIM as a result of brokerage to the Fund in each of these areas, and
higher net return, increased liquidity, transactions executed through "soft support the Board's approval of the
increased diversification or decreased dollar" arrangements. Under these continuance of the Advisory Agreement
transaction costs. The Board also found arrangements, brokerage commissions paid for the Fund.
that the Fund will not receive reduced by the Fund and/or other funds advised
services if it invests its cash balances by AIM are used to pay for research and
in such money market funds. The Board execution services. This research may be
noted that, to the extent the Fund used by AIM in making investment
invests uninvested cash in affiliated decisions for the Fund. The Board
8
AIM V.I. Utilities Fund
SCHEDULE OF INVESTMENTS
December 31, 2006
<Table>
<Caption>
SHARES VALUE
- -----------------------------------------------------------------------
COMMON STOCKS-94.97%
ELECTRIC UTILITIES-29.80%
E.ON A.G. (Germany)(a) 25,000 $ 3,392,336
- -----------------------------------------------------------------------
Edison International 125,000 5,685,000
- -----------------------------------------------------------------------
Enel S.p.A. (Italy)(a) 198,000 2,038,958
- -----------------------------------------------------------------------
Entergy Corp. 64,000 5,908,480
- -----------------------------------------------------------------------
Exelon Corp. 107,000 6,622,230
- -----------------------------------------------------------------------
FirstEnergy Corp. 73,000 4,401,900
- -----------------------------------------------------------------------
FPL Group, Inc. 105,000 5,714,100
- -----------------------------------------------------------------------
PPL Corp. 117,000 4,193,280
- -----------------------------------------------------------------------
Southern Co. 95,000 3,501,700
- -----------------------------------------------------------------------
Westar Energy, Inc. 28,000 726,880
=======================================================================
42,184,864
=======================================================================
GAS UTILITIES-8.26%
AGL Resources Inc. 81,000 3,151,710
- -----------------------------------------------------------------------
Equitable Resources, Inc. 91,000 3,799,250
- -----------------------------------------------------------------------
Questar Corp. 57,000 4,733,850
=======================================================================
11,684,810
=======================================================================
INDEPENDENT POWER PRODUCERS & ENERGY
TRADERS-10.98%
Constellation Energy Group 30,000 2,066,100
- -----------------------------------------------------------------------
NRG Energy, Inc.(b) 110,000 6,161,100
- -----------------------------------------------------------------------
TXU Corp. 135,000 7,318,350
=======================================================================
15,545,550
=======================================================================
INTEGRATED TELECOMMUNICATION SERVICES-11.24%
Alaska Communications Systems Group Inc. 173,000 2,627,870
- -----------------------------------------------------------------------
AT&T Inc. 207,000 7,400,250
- -----------------------------------------------------------------------
Verizon Communications Inc. 158,000 5,883,920
=======================================================================
15,912,040
=======================================================================
</Table>
<Table>
SHARES VALUE
- -----------------------------------------------------------------------
<Caption>
MULTI-UTILITIES-26.72%
Ameren Corp. 63,000 $ 3,384,990
- -----------------------------------------------------------------------
Dominion Resources, Inc. 52,000 4,359,680
- -----------------------------------------------------------------------
Duke Energy Corp. 210,000 6,974,100
- -----------------------------------------------------------------------
National Grid PLC (United Kingdom)(a) 118,000 1,710,116
- -----------------------------------------------------------------------
OGE Energy Corp. 30,000 1,200,000
- -----------------------------------------------------------------------
PG&E Corp. 111,000 5,253,630
- -----------------------------------------------------------------------
PNM Resources Inc. 29,842 928,086
- -----------------------------------------------------------------------
Public Service Enterprise Group Inc. 23,000 1,526,740
- -----------------------------------------------------------------------
SCANA Corp. 28,000 1,137,360
- -----------------------------------------------------------------------
Sempra Energy 109,000 6,108,360
- -----------------------------------------------------------------------
Veolia Environnement (France)(a) 68,000 5,242,117
=======================================================================
37,825,179
=======================================================================
OIL & GAS STORAGE & TRANSPORTATION-6.39%
El Paso Corp. 226,000 3,453,280
- -----------------------------------------------------------------------
Williams Cos., Inc. (The) 214,000 5,589,680
=======================================================================
9,042,960
=======================================================================
WATER UTILITIES-1.58%
Aqua America Inc. 98,000 2,232,440
=======================================================================
Total Common Stocks (Cost $94,616,530) 134,427,843
=======================================================================
MONEY MARKET FUNDS-5.04%
Liquid Assets Portfolio-Institutional
Class(c) 3,563,271 3,563,271
- -----------------------------------------------------------------------
Premier Portfolio-Institutional Class(c) 3,563,271 3,563,271
=======================================================================
Total Money Market Funds (Cost
$7,126,542) 7,126,542
=======================================================================
TOTAL INVESTMENTS-100.01% (Cost $101,743,072) 141,554,385
=======================================================================
OTHER ASSETS LESS LIABILITIES-(0.01)% (13,049)
=======================================================================
NET ASSETS-100.00% $141,541,336
_______________________________________________________________________
=======================================================================
</Table>
Notes to Schedule of Investments:
(a) In accordance with the procedures established by the Board of Trustees, the
foreign security is fair valued using adjusted closing market prices. The
aggregate value of these securities at December 31, 2006 was $12,383,527,
which represented 8.75% 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
December 31, 2006
<Table>
ASSETS:
Investments, at value (cost $94,616,530) $134,427,843
- -------------------------------------------------------------
Investments in affiliated money market funds
(cost $7,126,542) 7,126,542
=============================================================
Total investments (cost $101,743,072) 141,554,385
=============================================================
Receivables for:
Investments sold 17,252
- -------------------------------------------------------------
Fund shares sold 20,997
- -------------------------------------------------------------
Dividends 378,274
- -------------------------------------------------------------
Investment for trustee deferred compensation
and retirement plans 52,420
- -------------------------------------------------------------
Other assets 3,641
=============================================================
Total assets 142,026,969
_____________________________________________________________
=============================================================
LIABILITIES:
Payables for:
Fund shares reacquired 276,026
- -------------------------------------------------------------
Trustee deferred compensation and retirement
plans 59,057
- -------------------------------------------------------------
Fund expenses advanced 5,530
- -------------------------------------------------------------
Accrued administrative services fees 111,653
- -------------------------------------------------------------
Accrued distribution fees -- Series II 1,470
- -------------------------------------------------------------
Accrued trustees' and officer's fees and
benefits 3,636
- -------------------------------------------------------------
Accrued transfer agent fees 1,526
- -------------------------------------------------------------
Accrued operating expenses 26,735
=============================================================
Total liabilities 485,633
=============================================================
Net assets applicable to shares outstanding $141,541,336
_____________________________________________________________
=============================================================
NET ASSETS CONSIST OF:
Shares of beneficial interest $ 94,315,500
- -------------------------------------------------------------
Undistributed net investment income 2,828,242
- -------------------------------------------------------------
Undistributed net realized gain from investment
securities and foreign currencies 4,583,579
- -------------------------------------------------------------
Unrealized appreciation of investment
securities and foreign currencies 39,814,015
=============================================================
$141,541,336
_____________________________________________________________
=============================================================
NET ASSETS:
Series I $139,079,690
_____________________________________________________________
=============================================================
Series II $ 2,461,646
_____________________________________________________________
=============================================================
SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE,
UNLIMITED NUMBER OF SHARES AUTHORIZED:
Series I 6,549,957
_____________________________________________________________
=============================================================
Series II 116,581
_____________________________________________________________
=============================================================
Series I:
Net asset value per share $ 21.23
_____________________________________________________________
=============================================================
Series II:
Net asset value per share $ 21.12
_____________________________________________________________
=============================================================
</Table>
STATEMENT OF OPERATIONS
For the year ended December 31, 2006
<Table>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of
$88,409) $ 3,862,928
- ------------------------------------------------------------
Dividends from affiliated money market funds 169,732
============================================================
Total investment income 4,032,660
============================================================
EXPENSES:
Advisory fees 726,202
- ------------------------------------------------------------
Administrative services fees 322,038
- ------------------------------------------------------------
Custodian fees 17,159
- ------------------------------------------------------------
Distribution fees -- Series II 4,225
- ------------------------------------------------------------
Transfer agent fees 18,163
- ------------------------------------------------------------
Trustees' and officer's fees and benefits 18,289
- ------------------------------------------------------------
Other 55,084
============================================================
Total expenses 1,161,160
============================================================
Less: Fees waived and expense offset
arrangements (31,861)
============================================================
Net expenses 1,129,299
============================================================
Net investment income 2,903,361
============================================================
REALIZED AND UNREALIZED GAIN (LOSS) FROM
INVESTMENT SECURITIES AND FOREIGN CURRENCIES:
Net realized gain (loss) from:
Investment securities (includes net gains
from securities sold to affiliates of
$1,408) 8,839,326
- ------------------------------------------------------------
Foreign currencies (29,301)
============================================================
8,810,025
============================================================
Change in net unrealized appreciation of:
Investment securities 16,332,103
- ------------------------------------------------------------
Foreign currencies 6,419
============================================================
16,338,522
============================================================
Net gain from investment securities and foreign
currencies 25,148,547
============================================================
Net increase in net assets resulting from
operations $28,051,908
____________________________________________________________
============================================================
</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 years ended December 31, 2006 and 2005
<Table>
<Caption>
2006 2005
- ------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 2,903,361 $ 4,326,573
- ------------------------------------------------------------------------------------------
Net realized gain from investment securities and foreign
currencies 8,810,025 33,099,707
- ------------------------------------------------------------------------------------------
Change in net unrealized appreciation (depreciation) of
investment securities and foreign currencies 16,338,522 (3,902,530)
==========================================================================================
Net increase in net assets resulting from operations 28,051,908 33,523,750
==========================================================================================
Distributions to shareholders from net investment income:
Series I (4,313,053) (2,617,447)
- ------------------------------------------------------------------------------------------
Series II (75,912) (17,260)
==========================================================================================
Total distributions from net investment income (4,388,965) (2,634,707)
==========================================================================================
Distributions to shareholders from net realized gains:
Series I (2,662,863) --
- ------------------------------------------------------------------------------------------
Series II (47,944) --
==========================================================================================
Total distributions from net realized gains (2,710,807) --
==========================================================================================
Decrease in net assets resulting from distributions (7,099,772) (2,634,707)
==========================================================================================
Share transactions-net:
Series I 4,313,312 (76,258,358)
- ------------------------------------------------------------------------------------------
Series II 1,371,296 118,284
==========================================================================================
Net increase (decrease) in net assets resulting from
share transactions 5,684,608 (76,140,074)
==========================================================================================
Net increase (decrease) in net assets 26,636,744 (45,251,031)
==========================================================================================
NET ASSETS:
Beginning of year 114,904,592 160,155,623
==========================================================================================
End of year (including undistributed net investment income
of $2,828,242 and $4,337,557, respectively) $141,541,336 $114,904,592
__________________________________________________________________________________________
==========================================================================================
</Table>
NOTES TO FINANCIAL STATEMENTS
December 31, 2006
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-one 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.
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 or official closing price as of the close of
the customary trading session on the exchange where the security is
principally traded, or lacking any sales or official closing price on a
particular day, the security may be valued at the closing bid price on that
day. Securities traded in the over-the-counter market 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. 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 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 open-end and closed-end registered
investment companies that trade on an exchange are valued at the last sales
price or official closing price as of the close of the customary trading
session on the exchange where the security is principally traded.
Debt obligations (including convertible bonds) and unlisted equities 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,
AIM V.I. Utilities Fund
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.
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. If market quotations are available and reliable for
foreign exchange traded equity securities, the securities will be valued at
the market quotations. Because trading hours for certain foreign securities
end before the close of the NYSE, closing market quotations may become
unreliable. If between the time trading ends on a particular security and
the close of the customary trading session on the NYSE, events occur that
are significant and may make the closing price unreliable, the Fund may
fair value the security. 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 prices are not provided by any of the above
methods may be valued based upon quotes furnished by independent sources
and are valued at the last bid price in the case of equity securities and
in the case of debt obligations, the mean between the last bid and asked
prices.
Securities for which market quotations are not readily available or are
unreliable are valued at fair value as determined in good faith by or under
the supervision of the Trust's officers following procedures approved by
the Board of Trustees. Issuer specific events, market trends, bid/ask
quotes of brokers and information providers and other market data may be
reviewed in the course of making a good faith determination of a security's
fair value.
B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions
are accounted for on a trade date basis. Realized gains or losses on sales
are computed on the basis of specific identification of the securities
sold. Interest income is recorded on the accrual basis from settlement
date. Dividend income is recorded on the ex-dividend date. Bond premiums
and discounts are amortized and/or accreted for financial reporting
purposes.
Brokerage commissions and mark ups are considered transaction costs and
are recorded as an increase to the cost basis of securities purchased
and/or a reduction of proceeds on a sale of securities. Such transaction
costs are included in the determination of realized and unrealized gain
(loss) from investment securities reported in the Statement of Operations
and the Statement of Changes in Net Assets and the realized and unrealized
net gains (losses) on securities per share in the Financial Highlights.
Transaction costs are included in the calculation of the Fund's net asset
value and, accordingly, they reduce the Fund's total returns. These
transaction costs are not considered operating expenses and are not
reflected in net investment 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 the 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 to distribute substantially all of the
Fund's taxable earnings to shareholders. As such, the Fund will not be
subject to federal income taxes on otherwise taxable income (including net
realized capital gain) that 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. ACCOUNTING ESTIMATES -- 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.
H. INDEMNIFICATIONS -- 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.
I. FOREIGN CURRENCY TRANSLATIONS -- Foreign currency is valued at the close of
the NYSE based on quotations posted by banks and major currency dealers.
Portfolio securities and other assets and liabilities denominated in
foreign currencies are translated into U.S. dollar amounts at date of
valuation. Purchases and sales of portfolio securities (net of foreign
taxes withheld on disposition) and income items denominated in foreign
currencies are translated into U.S. dollar amounts on the respective dates
of such transactions. The Fund does not separately account for the portion
of the results of operations resulting from changes in foreign exchange
rates on investments and the fluctuations arising from changes in market
prices of securities held.
AIM V.I. Utilities Fund
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.
The Fund may invest in foreign securities which may be subject to foreign
taxes on income, gains on investments or currency repatriation, a portion
of which may be recoverable. Taxes are accrued based on the Fund's current
interpretation of tax regulations and rates that exist in the foreign
markets in which the Fund invests.
J. FOREIGN CURRENCY CONTRACTS -- A foreign currency contract is an obligation
to purchase or sell a specific currency for an agreed-upon price at a
future date. The Fund may enter into a foreign currency contract to attempt
to minimize the risk to the Fund from adverse changes in the relationship
between currencies. The Fund may also enter into a foreign currency
contract for the purchase or sale of a security denominated in a foreign
currency in order to "lock in" the U.S. dollar price of that security.
Fluctuations in the value of these contracts are recorded as unrealized
appreciation (depreciation) until the contracts are closed. When these
contracts are closed, realized gains (losses) are recorded. Realized and
unrealized gains and losses on these contracts are included in the
Statement of Operations. The Fund could be exposed to risk, which may be in
excess of the amount reflected in the Statement of Assets and Liabilities,
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 at least 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. In addition, the Fund may also benefit from a one time credit to be used
to offset future custodian expenses. These credits are used to pay certain
expenses incurred by the Fund.
Further, AIM has voluntarily agreed to waive advisory fees of the Fund in
the amount of 25% of the advisory fee AIM receives from the affiliated money
market funds on investments by the Fund in such affiliated money market funds.
Voluntary fee waivers or reimbursements may be modified or discontinued at any
time upon consultation with the Board of Trustees without further notice to
investors.
For the year ended December 31, 2006, AIM waived advisory fees of $29,683.
At the request of the Trustees of the Trust, AMVESCAP agreed to reimburse
expenses incurred by the Fund in connection with market timing matters in the
AIM Funds, which may include legal, audit, shareholder reporting, communications
and trustee expenses. For the year ended December 31, 2006, AMVESCAP did not
reimburse any such expenses.
The Trust has entered into a master administrative services agreement with
AIM pursuant to which the Fund 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. The
Fund may reimburse AIM for up to 0.25% of average daily assets invested by each
insurance company providing administrative services to the Fund. Pursuant to
such agreement, for the year ended December 31, 2006, AIM was paid $50,000 for
accounting and fund administrative services and reimbursed $272,038 for services
provided by insurance companies.
The Trust has entered into a transfer agency and service agreement with AIM
Investment Services, Inc. ("AIS") pursuant to which the Fund has agreed to pay
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 year ended December 31, 2006, expenses incurred under the
agreement are shown in the Statement of Operations as transfer agent fees.
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 Plan payments, 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. For the year ended December 31, 2006, expenses
incurred under the Plan are shown in the Statement of Operations as distribution
fees.
Certain officers and trustees of the Trust are officers and directors of
AIM, AIS and/or ADI.
AIM V.I. Utilities Fund
NOTE 3--INVESTMENTS IN AFFILIATES
The Fund is permitted, pursuant to 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 year ended December 31, 2006.
<Table>
<Caption>
CHANGE IN
UNREALIZED
VALUE PURCHASES PROCEEDS APPRECIATION VALUE DIVIDEND REALIZED
FUND 12/31/05 AT COST FROM SALES (DEPRECIATION) 12/31/06 INCOME GAIN (LOSS)
- ----------------------------------------------------------------------------------------------------------------------------------
Liquid Assets
Portfolio-
Institutional
Class $ -- $15,909,195 $(12,345,924) $ -- $3,563,271 $ 60,254 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
Premier
Portfolio-
Institutional
Class 5,216,837 34,587,309 (36,240,875) -- 3,563,271 109,478 --
==================================================================================================================================
Total
Investments
in
Affiliates $5,216,837 $50,496,504 $(48,586,799) $ -- $7,126,542 $169,732 $ --
__________________________________________________________________________________________________________________________________
==================================================================================================================================
</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 year ended December 31, 2006, the Fund
engaged in securities sales of $39,151, which resulted in net realized gains of
$1,408.
NOTE 5--EXPENSE OFFSET ARRANGEMENTS
The expense offset arrangements are comprised of (i) custodian credits which
result from periodic overnight cash balances at the custodian and (ii) a one
custodian fee credit to be used to offset future custodian fees. For the year
ended December 31, 2006, the Fund received credits from these arrangements,
which resulted in the reduction of the Fund's total expenses of $2,178.
NOTE 6--TRUSTEES' AND OFFICER'S FEES AND BENEFITS
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to pay remuneration to each Trustee and Officer of the Fund who is not an
"interested person" of AIM. Trustees have the option to defer compensation
payable by the Fund, and "Trustees' and Officer's Fees and Benefits" also
include amounts accrued by the Fund to fund such deferred compensation amounts.
Those Trustees who defer compensation have the option to select various AIM
Funds in which their deferral accounts shall be deemed to be invested. Finally,
current Trustees are eligible to participate in a retirement plan that provides
for benefits to be paid upon retirement to Trustees over a period of time based
on the number of years of service. The Fund may have certain former Trustees who
also participate in a retirement plan and receive benefits under such plan.
"Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund
to fund such retirement benefits. Obligations under the deferred compensation
and retirement plans represent unsecured claims against the general assets of
the Fund.
During the year ended December 31, 2006, the Fund paid legal fees of $4,186
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 Securities and Exchange Commission, the
Fund may participate in an interfund lending facility that AIM has established
for temporary borrowings by the AIM Funds. An interfund loan will be made under
this facility only if the loan rate (an average of the rate available on bank
loans and the rate available on investments in overnight repurchase agreements)
is favorable to both the lending fund and the borrowing fund. A loan will be
secured by collateral if the Fund's aggregate borrowings from all sources
exceeds 10% of the Fund's total assets. To the extent that the loan is required
to be secured by collateral, the collateral is marked to market daily to ensure
that the market value is at least 102% of the outstanding principal value of the
loan.
The Fund is a participant in an uncommitted unsecured revolving credit
facility with State Street Bank and Trust Company ("SSB"). The Fund may borrow
up to the lesser of (i) $125,000,000, or (ii) the limits set by its prospectus
for borrowings. The Fund and other funds advised by AIM which are parties to the
credit facility can borrow on a first come, first served basis. Principal on
each loan outstanding shall bear interest at the bid rate quoted by SSB at the
time of the request for the loan.
During the year ended December 31, 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 bank 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 contractually agreed upon rate.
AIM V.I. Utilities Fund
NOTE 8--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS:
The tax character of distributions paid during the years ended December 31, 2006
and 2005 was as follows:
<Table>
<Caption>
2006 2005
- --------------------------------------------------------------------------------------
Distributions paid from:
Ordinary income $4,388,965 $2,634,707
- --------------------------------------------------------------------------------------
Long-term capital gain 2,710,807 --
======================================================================================
Total distributions $7,099,772 $2,634,707
______________________________________________________________________________________
======================================================================================
</Table>
TAX COMPONENTS OF NET ASSETS:
As of December 31, 2006, the components of net assets on a tax basis were as
follows:
<Table>
<Caption>
2006
- ----------------------------------------------------------------------------
Undistributed ordinary income $ 3,758,297
- ----------------------------------------------------------------------------
Undistributed long-term gain 6,592,190
- ----------------------------------------------------------------------------
Unrealized appreciation -- investments 39,684,042
- ----------------------------------------------------------------------------
Temporary book/tax differences (49,765)
- ----------------------------------------------------------------------------
Capital loss carryforward (2,758,928)
- ----------------------------------------------------------------------------
Shares of beneficial interest 94,315,500
============================================================================
Total net assets $141,541,336
____________________________________________________________________________
============================================================================
</Table>
The difference between book-basis and tax-basis unrealized appreciation
(depreciation) is due to differences in the timing of recognition of gains and
losses on investments for tax and book purposes. The Fund's unrealized
appreciation (depreciation) difference is attributable primarily to losses on
wash sales. The tax-basis net unrealized appreciation on investments amount
includes appreciation on foreign currencies of $2,702.
The temporary book/tax differences are a result of timing differences
between book and tax recognition of income and/or expenses. The Fund's temporary
book/tax differences are the result of the trustee deferral of compensation and
retirement plan benefits.
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, 2006 to utilizing $919,643 of capital loss carryforward in the fiscal year
ended December 31, 2007.
The Fund utilized $919,643 of capital loss carryforward in the current
period to offset net realized capital gain for federal income tax purposes. The
Fund has a capital loss carryforward as of December 31, 2006 which expires as
follows:
<Table>
<Caption>
CAPITAL LOSS
EXPIRATION CARRYFORWARD*
- -----------------------------------------------------------------------------
December 31, 2009 2,758,928
_____________________________________________________________________________
=============================================================================
</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,
U.S. Treasury obligations and money market funds, if any) purchased and sold by
the Fund during the year ended December 31, 2006 was $44,520,375 and
$46,708,646, respectively.
<Table>
<Caption>
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS
- -------------------------------------------------------------------------------
Aggregate unrealized appreciation of investment securities $39,681,340
- -------------------------------------------------------------------------------
Aggregate unrealized (depreciation) of investment securities --
===============================================================================
Net unrealized appreciation of investment securities $39,681,340
_______________________________________________________________________________
===============================================================================
Cost of investments for tax purposes is $101,873,045.
</Table>
NOTE 10--RECLASSIFICATION OF PERMANENT DIFFERENCES
Primarily as a result of differing book/tax treatment of defaulted bond and
foreign currency transactions, on December 31, 2006, undistributed net
investment income was decreased by $23,711 and undistributed net realized gain
was increased by $23,711. This reclassification had no effect on the net assets
of the Fund.
AIM V.I. Utilities Fund
NOTE 11--SHARE INFORMATION
<Table>
<Caption>
CHANGES IN SHARES OUTSTANDING
- ------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
2006(A) 2005
-------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
- ------------------------------------------------------------------------------------------------------------------------
Sold:
Series I 2,859,050 $ 55,911,823 6,323,063 $ 104,776,537
- ------------------------------------------------------------------------------------------------------------------------
Series II 71,923 1,371,458 42,862 681,910
========================================================================================================================
Issued as reinvestment of dividends:
Series I 329,053 6,975,916 144,530 2,617,447
- ------------------------------------------------------------------------------------------------------------------------
Series II 5,876 123,856 956 17,260
========================================================================================================================
Reacquired:
Series I (3,038,761) (58,574,427) (10,289,904) (183,652,342)
- ------------------------------------------------------------------------------------------------------------------------
Series II (6,299) (124,018) (37,379) (580,886)
========================================================================================================================
220,842 $ 5,684,608 (3,815,872) $ (76,140,074)
________________________________________________________________________________________________________________________
========================================================================================================================
</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 57% 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 for 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
currently intends for the Fund to adopt FIN 48 provisions during the fiscal year
ending December 31, 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
---------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
2006 2005 2004 2003 2002
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period $ 17.83 $ 15.61 $ 12.95 $ 11.16 $ 14.08
- -----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.47(a) 0.42(a) 0.42(a) 0.33(a) 0.19
- -----------------------------------------------------------------------------------------------------------------------
Net gains (losses) on securities (both realized and
unrealized) 4.06 2.21 2.57 1.60 (3.05)
=======================================================================================================================
Total from investment operations 4.53 2.63 2.99 1.93 (2.86)
=======================================================================================================================
Less distributions:
Dividends from net investment income (0.70) (0.41) (0.33) (0.14) (0.06)
- -----------------------------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.43) -- -- -- --
=======================================================================================================================
Total distributions (1.13) (0.41) (0.33) (0.14) (0.06)
=======================================================================================================================
Net asset value, end of period $ 21.23 $ 17.83 $ 15.61 $ 12.95 $ 11.16
_______________________________________________________________________________________________________________________
=======================================================================================================================
Total return(b) 25.46% 16.83% 23.65% 17.38% (20.32)%
_______________________________________________________________________________________________________________________
=======================================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $139,080 $114,104 $159,554 $62,510 $31,204
_______________________________________________________________________________________________________________________
=======================================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 0.93%(c) 0.93% 1.01% 1.08% 1.15%
- -----------------------------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 0.96%(c) 0.96% 1.01% 1.08% 1.15%
=======================================================================================================================
Ratio of net investment income to average net assets 2.40%(c) 2.49% 3.09% 2.84% 2.59%
_______________________________________________________________________________________________________________________
=======================================================================================================================
Portfolio turnover rate 38% 49% 52% 58% 102%
_______________________________________________________________________________________________________________________
=======================================================================================================================
</Table>
(a) Calculated using average shares outstanding.
(b) Includes adjustments in accordance with accounting principles generally
accepted in the United States of America and as such, the net asset
value for financial reporting purposes and the returns based upon those
net asset values may differ from the net asset value and returns for
shareholder transactions. Total returns do not reflect charges assessed
in connection with a variable product, which if included would reduce
total returns.
(c) Ratios are based on average daily net assets of $119,343,568.
AIM V.I. Utilities Fund
NOTE 13--FINANCIAL HIGHLIGHTS--(CONTINUED)
<Table>
<Caption>
SERIES II
-------------------------------------
APRIL 30, 2004
YEAR ENDED (DATE SALES
DECEMBER 31, COMMENCED) TO
------------------- DECEMBER 31,
2006 2005 2004
- ---------------------------------------------------------------------------------------------------
Net asset value, beginning of period $17.76 $15.57 $12.63
- ---------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income(a) 0.42 0.38 0.26
- ---------------------------------------------------------------------------------------------------
Net gains on securities (both realized and unrealized) 4.06 2.20 2.68
===================================================================================================
Total from investment operations 4.48 2.58 2.94
===================================================================================================
Less distributions:
Dividends from net investment income (0.69) (0.39) --
- ---------------------------------------------------------------------------------------------------
Distributions from net realized gains (0.43) -- --
===================================================================================================
Total distributions (1.12) (0.39) --
===================================================================================================
Net asset value, end of period $21.12 $17.76 $15.57
___________________________________________________________________________________________________
===================================================================================================
Total return(b) 25.25% 16.55% 23.28%
___________________________________________________________________________________________________
===================================================================================================
Ratios/supplemental data:
Net assets, end of period (000s omitted) $2,462 $ 801 $ 602
___________________________________________________________________________________________________
===================================================================================================
Ratio of expenses to average net assets:
With fee waivers and/or expense reimbursements 1.18%(c) 1.18% 1.28%(d)
- ---------------------------------------------------------------------------------------------------
Without fee waivers and/or expense reimbursements 1.21%(c) 1.21% 1.28%(d)
===================================================================================================
Ratio of net investment income to average net assets 2.15%(c) 2.24% 2.82%(d)
___________________________________________________________________________________________________
===================================================================================================
Portfolio turnover rate(e) 38% 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 based on average daily net assets of $1,690,117.
(d) Annualized.
(e) 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. 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 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
AIM V.I. Utilities Fund
NOTE 14--LEGAL PROCEEDINGS--(CONTINUED)
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; 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. On September 15, 2006, the
MDL Court granted the AMVESCAP defendants' motion to dismiss the Amended Class
Action Complaint for Violations of ERISA and dismissed such Complaint. The
plaintiff has commenced an appeal from that decision.
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.
AIM V.I. Utilities Fund
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of AIM Variable Insurance Funds
and Shareholders of AIM V.I. Utilities Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of AIM V.I. Utilities Fund (one of the
funds constituting AIM Variable Insurance Funds, hereafter referred to as the
"Fund") at December 31, 2006, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended and the financial highlights for the each of the periods indicated,
in conformity with accounting principles generally accepted in the United States
of America. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
December 31, 2006 by correspondence with the custodian and brokers, provide a
reasonable basis for our opinion.
PRICEWATERHOUSECOOPERS LLP
February 14, 2007
Houston, Texas
AIM V.I. Utilities Fund
TAX INFORMATION
Form 1099-DIV, Form 1042-S and other year-end tax information provide
shareholders with actual calendar year amounts that should be included in their
tax returns. Shareholders should consult their tax advisors.
The following distribution information is being provided as required by the
Internal Revenue Code or to meet a specific state's requirement.
The Fund designates the following amounts or, if subsequently determined to be
different, the maximum amount allowable for its fiscal year ended December 31,
2006:
FEDERAL AND STATE INCOME TAX
<Table>
Long-Term Capital Gain Distributions $2,710,807
Corporate Dividends Received Deduction* 99.82%
</Table>
* The above percentage is based on ordinary income dividends paid to
shareholders during the Fund's fiscal year.
AIM V.I. Utilities Fund
TRUSTEES AND OFFICERS
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
TRUSTEE AND/
NAME, YEAR OF BIRTH AND OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
POSITION(S) HELD WITH THE TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- -------------------------------------------------------------------------------------------------------------------------------
INTERESTED PERSONS
- -------------------------------------------------------------------------------------------------------------------------------
Robert H. Graham(1) -- 1946 1993 Director and Chairman, A I M Management None
Trustee and Vice Chair Group Inc. (financial services holding
company); Director and Vice Chairman,
AMVESCAP PLC; Chairman, AMVESCAP
PLC -- AIM Division (parent of AIM and a
global investment management firm) and
Trustee and Vice Chair of The AIM Family
of Funds--Registered Trademark--
Formerly: President and Chief Executive
Officer, A I M Management Group Inc.;
Director, Chairman and President, A I M
Advisors, Inc. (registered investment
advisor); Director and Chairman, A I M
Capital Management, Inc. (registered
investment advisor), A I M Distributors,
Inc. (registered broker dealer), AIM
Investment Services, Inc., (registered
transfer agent), and Fund Management
Company (registered broker dealer);
Chief Executive Officer, AMVESCAP
PLC -- Managed Products; and President
and Principal Executive Officer of The
AIM Family of Funds--Registered
Trademark--
- -------------------------------------------------------------------------------------------------------------------------------
Philip A. Taylor(2) -- 1954 2006 Director, Chief Executive Officer and None
Trustee, President and President, A I M Management Group Inc.,
Principal AIM Mutual Fund Dealer Inc. (registered
Executive Officer broker dealer), AIM Funds Management
Inc. (registered investment advisor) and
1371 Preferred Inc. (holding company);
Director and President, A I M Advisors,
Inc., INVESCO Funds Group, Inc.
(registered investment advisor and
register transfer agent) and AIM GP
Canada Inc. (general partner for a
limited partnership); Director, A I M
Capital Management, Inc. and A I M
Distributors, Inc.; Director and
Chairman, AIM Investment Services, Inc.,
Fund Management Company and INVESCO
Distributors, Inc. (registered broker
dealer); Director, President and
Chairman, AVZ Callco Inc. (holding
company); AMVESCAP Inc. (holding
company) and AIM Canada Holdings Inc.
(holding company); Director and Chief
Executive Officer, AIM Trimark Corporate
Class Inc. (formerly AIM Trimark Global
Fund Inc.) (corporate mutual fund
company) and AIM Trimark Canada Fund
Inc. (corporate mutual fund company);
Trustee, President and Principal
Executive Officer of The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); Trustee and
Executive Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); and Manager,
Powershares Capital Management LLC
Formerly: President and Principal
Executive Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only); Chairman, AIM
Canada Holdings, Inc.; Executive Vice
President and Chief Operations Officer,
AIM Funds Management Inc.; President,
AIM Trimark Global Fund Inc. and AIM
Trimark Canada Fund Inc.; and Director,
Trimark Trust (federally regulated
Canadian Trust Company)
- -------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
- -------------------------------------------------------------------------------------------------------------------------------
Bruce L. Crockett -- 1944 1993 Chairman, Crockett Technology Associates ACE Limited (insurance company);
Trustee and Chair (technology consulting company) and Captaris, Inc. (unified
messaging provider)
- -------------------------------------------------------------------------------------------------------------------------------
Bob R. Baker -- 1936 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Frank S. Bayley -- 1939 2001 Retired Badgley Funds, Inc. (registered
Trustee investment company
Formerly: Partner, law firm of Baker & (2 portfolios))
McKenzie
- -------------------------------------------------------------------------------------------------------------------------------
James T. Bunch -- 1942 2004 Founder, Green, Manning & Bunch Ltd., None
Trustee (investment banking firm); and Director,
Policy Studies, Inc. and Van Gilder
Insurance Corporation
- -------------------------------------------------------------------------------------------------------------------------------
Albert R. Dowden -- 1941 2000 Director of a number of public and None
Trustee private business corporations, including
the Boss Group Ltd. (private investment
and management); Cortland Trust, Inc.
(Chairman) (registered investment
company (3 portfolios)); Annuity and
Life Re (Holdings), Ltd. (insurance
company); CompuDyne Corporation
(provider of products and services to
the public security market); and
Homeowners of America Holding
Corporation (property casualty company)
Formerly: Director, President and Chief
Executive Officer, Volvo Group North
America, Inc.; Senior Vice President, AB
Volvo; and Director of various
affiliated Volvo companies; and
Director, Magellan Insurance Company
- -------------------------------------------------------------------------------------------------------------------------------
Jack M. Fields -- 1952 1997 Chief Executive Officer, Twenty First Administaff, and Discovery Global
Trustee Century Group, Inc. (government affairs Education Fund
company); and Owner, Dos Angelos Ranch, (non-profit)
L.P.
Formerly: Chief Executive Officer,
Texana Timber LP (sustainable forestry
company)
- -------------------------------------------------------------------------------------------------------------------------------
Carl Frischling -- 1937 1993 Partner, law firm of Kramer Levin Cortland Trust, Inc. (registered
Trustee Naftalis and Frankel LLP investment company
(3 portfolios))
- -------------------------------------------------------------------------------------------------------------------------------
Prema Mathai-Davis -- 1950 1998 Formerly: Chief Executive Officer, YWCA None
Trustee of the USA
- -------------------------------------------------------------------------------------------------------------------------------
Lewis F. Pennock -- 1942 1993 Partner, law firm of Pennock & Cooper None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Ruth H. Quigley -- 1935 2001 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Larry Soll -- 1942 2004 Retired None
Trustee
- -------------------------------------------------------------------------------------------------------------------------------
Raymond Stickel, Jr. -- 1944 2005 Retired Director, Mainstay VP Series
Trustee Formerly: Partner, Deloitte & Touche Funds, Inc. (21 portfolios)
- -------------------------------------------------------------------------------------------------------------------------------
</Table>
(1) Mr. Graham is considered an interested person of the Trust because he is a
director of AMVESCAP PLC, parent of the advisor to the Trust.
(2) Mr. Taylor is considered an interested person of the Trust because he is an
officer and a director of the advisor to, and a director of the principal
underwriter of, the Trust.
TRUSTEES AND OFFICERS--(CONTINUED)
AIM V.I. Utilities Fund
The address of each trustee and officer of AIM Variable Insurance Funds (the
"Trust"), is 11 Greenway Plaza, Suite 100, Houston, Texas 77046. Each trustee
oversees 109 portfolios in the AIM Funds complex. The trustees serve for the
life of the Trust, subject to their earlier death, incapacitation, resignation,
retirement or removal as more specifically provided in the Trust's
organizational documents. Column two below includes length of time served with
predecessor entities, if any.
<Table>
<Caption>
NAME, YEAR OF BIRTH AND TRUSTEE AND/
POSITION(S) HELD WITH THE OR OFFICER PRINCIPAL OCCUPATION(S) OTHER DIRECTORSHIP(S)
TRUST SINCE DURING PAST 5 YEARS HELD BY TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------
OTHER OFFICERS
- ------------------------------------------------------------------------------------------------------------------------------
Russell C. Burk -- 1958 2005 Senior Vice President and Senior Officer N/A
Senior Vice President and of The AIM Family of Funds--Registered
Senior Officer Trademark--
Formerly: Director of Compliance and
Assistant General Counsel, ICON
Advisers, Inc.; Financial Consultant,
Merrill Lynch; General Counsel and
Director of Compliance, ALPS Mutual
Funds, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
John M. Zerr -- 1962 2006 Director, Senior Vice President, N/A
Senior Vice President, Chief Secretary and General Counsel, A I M
Legal Officer and Secretary Management Group Inc. and A I M
Advisors, Inc.; Director, Vice President
and Secretary, INVESCO Distributors,
Inc.; Vice President and Secretary,
A I M Capital Management, Inc., AIM
Investment Services, Inc., and Fund
Management Company; Senior Vice
President and Secretary, A I M
Distributors, Inc.; Director and Vice
President, INVESCO Funds Group Inc.;
Senior Vice President, Chief Legal
Officer and Secretary of The AIM Family
of Funds--Registered Trademark--; and
Manager, Powershares Capital Management
LLC
Formerly: Chief Operating Officer,
Senior Vice President, General Counsel,
and Secretary, Liberty Ridge Capital,
Inc. (an investment adviser); Vice
President and Secretary, PBHG Funds (an
investment company); Vice President and
Secretary, PBHG Insurance Series Fund
(an investment company); General Counsel
and Secretary, Pilgrim Baxter Value
Investors (an investment adviser); Chief
Operating Officer, General Counsel and
Secretary, Old Mutual Investment
Partners (a broker-dealer); General
Counsel and Secretary, Old Mutual Fund
Services (an administrator); General
Counsel and Secretary, Old Mutual
Shareholder Services (a shareholder
servicing center); Executive Vice
President, General Counsel and
Secretary, Old Mutual Capital, Inc. (an
investment adviser); and Vice President
and Secretary, Old Mutual Advisors Funds
(an investment company)
- ------------------------------------------------------------------------------------------------------------------------------
Lisa O. Brinkley -- 1959 2004 Global Compliance Director, AMVESCAP N/A
Vice President PLC; and Vice President of The AIM
Family of Funds--Registered Trademark--
Formerly: Senior Vice President, A I M
Management Group Inc. (financial
services holding company); Senior Vice
President and Chief Compliance Officer,
A I M Advisors, Inc. and The AIM Family
of Funds--Registered Trademark--; Vice
President and Chief Compliance Officer,
A I M Capital Management, Inc. and A I M
Distributors, Inc.; Vice President, AIM
Investment Services, Inc. and Fund
Management Company; Senior Vice
President and Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; and Senior Vice President
and Compliance Director, Delaware
Investments Family of Funds
- ------------------------------------------------------------------------------------------------------------------------------
Kevin M. Carome -- 1956 2003 Senior Vice President and General
Vice President Counsel, AMVESCAP PLC; Director, INVESCO
Funds Group, Inc.; and Vice President of
The AIM Family of Funds--Registered
Trademark--
Formerly: Director, Vice President and N/A
General Counsel, Fund Management
Company; Director, Senior Vice
President, Secretary and General
Counsel, A I M Management Group Inc. and
A I M Advisors, Inc.; Director and Vice
President, INVESCO Distributors, Inc.;
Senior Vice President, A I M
Distributors, Inc.; Vice President,
A I M Capital Management, Inc. and AIM
Investment Services, Inc.; Senior Vice
President, Chief Legal Officer and
Secretary of The AIM Family of
Funds--Registered Trademark--; Chief
Executive Officer and President, INVESCO
Funds Group, Inc.; and Senior Vice
President, and General Counsel, Liberty
Financial Companies, Inc. and Senior
Vice President and General Counsel
Liberty Funds Group, LLC
- ------------------------------------------------------------------------------------------------------------------------------
Sidney M. Dilgren -- 1961 2004 Vice President and Fund Treasurer, A I M N/A
Vice President, Principal Advisors, Inc.; and Vice President,
Financial Officer and Treasurer and Principal Officer of The
Treasurer AIM Family of Funds--Registered
Trademark--
Formerly: Senior Vice President, AIM
Investment Services, Inc.; and Vice
President, A I M Distributors, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
J. Philip Ferguson -- 1945 2005 Senior Vice President and Chief N/A
Vice President Investment Officer, A I M Advisors Inc.;
Director, Chairman, Chief Executive
Officer, President and Chief Investment
Officer, A I M Capital Management, Inc.;
Executive Vice President, A I M
Management Group Inc. and Vice President
of The AIM Family of Funds--Registered
Trademark--
Formerly: Senior Vice President, AIM
Private Asset Management, Inc.; and
Chief Equity Officer, Senior Vice
President and Senior Investment Officer,
A I M Capital Management, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
Karen Dunn Kelley -- 1960 1993 Director of Cash Management, Managing N/A
Vice President Director and Chief Cash Management
Officer, A I M Capital Management, Inc;
Director and President, Fund Management
Company; and Vice President, A I M
Advisors, Inc. and The AIM Family of
Funds--Registered Trademark-- (other
than AIM Treasurer's Series Trust,
Short-Term Investments Trust and
Tax-Free Investments Trust); and
President and Principal Executive
Officer, The AIM Family of
Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust Only)
Formerly: Vice President, The AIM Family
of Funds--Registered Trademark-- (AIM
Treasurer's Series Trust, Short-Term
Investments Trust and Tax-Free
Investments Trust only)
- ------------------------------------------------------------------------------------------------------------------------------
Lance A. Rejsek -- 1967 2005 Anti-Money Laundering Compliance N/A
Anti-Money Laundering Officer, A I M Advisors, Inc., A I M
Compliance Officer Capital Management, Inc., A I M
Distributors, Inc., AIM Investment
Services, Inc., AIM Private Asset
Management, Inc., Fund Management
Company and The AIM Family of
Funds--Registered Trademark--
Formerly: Manager of the Fraud
Prevention Department, AIM Investment
Services, Inc.
- ------------------------------------------------------------------------------------------------------------------------------
Todd L. Spillane -- 1958 2006 Senior Vice President, A I M Management N/A
Chief Compliance Officer Group Inc.; Senior Vice President and
Chief Compliance Officer, A I M
Advisors, Inc.; Chief Compliance Officer
of The AIM Family of Funds--Registered
Trademark--; Vice President and Chief
Compliance Officer, A I M Capital
Management, Inc.; and Vice President,
A I M Distributors, Inc., AIM Investment
Services, Inc. and Fund Management
Company
Formerly: Global Head of Product
Development, AIG-Global Investment
Group, Inc.; Chief Compliance Officer
and Deputy General Counsel,
AIG-SunAmerica Asset Management; and
Chief Compliance Officer, Chief
Operating Officer and Deputy General
Counsel, American General Investment
Management
- ------------------------------------------------------------------------------------------------------------------------------
</Table>
The Statement of Additional Information of the Trust includes additional
information about the Fund's Trustees and is available upon request, without
charge, by calling 1.800.410.4246.
<Table>
OFFICE OF THE FUND INVESTMENT ADVISOR DISTRIBUTOR AUDITORS
11 Greenway Plaza A I M Advisors, Inc. A I M Distributors, PricewaterhouseCoopers
Suite 100 11 Greenway Plaza Inc. LLP
Houston, TX 77046-1173 Suite 100 11 Greenway Plaza 1201 Louisiana Street
Houston, TX 77046-1173 Suite 100 Suite 2900
Houston, TX 77046-1173 Houston, TX 77002-5678
COUNSEL TO THE FUND COUNSEL TO THE TRANSFER AGENT CUSTODIAN
Ballard Spahr INDEPENDENT TRUSTEES AIM Investment State Street Bank and
Andrews & Ingersoll, LLP Kramer, Levin, Naftalis Services, Inc. Trust Company
1735 Market Street, 51st & Frankel LLP P.O. Box 4739 225 Franklin Street
Floor 1177 Avenue of the Houston, TX 77210-4739 Boston, MA 02110-2801
Philadelphia, PA 19103-7599 Americas
New York, NY 10036-2714
</Table>
ITEM 2. CODE OF ETHICS.
As of the end of the period covered by this report, the Registrant had
adopted a code of ethics (the "Code") that applies to the Registrant's
principal executive officer ("PEO") and principal financial officer
("PFO"). The Code was amended in September, 2006, to (i) remove individuals
listed in Exhibit A and any references to Exhibit A thus allowing for
future flexibility and (ii) remove ambiguities found in the second
paragraph of Section III. The Registrant did not grant any waivers,
including implicit waivers, from any provisions of the Code to the PEO or
PFO during the period covered by this report.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Board of Trustees has determined that the Registrant has at least one
audit committee financial expert serving on its Audit Committee. The Audit
Committee financial expert is Raymond Stickel, Jr. Mr. Stickel is
"independent" within the meaning of that term as used in Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
FEES BILLED BY PWC TO THE REGISTRANT
PWC billed the Registrant aggregate fees for services rendered to the
Registrant for the last two fiscal years as follows:
Percentage of Fees
Billed Applicable Percentage of Fees
to Non-Audit Billed Applicable to
Fees Billed by PWC Services Provided Non-Audit Services
for Services for fiscal year end Fees Billed by PWC Provided for fiscal
Rendered to the 2006 Pursuant to for Services year end 2005
Registrant for Waiver of Rendered to the Pursuant to Waiver
fiscal Pre-Approval Registrant for of Pre-Approval
year end 2006 Requirement(1) fiscal year end 2005 Requirement(1)
------------------ ------------------- -------------------- --------------------
Audit Fees $545,011 N/A $579,732 N/A
Audit-Related Fees $ 0 0% $ 0 0%
Tax Fees(2) $108,107 0% $108,332 0%
All Other Fees $ 0 0% $ 0 0%
-------- --------
Total Fees $653,118 0% $687,627 0%
PWC billed the Registrant aggregate non-audit fees of $108,107 for the fiscal
year ended 2006, and $108,332 for the fiscal year ended 2005, for non-audit
services rendered to the Registrant.
- ----------
(1) With respect to the provision of non-audit services, the pre-approval
requirement is waived pursuant to a de minimis exception if (i) such
services were not recognized as non-audit services by the Registrant at the
time of engagement, (ii) the aggregate amount of all such services provided
is no more than 5% of the aggregate audit and non-audit fees paid by the
Registrant during a fiscal year; and (iii) such services are promptly
approved by the Registrant's Audit Committee prior to the completion of the
audit by the Audit Committee.
(2) Tax Fees for the fiscal year end December 31, 2006 includes fees billed for
reviewing tax returns and consultation services. Tax fees for fiscal year
end December 31, 2005 includes fees billed for reviewing tax returns.
FEES BILLED BY PWC RELATED TO AIM AND AIM AFFILIATES
PWC billed A I M Advisors, Inc. ("AIM"), the Registrant's adviser, and any
entity controlling, controlled by or under common control with AIM that provides
ongoing services to the Registrant ("AIM Affiliates") aggregate fees for
pre-approved non-audit services rendered to AIM and AIM Affiliates for the last
two fiscal years as follows:
Fees Billed by PWC Fees Billed by PWC
for Non-Audit for Non-Audit
Services Rendered to Percentage of Fees Services Rendered to Percentage of Fees
AIM and AIM Billed Applicable to AIM and AIM Billed Applicable to
Affiliates for Non-Audit Services Affiliates for Non-Audit Services
fiscal year end 2006 Provided for fiscal fiscal year end 2005 Provided for fiscal
That Were Required year end 2006 That Were Required year end 2005
to be Pre-Approved Pursuant to Waiver to be Pre-Approved Pursuant to Waiver of
by the Registrant's of Pre-Approval by the Registrant's Pre-Approval
Audit Committee Requirement(1) Audit Committee Requirement(1)
-------------------- -------------------- -------------------- ---------------------
Audit-Related Fees $0 0% $0 0%
Tax Fees $0 0% $0 0%
All Other Fees $0 0% $0 0%
--- ---
Total Fees(2) $0 0% $0 0%
- ----------
(1) With respect to the provision of non-audit services, the pre-approval
requirement is waived pursuant to a de minimis exception if (i) such
services were not recognized as non-audit services by the Registrant at the
time of engagement, (ii) the aggregate amount of all such services provided
is no more than 5% of the aggregate audit and non-audit fees paid by the
Registrant, AIM and AIM Affiliates during a fiscal year; and (iii) such
services are promptly approved by the Registrant's Audit Committee prior to
the completion of the audit by the Audit Committee.
(2) Including the fees for services not required to be pre-approved by the
registrant's audit committee, PWC billed AIM and AIM Affiliates aggregate
non-audit fees of $0 for the fiscal year ended 2006, and PWC billed AIM and
AIM Affiliates aggregate non-audit fees of $0 for the fiscal year ended
2005, for non-audit services rendered to AIM and AIM Affiliates.
The Audit Committee also has considered whether the provision of non-audit
services that were rendered to AIM and AIM Affiliates that were not
required to be pre-approved pursuant to SEC regulations, if any, is
compatible with maintaining the principal accountant's independence.
PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES
POLICIES AND PROCEDURES
As adopted by the Audit Committees of
the AIM Funds (the "Funds")
Last Amended September 18, 2006
STATEMENT OF PRINCIPLES
Under the Sarbanes-Oxley Act of 2002 and rules adopted by the Securities and
Exchange Commission ("SEC") ("Rules"), the Audit Committees of the Funds' (the
"Audit Committee") Board of Trustees (the "Board") are responsible for the
appointment, compensation and oversight of the work of independent accountants
(an "Auditor"). As part of this responsibility and to assure that the Auditor's
independence is not impaired, the Audit Committees pre-approve the audit and
non-audit services provided to the Funds by each Auditor, as well as all
non-audit services provided by the Auditor to the Funds' investment adviser and
to affiliates of the adviser that provide ongoing services to the Funds
("Service Affiliates") if the services directly impact the Funds' operations or
financial reporting. The SEC Rules also specify the types of services that an
Auditor may not provide to its audit client. The following policies and
procedures comply with the requirements for pre-approval and provide a mechanism
by which management of the Funds may request and secure pre-approval of audit
and non-audit services in an orderly manner with minimal disruption to normal
business operations.
Proposed services either may be pre-approved without consideration of specific
case-by-case services by the Audit Committees ("general pre-approval") or
require the specific pre-approval of the Audit Committees ("specific
pre-approval"). As set forth in these policies and procedures, unless a type of
service has received general pre-approval, it will require specific pre-approval
by the Audit Committees. Additionally, any fees exceeding 110% of estimated
pre-approved fee levels provided at the time the service was pre-approved will
also require specific approval by the Audit Committees before payment is made.
The Audit Committees will also consider the impact of additional fees on the
Auditor's independence when determining whether to approve any additional fees
for previously pre-approved services.
The Audit Committees will annually review and generally pre-approve the services
that may be provided by each Auditor without obtaining specific pre-approval
from the Audit Committee. The term of any general pre-approval runs from the
date of such pre-approval through September 30th of the following year, unless
the Audit Committees consider a different period and state otherwise. The Audit
Committees will add to or subtract from the list of general pre-approved
services from time to time, based on subsequent determinations.
The purpose of these policies and procedures is to set forth the guidelines to
assist the Audit Committees in fulfilling their responsibilities.
DELEGATION
The Audit Committees may from time to time delegate pre-approval authority to
one or more of its members who are Independent Trustees. All decisions to
pre-approve a service by a delegated member shall be reported to the Audit
Committee at its next quarterly meeting.
AUDIT SERVICES
The annual audit services engagement terms will be subject to specific
pre-approval of the Audit Committees. Audit services include the annual
financial statement audit and other procedures such as tax provision work that
is required to be performed by the independent auditor to be able to form an
opinion on the Funds' financial statements. The Audit Committee will obtain,
review and consider sufficient information concerning the proposed Auditor to
make a reasonable evaluation of the Auditor's qualifications and independence.
In addition to the annual Audit services engagement, the Audit Committees may
grant either general or specific pre-approval of other audit services, which are
those services that only the independent auditor
reasonably can provide. Other Audit services may include services such as
issuing consents for the inclusion of audited financial statements with SEC
registration statements, periodic reports and other documents filed with the SEC
or other documents issued in connection with securities offerings.
NON-AUDIT SERVICES
The Audit Committees may provide either general or specific pre-approval of any
non-audit services to the Funds and its Service Affiliates if the Audit
Committees believe that the provision of the service will not impair the
independence of the Auditor, is consistent with the SEC's Rules on auditor
independence, and otherwise conforms to the Audit Committee's general principles
and policies as set forth herein.
AUDIT-RELATED SERVICES
"Audit-related services" are assurance and related services that are reasonably
related to the performance of the audit or review of the Fund's financial
statements or that are traditionally performed by the independent auditor.
Audit-related services include, among others, accounting consultations related
to accounting, financial reporting or disclosure matters not classified as
"Audit services"; assistance with understanding and implementing new accounting
and financial reporting guidance from rulemaking authorities; and agreed-upon
procedures related to mergers, compliance with ratings agency requirements and
interfund lending activities.
TAX SERVICES
"Tax services" include, but are not limited to, the review and signing of the
Funds' federal tax returns, the review of required distributions by the Funds
and consultations regarding tax matters such as the tax treatment of new
investments or the impact of new regulations. The Audit Committee will
scrutinize carefully the retention of the Auditor in connection with a
transaction initially recommended by the Auditor, the major business purpose of
which may be tax avoidance or the tax treatment of which may not be supported in
the Internal Revenue Code and related regulations. The Audit Committee will
consult with the Funds' Treasurer (or his or her designee) and may consult with
outside counsel or advisors as necessary to ensure the consistency of Tax
services rendered by the Auditor with the foregoing policy.
No Auditor shall represent any Fund or any Service Affiliate before a tax court,
district court or federal court of claims.
Under rules adopted by the Public Company Accounting Oversight Board and
approved by the SEC, in connection with seeking Audit Committee pre-approval of
permissible Tax services, the Auditor shall:
1. Describe in writing to the Audit Committees, which writing may be in
the form of the proposed engagement letter:
a. The scope of the service, the fee structure for the engagement,
and any side letter or amendment to the engagement letter, or any
other agreement between the Auditor and the Fund, relating to the
service; and
b. Any compensation arrangement or other agreement, such as a
referral agreement, a referral fee or fee-sharing arrangement,
between the Auditor and any person (other than the Fund) with
respect to the promoting, marketing, or recommending of a
transaction covered by the service;
2. Discuss with the Audit Committees the potential effects of the
services on the independence of the Auditor; and
3. Document the substance of its discussion with the Audit Committees.
ALL OTHER AUDITOR SERVICES
The Audit Committees may pre-approve non-audit services classified as "All other
services" that are not categorically prohibited by the SEC, as listed in Exhibit
1 to this policy.
PRE-APPROVAL FEE LEVELS OR ESTABLISHED AMOUNTS
Pre-approval of estimated fees or established amounts for services to be
provided by the Auditor under general or specific pre-approval policies will be
set periodically by the Audit Committees. Any proposed fees exceeding 110% of
the maximum estimated pre-approved fees or established amounts for pre-approved
audit and non-audit services will be reported to the Audit Committees at the
quarterly Audit Committees meeting and will require specific approval by the
Audit Committees before payment is made. The Audit Committee will always factor
in the overall relationship of fees for audit and non-audit services in
determining whether to pre-approve any such services and in determining whether
to approve any additional fees exceeding 110% of the maximum pre-approved fees
or established amounts for previously pre-approved services.
PROCEDURES
On an annual basis, AIM will submit to the Audit Committees for general
pre-approval, a list of non-audit services that the Funds or Service Affiliates
of the Funds may request from the Auditor. The list will describe the non-audit
services in reasonable detail and will include an estimated range of fees and
such other information as the Audit Committee may request.
Each request for services to be provided by the Auditor under the general
pre-approval of the Audit Committees will be submitted to the Funds' Treasurer
(or his or her designee) and must include a detailed description of the services
to be rendered. The Treasurer or his or her designee will ensure that such
services are included within the list of services that have received the general
pre-approval of the Audit Committees. The Audit Committees will be informed at
the next quarterly scheduled Audit Committees meeting of any such services for
which the Auditor rendered an invoice and whether such services and fees had
been pre-approved and if so, by what means.
Each request to provide services that require specific approval by the Audit
Committees shall be submitted to the Audit Committees jointly by the Fund's
Treasurer or his or her designee and the Auditor, and must include a joint
statement that, in their view, such request is consistent with the policies and
procedures and the SEC Rules.
Each request to provide tax services under either the general or specific
pre-approval of the Audit Committees will describe in writing: (i) the scope of
the service, the fee structure for the engagement, and any side letter or
amendment to the engagement letter, or any other agreement between the Auditor
and the audit client, relating to the service; and (ii) any compensation
arrangement or other agreement between the Auditor and any person (other than
the audit client) with respect to the promoting, marketing, or recommending of a
transaction covered by the service. The Auditor will discuss with the Audit
Committees the potential effects of the services on the Auditor's independence
and will document the substance of the discussion.
Non-audit services pursuant to the de minimis exception provided by the SEC
Rules will be promptly brought to the attention of the Audit Committees for
approval, including documentation that each of the conditions for this
exception, as set forth in the SEC Rules, has been satisfied.
On at least an annual basis, the Auditor will prepare a summary of all the
services provided to any entity in the investment company complex as defined in
section 2-01(f)(14) of Regulation S-X in sufficient detail as to the nature of
the engagement and the fees associated with those services.
The Audit Committees have designated the Funds' Treasurer to monitor the
performance of all services provided by the Auditor and to ensure such services
are in compliance with these policies and procedures. The Funds' Treasurer will
report to the Audit Committee on a periodic basis as to the results of such
monitoring. Both the Funds' Treasurer and management of AIM will immediately
report to the chairman of the Audit Committee any breach of these policies and
procedures that comes to the attention of the Funds' Treasurer or senior
management of AIM.
EXHIBIT 1 TO PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES POLICIES AND
PROCEDURES
CONDITIONALLY PROHIBITED NON-AUDIT SERVICES (NOT PROHIBITED IF THE FUND CAN
REASONABLY CONCLUDE THAT THE RESULTS OF THE SERVICE WOULD NOT BE SUBJECT TO
AUDIT PROCEDURES IN CONNECTION WITH THE AUDIT OF THE FUND'S FINANCIAL
STATEMENTS)
- Bookkeeping or other services related to the accounting records or
financial statements of the audit client
- Financial information systems design and implementation
- Appraisal or valuation services, fairness opinions, or
contribution-in-kind reports
- Actuarial services
- Internal audit outsourcing services
CATEGORICALLY PROHIBITED NON-AUDIT SERVICES
- Management functions
- Human resources
- Broker-dealer, investment adviser, or investment banking services
- Legal services
- Expert services unrelated to the audit
- Any service or product provided for a contingent fee or a commission
- Services related to marketing, planning, or opining in favor of the
tax treatment of confidential transactions or aggressive tax position
transactions, a significant purpose of which is tax avoidance
- Tax services for persons in financial reporting oversight roles at the
Fund
- Any other service that the Public Company Oversight Board determines
by regulation is impermissible.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
Investments in securities of unaffiliated issuers is included as part of
the reports to stockholders filed under Item 1 of this Form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 11. CONTROLS AND PROCEDURES.
(a) As of December 14, 2006, an evaluation was performed under the supervision
and with the participation of the officers of the Registrant, including the
PEO and PFO, to assess the effectiveness of the Registrant's disclosure
controls and procedures, as that term is
defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the
"Act"), as amended. Based on that evaluation, the Registrant's officers,
including the PEO and PFO, concluded that, as of December 14, 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 this
report that have materially affected, or are reasonably likely to
materially affect, the Registrant's internal control over financial
reporting.
ITEM 12. EXHIBITS.
12(a)(1) Code of Ethics.
12(a)(2) Certifications of principal executive officer and principal
financial officer as required by Rule 30a-2(a) under the Investment
Company Act of 1940.
12(a)(3) Not applicable.
12(b) Certifications of principal executive officer and principal
financial officer as required by Rule 30a-2(b) under the Investment
Company Act of 1940.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Registrant: AIM Variable Insurance Funds
By: /s/ PHILIP A. TAYLOR
---------------------------------
Philip A. Taylor
Principal Executive Officer
Date: February 23, 2007
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: February 23, 2007
By: /s/ SIDNEY M. DILGREN
---------------------------------
Sidney M. Dilgren
Principal Financial Officer
Date: February 23, 2007
EXHIBIT INDEX
12(a)(1) Code of Ethics.
12(a)(2) Certifications of principal executive officer and principal financial
officer as required by Rule 30a-2(a) under the Investment Company Act
of 1940.
12(a)(3) Not applicable.
12(b) Certifications of principal executive officer and principal financial
officer as required by Rule 30a-2(b) under the Investment Company Act
of 1940.