-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CDqVJCvII8c5lCccB6NV8ymnJtfHoOUjvCvnOtqpDCPbG7vTcMpIP0TujxdK5+fJ phAGgOS3zc/g4QGGgpNPZA== 0000950129-08-004608.txt : 20080825 0000950129-08-004608.hdr.sgml : 20080825 20080825102334 ACCESSION NUMBER: 0000950129-08-004608 CONFORMED SUBMISSION TYPE: N-CSRS PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20080630 FILED AS OF DATE: 20080825 DATE AS OF CHANGE: 20080825 EFFECTIVENESS DATE: 20080825 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AIM VARIABLE INSURANCE FUNDS CENTRAL INDEX KEY: 0000896435 IRS NUMBER: 000000000 STATE OF INCORPORATION: MD FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: N-CSRS SEC ACT: 1940 Act SEC FILE NUMBER: 811-07452 FILM NUMBER: 081035761 BUSINESS ADDRESS: STREET 1: 11 GREENWAY PLAZA STREET 2: STE 100 CITY: HOUSTON STATE: TX ZIP: 77046 BUSINESS PHONE: 7132141785 MAIL ADDRESS: STREET 1: 11 GREENWAY PLAZA STREET 2: SUITE 100 CITY: HOUSTON STATE: TX ZIP: 77046 FORMER COMPANY: FORMER CONFORMED NAME: AIM VARIABLE INSURANCE FUNDS INC DATE OF NAME CHANGE: 19930714 0000896435 S000000179 AIM V.I. Government Securities Fund C000000404 Series I C000000405 Series II 0000896435 S000000181 AIM V.I. High Yield Fund C000000408 Series I C000000409 Series II 0000896435 S000000182 AIM V.I. International Growth Fund C000000410 Series I C000000411 Series II 0000896435 S000000183 AIM V.I. Large Cap Growth Fund C000000412 Series I C000000413 Series II 0000896435 S000000184 AIM V.I. Mid Cap Core Equity Fund C000000414 Series I C000000415 Series II 0000896435 S000000185 AIM V.I. Money Market Fund C000000416 Series I C000000417 Series II 0000896435 S000000187 AIM V.I. Global Real Estate Fund C000000420 Series I C000000421 Series II 0000896435 S000000188 AIM V.I. Small Cap Equity Fund C000000422 Series I C000000423 Series II 0000896435 S000000189 AIM V.I. Basic Balanced Fund C000000424 Series I C000000425 Series II 0000896435 S000000191 AIM V.I. Dynamics Fund C000000428 Series I C000000429 Series II 0000896435 S000000192 AIM V.I. Financial Services Fund C000000430 Series I C000000431 Series II 0000896435 S000000193 AIM V.I. Global Health Care Fund C000000432 Series I C000000433 Series II 0000896435 S000000194 AIM V.I. Leisure Fund C000000434 Series I C000000435 Series II 0000896435 S000000196 AIM V.I. Technology Fund C000000438 Series I C000000439 Series II 0000896435 S000000198 AIM V.I. Utilities Fund C000000442 Series I C000000443 Series II 0000896435 S000000199 AIM V.I. Basic Value Fund C000000444 Series I C000000445 Series II 0000896435 S000000201 AIM V.I. Capital Appreciation Fund C000000448 Series I C000000449 Series II 0000896435 S000000202 AIM V.I. Capital Development Fund C000000450 Series I C000000451 Series II 0000896435 S000000203 AIM V.I. Core Equity Fund C000000452 Series I C000000453 Series II 0000896435 S000000205 AIM V.I. Diversified Income Fund C000000456 Series I C000000457 Series II N-CSRS 1 h58591nvcsrs.txt FORM N-CSRS - SEMI-ANNUAL REPORT ------------------------ OMB APPROVAL ------------------------ OMB Number: 3235-0570 Expires: August 31, 2011 Estimated average burden hours per response: 18.9 ------------------------ 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: 6/30/08 Item 1. Reports to Stockholders. [INVESCO AIM LOGO] AIM V.I. BASIC BALANCED FUND - SERVICE MARK - Semiannual Report to Shareholders - June 30, 2008 AIM Investments [MOUNTAIN GRAPHIC] became INVESCO AIM on March 31, 2008. For more details, go to invescoaim.com 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 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 Invesco Aim Web site, invescoaim.com. On the home page, scroll down and click on 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, 2008, is available at our Web site. Go to invescoaim.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 noted, all data provided by Invesco Aim. THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND PROSPECTUS AND VARIABLE PRODUCT PROSPECTUS, WHICH CONTAIN MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ EACH CAREFULLY BEFORE INVESTING. Invesco Aim Distributors, Inc. NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE FUND PERFORMANCE ======================================================================================= PERFORMANCE SUMMARY FUND VS. INDEXES SHARES WAS 0.91% AND 1.16%, Cumulative total returns, 12/31/07 to 6/30/08, excluding variable product issuer RESPECTIVELY.(1,2) THE TOTAL ANNUAL FUND charges. If variable product issuer charges were included, returns would be lower. OPERATING EXPENSE RATIO SET FORTH IN THE MOST RECENT FUND PROSPECTUS AS OF THE DATE Series I Shares -11.94% OF THIS REPORT FOR SERIES I AND SERIES II Series II Shares -12.11 SHARES WAS 1.18% AND 1.43%, RESPECTIVELY. S&P 500 Index(TRIANGLE) (Broad Market Index) -11.90 THE EXPENSE RATIOS PRESENTED ABOVE MAY Custom Basic Balanced Index(BOX) (Style-Specific Index) -7.75 VARY FROM THE EXPENSE RATIOS PRESENTED IN Lipper VUF Mixed-Asset Target Allocation Moderate Funds Index(TRIANGLE) OTHER SECTIONS OF THIS REPORT THAT ARE (Peer Group Index) -5.78 BASED ON EXPENSES INCURRED DURING THE PERIOD COVERED BY THIS REPORT. (TRIANGLE)Lipper Inc.; (BOX)Invesco Aim, Lipper Inc. AIM V.I. BASIC BALANCED FUND, A SERIES PORTFOLIO OF AIM VARIABLE INSURANCE FUNDS, The S&P 500--REGISTERED TRADEMARK-- INDEX is a market capitalization-weighted index IS CURRENTLY OFFERED THROUGH INSURANCE covering all major areas of the U.S. economy. It is not the 500 largest companies, but COMPANIES ISSUING VARIABLE PRODUCTS. YOU rather the most widely held 500 companies chosen with respect to market size, CANNOT PURCHASE SHARES OF THE FUND liquidity, and their industry. DIRECTLY. PERFORMANCE FIGURES GIVEN The CUSTOM BASIC BALANCED INDEX is an index created by Invesco Aim Advisors, Inc. to REPRESENT THE FUND AND ARE NOT INTENDED TO benchmark the Fund. The index consists of the following indexes: 60% Russell REFLECT ACTUAL VARIABLE PRODUCT VALUES. 1000--REGISTERED TRADEMARK-- Value Index and 40% Lehman Brothers U.S. Aggregate Bond THEY DO NOT REFLECT SALES CHARGES, Index. The Russell 1000--REGISTERED TRADEMARK-- Value Index measures the performance of EXPENSES AND FEES ASSESSED IN CONNECTION those Russell 1000 companies with lower price-to-book ratios and lower forecasted WITH A VARIABLE PRODUCT. SALES CHARGES, growth values. The Russell 1000 Value Index is a trademark/service mark of the Frank EXPENSES AND FEES, WHICH ARE DETERMINED BY Russell Company. Russell--REGISTERED TRADEMARK-- is a trademark of the Frank Russell THE VARIABLE PRODUCT ISSUERS, WILL VARY Company. The Lehman Brothers U.S. Aggregate Bond Index covers U.S. investment-grade AND WILL LOWER THE TOTAL RETURN. fixed-rate bonds with components for government and corporate securities, mortgage THE MOST RECENT MONTH-END PERFORMANCE pass-throughs, and asset-backed securities. DATA AT THE FUND LEVEL, EXCLUDING VARIABLE The LIPPER VUF MIXED-ASSET TARGET ALLOCATION MODERATE FUNDS INDEX is an equally PRODUCT CHARGES, IS AVAILABLE ON THE weighted representation of the largest variable insurance underlying funds in the INVESCO AIM AUTOMATED INFORMATION LINE, Lipper Mixed-Asset Target Allocation Moderate Funds category. These funds, by portfolio 866 702 4402. AS MENTIONED ABOVE, FOR THE practice, maintain a mix of between 40% to 60% equity securities, with the remainder MOST RECENT MONTH-END PERFORMANCE invested in bonds, cash, and cash equivalents. INCLUDING VARIABLE PRODUCT CHARGES, PLEASE The Fund is not managed to track the performance of any particular index, including CONTACT YOUR VARIABLE PRODUCT ISSUER OR the indexes defined here, and consequently, the performance of the Fund may deviate FINANCIAL ADVISOR. significantly from the performance of the indexes. HAD THE ADVISOR NOT WAIVED FEES AND/OR A direct investment cannot be made in an index. Unless otherwise indicated, index REIMBURSED EXPENSES, PERFORMANCE WOULD results include reinvested dividends, and they do not reflect sales charges. HAVE BEEN LOWER. Performance of an index of funds reflects fund expenses; performance of a market index does not. (1) Total annual operating expenses less ======================================================================================= contractual advisory fee waivers by ========================================== the advisor in effect through at least AVERAGE ANNUAL TOTAL RETURNS II SHARES. THE INCEPTION DATE OF SERIES I December 31, 2009. See current As of 6/30/08 SHARES IS MAY 1, 1998. THE PERFORMANCE OF prospectus for more information. THE FUND'S SERIES I AND SERIES II SHARE SERIES I SHARES CLASSES WILL DIFFER PRIMARILY DUE TO (2) Total annual operating expenses less Inception (5/1/98) 2.17% DIFFERENT CLASS EXPENSES. any contractual fee waivers and/or 10 Years 2.05 THE PERFORMANCE DATA QUOTED REPRESENT expense reimbursements by the advisor 5 Years 4.06 PAST PERFORMANCE AND CANNOT GUARANTEE in effect through at least April 30, 1 Year -15.06 COMPARABLE FUTURE RESULTS; CURRENT 2010. See current prospectus for more PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE information. SERIES II SHARES CONTACT YOUR VARIABLE PRODUCT ISSUER OR 10 Years 1.79% FINANCIAL ADVISOR FOR THE MOST RECENT 5 Years 3.78 MONTH-END VARIABLE PRODUCT PERFORMANCE. 1 Year -15.33 PERFORMANCE FIGURES REFLECT FUND EXPENSES, ========================================== REINVESTED DISTRIBUTIONS AND CHANGES IN NET ASSET VALUE. INVESTMENT RETURN AND SERIES II SHARES' INCEPTION DATE IS PRINCIPAL VALUE WILL FLUCTUATE SO THAT YOU JANUARY 24, 2002. RETURNS SINCE THAT DATE MAY HAVE A GAIN OR LOSS WHEN YOU SELL ARE HISTORICAL. ALL OTHER RETURNS ARE THE SHARES. BLENDED RETURNS OF THE HISTORICAL THE NET ANNUAL FUND OPERATING EXPENSE PERFORMANCE OF SERIES II SHARES SINCE RATIO SET FORTH IN THE MOST RECENT FUND THEIR INCEPTION AND THE RESTATED PROSPECTUS AS OF THE DATE OF THIS REPORT HISTORICAL PERFORMANCE OF SERIES I SHARES FOR SERIES I AND SERIES II (FOR PERIODS PRIOR TO INCEPTION OF SERIES II SHARES) ADJUSTED TO REFLECT THE RULE 12B-1 FEES APPLICABLE TO SERIES
AIM V.I. BASIC BALANCED FUND PORTFOLIO COMPOSITION By security type, based on Net Assets as of June 30, 2008 - ------------------------------------------------------------------------- Common Stocks & Other Equity Interests 61.9% - ------------------------------------------------------------------------- Bonds & Notes 24.9 - ------------------------------------------------------------------------- U.S. Government Sponsored Mortgage-Backed Securities 15.4 - ------------------------------------------------------------------------- Preferred Stocks 3.6 - ------------------------------------------------------------------------- Asset-Backed Securities 1.8 - ------------------------------------------------------------------------- U.S. Government Sponsored Agency Securities 0.9 - ------------------------------------------------------------------------- Municipal Obligations 0.6 - ------------------------------------------------------------------------- Money Market Funds Plus Other Assets Less Liabilities (9.1) _________________________________________________________________________ =========================================================================
SCHEDULE OF INVESTMENTS(A) June 30, 2008 (Unaudited)
SHARES VALUE - ------------------------------------------------------------------------------ COMMON STOCKS & OTHER EQUITY INTERESTS-61.90% ADVERTISING-3.21% Interpublic Group of Cos., Inc. (The)(b) 91,406 $ 786,092 - ------------------------------------------------------------------------------ Omnicom Group Inc. 18,156 814,841 ============================================================================== 1,600,933 ============================================================================== AEROSPACE & DEFENSE-0.26% Honeywell International Inc. 2,604 130,929 ============================================================================== APPAREL RETAIL-0.87% Gap, Inc. (The) 26,110 435,254 ============================================================================== BREWERS-1.61% Molson Coors Brewing Co.-Class B 14,812 804,736 ============================================================================== COMPUTER HARDWARE-2.18% Dell Inc.(b) 49,559 1,084,351 ============================================================================== CONSTRUCTION MATERIALS-1.75% Cemex S.A.B. de C.V.-ADR (Mexico)(b) 35,293 871,731 ============================================================================== CONSUMER FINANCE-1.25% SLM Corp.(b) 32,124 621,599 ============================================================================== DATA PROCESSING & OUTSOURCED SERVICES-2.17% Western Union Co. 43,707 1,080,437 ============================================================================== DEPARTMENT STORES-1.03% Kohl's Corp.(b) 12,800 512,512 ============================================================================== DIVERSIFIED BANKS-0.55% Wachovia Corp. 17,575 272,940 ============================================================================== EDUCATION SERVICES-1.06% Apollo Group Inc.-Class A(b) 11,900 526,694 ============================================================================== ELECTRONIC MANUFACTURING SERVICES-0.65% Tyco Electronics Ltd. 9,036 323,670 ============================================================================== GENERAL MERCHANDISE STORES-1.39% Target Corp. 14,900 692,701 ============================================================================== HEALTH CARE DISTRIBUTORS-1.54% Cardinal Health, Inc. 14,905 768,800 ============================================================================== HEALTH CARE EQUIPMENT-1.15% Baxter International Inc. 8,965 573,222 ============================================================================== HOME IMPROVEMENT RETAIL-1.46% Home Depot, Inc. (The) 31,092 728,175 ============================================================================== HOUSEHOLD APPLIANCES-1.03% Whirlpool Corp. 8,300 512,359 ============================================================================== HUMAN RESOURCE & EMPLOYMENT SERVICES-1.87% Robert Half International, Inc. 38,956 933,775 ============================================================================== INDUSTRIAL CONGLOMERATES-2.02% General Electric Co. 17,058 455,278 - ------------------------------------------------------------------------------ Tyco International Ltd. 13,787 552,031 ============================================================================== 1,007,309 ============================================================================== INDUSTRIAL MACHINERY-1.53% Illinois Tool Works Inc. 15,996 759,970 ============================================================================== INSURANCE BROKERS-1.26% Marsh & McLennan Cos., Inc. 23,658 628,120 ==============================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. BASIC BALANCED FUND
SHARES VALUE - ------------------------------------------------------------------------------ INVESTMENT BANKING & BROKERAGE-2.09% Merrill Lynch & Co., Inc. 16,087 $ 510,119 - ------------------------------------------------------------------------------ Morgan Stanley 14,787 533,367 ============================================================================== 1,043,486 ============================================================================== MANAGED HEALTH CARE-2.00% UnitedHealth Group Inc. 37,940 995,925 ============================================================================== MOVIES & ENTERTAINMENT-0.89% Walt Disney Co. (The) 14,166 441,979 ============================================================================== MULTI-LINE INSURANCE-1.35% American International Group, Inc. 19,247 509,276 - ------------------------------------------------------------------------------ Hartford Financial Services Group, Inc. (The) 2,504 161,683 ============================================================================== 670,959 ============================================================================== OIL & GAS DRILLING-0.96% Transocean Inc. 3,150 480,028 ============================================================================== OIL & GAS EQUIPMENT & SERVICES-3.99% Halliburton Co. 20,838 1,105,872 - ------------------------------------------------------------------------------ Schlumberger Ltd. 8,197 880,604 ============================================================================== 1,986,476 ============================================================================== OTHER DIVERSIFIED FINANCIAL SERVICES-2.74% Citigroup Inc. 43,468 728,524 - ------------------------------------------------------------------------------ JPMorgan Chase & Co. 18,581 637,514 ============================================================================== 1,366,038 ============================================================================== PACKAGED FOODS & MEATS-0.86% Unilever N.V. (Netherlands) 15,070 427,797 ============================================================================== PHARMACEUTICALS-2.12% Sanofi-Aventis (France)(c) 8,014 533,135 - ------------------------------------------------------------------------------ Wyeth 10,902 522,860 ============================================================================== 1,055,995 ============================================================================== PROPERTY & CASUALTY INSURANCE-0.98% XL Capital Ltd.-Class A 23,731 487,909 ============================================================================== PUBLISHING-1.41% McGraw-Hill Cos., Inc. (The) 17,500 702,100 ============================================================================== SEMICONDUCTOR EQUIPMENT-3.97% ASML Holding N.V. (Netherlands)(c) 35,553 865,898 - ------------------------------------------------------------------------------ KLA-Tencor Corp. 27,331 1,112,645 ============================================================================== 1,978,543 ============================================================================== SEMICONDUCTORS-1.75% Maxim Integrated Products, Inc. 41,225 871,909 ============================================================================== SPECIALIZED FINANCE-2.27% Moody's Corp. 32,816 1,130,183 ============================================================================== SYSTEMS SOFTWARE-2.33% CA Inc. 25,444 587,502 - ------------------------------------------------------------------------------ Microsoft Corp. 20,882 574,464 ============================================================================== 1,161,966 ============================================================================== THRIFTS & MORTGAGE FINANCE-2.35% Fannie Mae 45,191 881,676 - ------------------------------------------------------------------------------ Washington Mutual, Inc. 58,949 290,619 ============================================================================== 1,172,295 ============================================================================== Total Common Stocks & Other Equity Interests (Cost $32,641,571) 30,843,805 ============================================================================== PRINCIPAL AMOUNT BONDS & NOTES-24.92% AEROSPACE & DEFENSE-0.29% Systems 2001 Asset Trust LLC (United Kingdom)-Series 2001, Class G, Jr. Sec. Pass Through Ctfs., (INS-MBIA Insurance Corp.) 6.66%, 09/15/13(d)(e)(f) $ 140,516 144,373 ============================================================================== ASSET MANAGEMENT & CUSTODY BANKS-0.73% Bank of New York Institutional Capital Trust-Series A, Jr. Sub. Trust Pfd. Capital Securities, 7.78%, 12/01/26(d)(e) 350,000 364,396 ============================================================================== BROADCASTING & CABLE TV-2.26% Comcast Cable Communications Holdings Inc., Sr. Unsec. Gtd. Global Notes, 9.46%, 11/15/22(e) 167,000 203,286 - ------------------------------------------------------------------------------ Comcast Holdings Corp., Sr. Gtd. Sub. Notes, 10.63%, 07/15/12(e) 130,000 150,981 - ------------------------------------------------------------------------------ Cox Communications Inc., Sr. Unsec. Notes, 6.40%, 08/01/08(e) 70,000 70,177 - ------------------------------------------------------------------------------ Unsec. Notes, 3.88%, 10/01/08(e) 350,000 349,968 - ------------------------------------------------------------------------------ Cox Enterprises, Inc., Sr. Unsec. Notes, 7.88%, 09/15/10(d)(e) 35,000 36,963 - ------------------------------------------------------------------------------ Time Warner Entertainment Co. L.P., Sr. Unsec. Gtd. Notes, 10.15%, 05/01/12(e) 280,000 316,341 ============================================================================== 1,127,716 ============================================================================== CONSUMER FINANCE-0.72% American Express Credit Corp., Series C, Sr. Unsec. Floating Rate Medium-Term Notes, 3.88%, 05/27/10(e)(g) 40,000 40,020 - ------------------------------------------------------------------------------ Sr. Unsec. Medium-Term Notes, 5.88%, 05/02/13(e) 55,000 54,816 - ------------------------------------------------------------------------------
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. BASIC BALANCED FUND
PRINCIPAL AMOUNT VALUE - ------------------------------------------------------------------------------ CONSUMER FINANCE-(CONTINUED) Capital One Capital III, Jr. Gtd. Sub. Notes, 7.69%, 08/15/36(e) $50,000 $ 41,585 - ------------------------------------------------------------------------------ SLM Corp., Series A, Sr. Unsec. Unsub. Medium-Term Notes, 3.95%, 08/15/08(e) 220,000 219,672 ============================================================================== 356,093 ============================================================================== DEPARTMENT STORES-0.43% Macys Retail Holdings Inc., Sr. Unsec. Gtd. Notes, 6.30%, 04/01/09(e) 215,000 215,099 ============================================================================== DIVERSIFIED BANKS-2.28% Bangkok Bank PCL (Hong Kong), Unsec. Sub. Notes, 9.03%, 03/15/29(d)(e) 60,000 65,802 - ------------------------------------------------------------------------------ BankAmerica Institutional- Series A, Jr. Unsec. Gtd. Sub. Trust Pfd. Capital Securities, 8.07%, 12/31/26(d)(e) 100,000 103,089 - ------------------------------------------------------------------------------ BBVA International Preferred S.A. Unipersonal (Spain), Jr. Unsec. Gtd. Sub. Notes, 5.92%(e)(h) 140,000 114,869 - ------------------------------------------------------------------------------ Centura Capital Trust I, Gtd. Trust Pfd. Capital Securities, 8.85%, 06/01/27(d)(e) 50,000 51,606 - ------------------------------------------------------------------------------ First Union Institutional Capital I, Jr. Unsec. Gtd. Sub. Trust Pfd. Capital Securities, 8.04%, 12/01/26(e) 100,000 96,937 - ------------------------------------------------------------------------------ Lloyds TSB Bank PLC (United Kingdom)- Series 1, Unsec. Sub. Floating Rate Euro Notes, 3.50%(e)(g)(h) 130,000 85,264 - ------------------------------------------------------------------------------ Mizuho Financial Group Cayman Ltd. (Cayman Islands), Jr. Unsec. Gtd. Sub. Second Tier Euro Bonds, 8.38%(e)(h) 30,000 30,065 - ------------------------------------------------------------------------------ National Bank of Canada (Canada), Unsec. Sub. Floating Rate Euro Deb., 3.19%, 08/29/87(g)(i) 60,000 38,700 - ------------------------------------------------------------------------------ National Westminster Bank PLC (United Kingdom)-Series B, Unsec. Sub. Floating Rate Euro Notes, 3.25%(e)(g)(h) 100,000 65,500 - ------------------------------------------------------------------------------ RBD Capital S.A. (Luxembourg), Euro Notes, 6.50%, 08/11/08(e) 100,000 99,972 - ------------------------------------------------------------------------------ RBS Capital Trust III, Jr. Unsec. Gtd. Sub. Trust Pfd. Global Notes, 5.51%(e)(h) 60,000 51,537 - ------------------------------------------------------------------------------ Sovereign Bankcorp Inc., Sr. Unsec. Floating Rate Global Notes, 2.96%, 03/01/09(e)(g) 60,000 57,704 - ------------------------------------------------------------------------------ Sumitomo Mitsui Banking Corp. (Japan), Sub. Second Tier Euro Notes, 8.15%(e)(h) 90,000 90,582 - ------------------------------------------------------------------------------ Wachovia Capital Trust V, Jr. Unsec. Gtd. Sub. Trust Pfd. Capital Securities, 7.97%, 06/01/27(d)(e) 180,000 182,000 ============================================================================== 1,133,627 ============================================================================== DIVERSIFIED COMMERCIAL & PROFESSIONAL SERVICES-0.48% Erac USA Finance Co., Sr. Unsec. Gtd. Notes, 7.00%, 10/15/37(d)(e) 140,000 118,232 - ------------------------------------------------------------------------------ Unsec. Gtd. Notes, 5.80%, 10/15/12(d)(e) 130,000 122,188 ============================================================================== 240,420 ============================================================================== DIVERSIFIED METALS & MINING-0.06% Reynolds Metals Co., Sr. Unsec. Unsub. Medium-Term Notes, 7.00%, 05/15/09(e) 29,000 29,702 ============================================================================== ELECTRIC UTILITIES-0.32% Niagara Mohawk Power Corp.-Series G, Sr. Unsec. Notes, 7.75%, 10/01/08(e) 160,000 161,512 ============================================================================== ENVIRONMENTAL & FACILITIES SERVICES-0.14% Waste Management Inc., Sr. Unsec. Unsub. Notes, 6.50%, 11/15/08(e) 70,000 70,621 ============================================================================== HOMEBUILDING-0.33% D.R. Horton Inc., Sr. Unsec. Gtd. Unsub. Notes, 5.00%, 01/15/09(e) 165,000 162,731 ============================================================================== HOUSEWARES & SPECIALTIES-0.08% Newell Rubbermaid Inc.- Series A, Sr. Unsec. Unsub. Medium-Term Notes, 6.35%, 07/15/28(e) 40,000 40,119 ============================================================================== INDUSTRIAL CONGLOMERATES-0.08% General Electric Capital Corp., Sr. Unsec. Medium-Term Global Notes, 5.88%, 01/14/38(e) 45,000 40,905 ============================================================================== INTEGRATED OIL & GAS-0.66% Husky Oil Ltd. (Canada), Unsec. Sub. Yankee Capital Securities, 8.90%, 08/15/28(e) 325,000 326,498 ============================================================================== INTEGRATED TELECOMMUNICATION SERVICES-1.23% AT&T Inc., Sr. Unsec. Global Notes, 4.95%, 01/15/13(e) 60,000 59,842 - ------------------------------------------------------------------------------ Sr. Unsec. Unsub. Global Notes, 6.40%, 05/15/38(e) 70,000 67,310 - ------------------------------------------------------------------------------
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. BASIC BALANCED FUND
PRINCIPAL AMOUNT VALUE - ------------------------------------------------------------------------------ INTEGRATED TELECOMMUNICATION SERVICES-(CONTINUED) Southwestern Bell Telephone L.P., Sr. Unsec. Gtd. Unsub. Deb., 7.20%, 10/15/26(e) $110,000 $ 111,404 - ------------------------------------------------------------------------------ Verizon New York Inc., Sr. Unsec. Bonds, 7.00%, 12/01/33(e) 90,000 89,241 - ------------------------------------------------------------------------------ Verizon Virginia Inc.- Series A, Sr. Unsec. Global Bonds, 4.63%, 03/15/13(e) 170,000 165,509 - ------------------------------------------------------------------------------ Windstream Georgia Communications Corp., Sr. Unsec. Deb., 6.50%, 11/15/13(e) 117,000 117,998 ============================================================================== 611,304 ============================================================================== INTERNET RETAIL-0.12% Expedia, Inc., Sr. Unsec. Gtd. Putable Global Notes, 7.46%, 08/15/13(e) 60,000 57,300 ============================================================================== INVESTMENT BANKING & BROKERAGE-1.34% Bear Stearns Cos. Inc., (The), Floating Rate Notes, 3.22%, 07/19/10(e)(g) 180,000 177,091 - ------------------------------------------------------------------------------ Goldman Sachs Group, Inc. (The), Sr. Unsec. Global Notes, 6.15%, 04/01/18(e) 30,000 29,222 - ------------------------------------------------------------------------------ Jefferies Group, Inc., Sr. Unsec. Notes, 5.88%, 06/08/14(e) 230,000 211,600 - ------------------------------------------------------------------------------ 6.45%, 06/08/27(e) 50,000 39,282 - ------------------------------------------------------------------------------ Lehman Brothers Holdings Inc., Series I, Sr. Floating Rate Medium-Term Notes, 2.53%, 11/24/08(e)(g) 40,000 39,421 - ------------------------------------------------------------------------------ Merrill Lynch & Co Inc., Sr. Unsec. Medium-Term Notes, 6.88%, 04/25/18(e) 85,000 80,945 - ------------------------------------------------------------------------------ Morgan Stanley, Series F, Sr. Unsec. Medium-Term Global Notes, 5.95%, 12/28/17(e) 100,000 91,516 ============================================================================== 669,077 ============================================================================== LIFE & HEALTH INSURANCE-0.55% Prudential Holdings, LLC- Series B, Sr. Sec. Bonds, (INS-Financial Security Assurance Inc.) 7.25%, 12/18/23(d)(e)(f) 190,000 203,298 - ------------------------------------------------------------------------------ Prundential Financial, Inc., Jr. Unsec. Sub. Global Notes, 8.88%, 06/15/38(e) 70,000 69,552 ============================================================================== 272,850 ============================================================================== MORTGAGE BACKED SECURITIES-0.32% U.S. Bank N.A., Sr. Unsec. Medium-Term Notes, 5.92%, 05/25/12(e) 152,275 159,467 ============================================================================== MORTGAGE REIT'S-0.16% iStar Financial Inc., Sr. Unsec. Notes, 8.75%, 08/15/08(e) 81,000 80,028 ============================================================================== MOVIES & ENTERTAINMENT-0.06% Time Warner Cable, Inc., Sr. Unsec. Gtd. Global Notes, 6.75%, 07/01/18(e) 30,000 30,211 ============================================================================== MULTI-LINE INSURANCE-0.17% American International Group, Inc., Jr. Sub. Deb., 8.18%, 05/15/58(d)(e) 40,000 39,256 - ------------------------------------------------------------------------------ Liberty Mutual Group, Jr. Gtd. Sub. Notes, 10.75%, 06/15/58(d)(e) 45,000 44,062 ============================================================================== 83,318 ============================================================================== MULTI-SECTOR HOLDINGS-0.37% Capmark Financial Group, Inc., Sr. Unsec. Gtd. Floating Rate Global Notes, 3.37%, 05/10/10(e)(g) 240,000 184,920 ============================================================================== MULTI-UTILITIES-0.29% Dominion Capital Trust I, Jr. Unsec. Gtd. Sub. Trust Pfd. Capital Securities, 7.83%, 12/01/27(e) 140,000 144,661 ============================================================================== OFFICE ELECTRONICS-0.10% Xerox Corp., Sr. Unsec. Notes, 5.65%, 05/15/13(e) 50,000 49,626 ============================================================================== OTHER DIVERSIFIED FINANCIAL SERVICES-2.97% BankAmerica Capital II- Series 2, Jr. Unsec. Gtd. Sub. Trust Pfd. Capital Securities, 8.00%, 12/15/26(e) 80,000 81,155 - ------------------------------------------------------------------------------ BankAmerica Capital III, Jr. Unsec. Gtd. Sub. Floating Rate Trust Pfd. Capital Securities, 3.28%, 01/15/27(e)(g) 137,000 108,788 - ------------------------------------------------------------------------------ Citigroup Inc., Series E, Jr. Sub. Notes, 8.40%(e)(h) 75,000 69,680 - ------------------------------------------------------------------------------ JPMorgan Chase & Co., Sr. Unsec. Notes, 4.75%, 05/01/13(e) 65,000 62,645 - ------------------------------------------------------------------------------ 6.40%, 05/15/38(e) 150,000 141,459 - ------------------------------------------------------------------------------ Series 1, Jr. Unsec. Sub. Notes, 7.90%(e)(h) 80,000 74,998 - ------------------------------------------------------------------------------ Lazard Group, Sr. Unsec. Global Notes, 6.85%, 06/15/17(e) 70,000 61,508 - ------------------------------------------------------------------------------ Mantis Reef Ltd. (Cayman Islands), Notes, 4.69%, 11/14/08(d)(e) 355,000 356,349 - ------------------------------------------------------------------------------
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. BASIC BALANCED FUND
PRINCIPAL AMOUNT VALUE - ------------------------------------------------------------------------------ OTHER DIVERSIFIED FINANCIAL SERVICES-(CONTINUED) NB Capital Trust II, Jr. Unsec. Gtd. Sub. Trust Pfd. Capital Securities, 7.83%, 12/15/26(e) $50,000 $ 49,663 - ------------------------------------------------------------------------------ Old Mutual Capital Funding L.P. (United Kingdom), Gtd. Euro Bonds, 8.00%(e)(h) 130,000 123,825 - ------------------------------------------------------------------------------ Pemex Finance Ltd. (Mexico)- Series 1999-2, Class A1, Global Bonds, 9.69%, 08/15/09(e) 140,000 142,927 - ------------------------------------------------------------------------------ Regional Diversified Funding, Sr. Notes, 9.25%, 03/15/30(d)(e) 143,333 161,114 - ------------------------------------------------------------------------------ Twin Reefs Pass-Through Trust, Floating Rate Pass Through Ctfs., 3.45% (Acquired 12/07/04; Cost $90,000)(d)(e)(g)(h)(i) 90,000 3,308 - ------------------------------------------------------------------------------ Two-Rock Pass-Through Trust (Bermuda), Floating Rate Pass Through Ctfs., 3.66%, (Acquired 11/10/06; Cost $100,118)(d)(e)(g)(h)(i) 100,000 3,675 - ------------------------------------------------------------------------------ UFJ Finance Aruba AEC (Japan), Unsec. Gtd. Sub. Euro Bonds, 8.75%,(e)(h) 40,000 40,049 ============================================================================== 1,481,143 ============================================================================== PACKAGED FOODS & MEATS-0.29% Kraft Foods Inc., Notes, 6.13%, 08/23/18(e) 75,000 72,678 - ------------------------------------------------------------------------------ Sr. Unsec. Notes, 6.88%, 01/26/39(e) 75,000 73,628 ============================================================================== 146,306 ============================================================================== PAPER PRODUCTS-0.06% International Paper Co., Sr. Unsec. Unsub. Notes, 5.13%, 11/15/12(e) 30,000 27,650 ============================================================================== PROPERTY & CASUALTY INSURANCE-1.87% Chubb Corp. (The), Sr. Notes, 5.75%, 05/15/18(e) 30,000 29,113 - ------------------------------------------------------------------------------ Series 1, Sr. Notes, 6.50%, 05/15/38(e) 30,000 29,230 - ------------------------------------------------------------------------------ First American Capital Trust I, Gtd. Trust Pfd. Capital Securities, 8.50%, 04/15/12(e) 285,000 275,760 - ------------------------------------------------------------------------------ North Front Pass-Through Trust, Sec. Pass Through Ctfs., 5.81%, 12/15/24(d)(e) 100,000 92,932 - ------------------------------------------------------------------------------ Oil Casualty Insurance Ltd. (Bermuda), Unsec. Gtd. Bonds, 8.00%, 09/15/34(d)(e) 200,000 175,656 - ------------------------------------------------------------------------------ Oil Insurance Ltd., Notes, 7.56%(d)(e)(h) 360,000 312,620 - ------------------------------------------------------------------------------ QBE Capital Funding II L.P. (Australia), Gtd. Sub. Bonds, 6.80%(d)(e)(h) 20,000 17,103 ============================================================================== 932,414 ============================================================================== REGIONAL BANKS-1.60% Cullen/Frost Capital Trust I, Jr. Unsec. Gtd. Sub. Floating Rate Notes, 4.23%, 03/01/34(e)(g) 200,000 186,436 - ------------------------------------------------------------------------------ PNC Capital Trust C, Unsec. Gtd. Sub. Floating Rate Trust Pfd. Capital Securities, 3.25%, 06/01/28(e)(g) 100,000 83,538 - ------------------------------------------------------------------------------ Silicon Valley Bank, Unsec. Sub. Notes, 6.05%, 06/01/17(e) 110,000 96,764 - ------------------------------------------------------------------------------ TCF National Bank, Sub. Notes, 5.00%, 06/15/14(e) 60,000 60,010 - ------------------------------------------------------------------------------ Western Financial Bank, Unsec. Sub. Capital Deb., 9.63%, 05/15/12(e) 360,000 371,325 ============================================================================== 798,073 ============================================================================== REINSURANCE-0.07% Stingray Pass-Through Trust, Pass Through Ctfs., 5.90%, 01/12/15 (Acquired 01/07/05-11/03/05; Cost $196,920)(d)(e)(i) 200,000 35,000 - ------------------------------------------------------------------------------ RESIDENTIAL REIT'S-0.06% AvalonBay Communities Inc., Sr. Unsec. Medium-Term Notes, 8.25%, 07/15/08(e) 30,000 30,037 - ------------------------------------------------------------------------------ SPECIALIZED FINANCE-0.26% CIT Group Inc., Sr. Unsec. Unsub. Medium-Term Notes, 4.75%, 08/15/08(e) 130,000 129,038 - ------------------------------------------------------------------------------ SPECIALIZED REIT'S-0.64% HCP, Inc., Sr. Unsec. Floating Rate Medium-Term Notes, 3.23%, 09/15/08(e)(g) 140,000 139,511 - ------------------------------------------------------------------------------ Sr. Unsec. Medium-Term Notes, 6.70%, 01/30/18(e) 100,000 90,063 - ------------------------------------------------------------------------------ Health Care REIT Inc., Sr. Unsec. Notes, 5.88%, 05/15/15(e) 100,000 91,633 ============================================================================== 321,207 ==============================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. BASIC BALANCED FUND
PRINCIPAL AMOUNT VALUE - ------------------------------------------------------------------------------ SPECIALTY CHEMICALS-0.11% Valspar Corp., Sr. Unsec. Unsub. Notes, 5.63%, 05/01/12(e) $ 25,000 $ 24,618 - ------------------------------------------------------------------------------ 6.05%, 05/01/17(e) 30,000 28,289 ============================================================================== 52,907 ============================================================================== STEEL-0.18% United States Steel Corp., Sr. Unsec. Unsub. Notes, 5.65%, 06/01/13(e) 90,000 87,352 ============================================================================== THRIFTS & MORTGAGE FINANCE-0.67% Countrywide Financial Corp., Unsec. Gtd. Unsub. Medium-Term Global Notes, 5.80%, 06/07/12(e) 90,000 85,050 - ------------------------------------------------------------------------------ Series B, Sr. Unsec. Gtd. Conv. Putable Floating Rate Global Notes, 0.43%, 05/15/09(e)(g) 150,000 141,570 - ------------------------------------------------------------------------------ Series B, Sr. Unsec. Gtd. Unsub. Floating Rate Medium-Term Notes, 2.80%, 09/02/08(e)(g) 110,000 108,774 ============================================================================== 335,394 ============================================================================== TOBACCO-0.20% Philip Morris International Inc., Sr. Unsec. Unsub. Global Notes, 5.65%, 05/16/18(e) 100,000 97,609 ============================================================================== TRADING COMPANIES & DISTRIBUTORS-0.11% Western Power Distribution Holdings Ltd. (United Kingdom), Sr. Unsec. Unsub. Notes, 7.38%, 12/15/28(d)(e) 50,000 56,785 ============================================================================== TRUCKING-0.74% Roadway Corp., Sr. Sec. Gtd. Global Notes, 8.25%, 12/01/08(e) 230,000 230,697 - ------------------------------------------------------------------------------ Stagecoach Transport Holdings PLC (United Kingdom), Unsec. Unsub. Yankee Notes, 8.63%, 11/15/09(e) 130,000 136,978 ============================================================================== 367,675 ============================================================================== WIRELESS TELECOMMUNICATION SERVICES-1.52% Alamosa Delaware Inc., Sr. Unsec. Gtd. Global Notes, 8.50%, 01/31/12(e) 290,000 288,161 - ------------------------------------------------------------------------------ Nextel Communications, Inc.- Series D, Sr. Unsec. Gtd. Notes, 7.38%, 08/01/15(e) 250,000 208,420 - ------------------------------------------------------------------------------ Sprint Nextel Corp., Sr. Unsec. Bonds, 9.25%, 04/15/22(e) 140,000 134,732 - ------------------------------------------------------------------------------ US Unwired Inc.- Series B, Sec. Gtd. Unsub. Second Priority Global Notes, 10.00%, 06/15/12(e) 125,000 128,180 ============================================================================== 759,493 ============================================================================== Total Bonds & Notes (Cost $13,448,628) 12,414,657 ============================================================================== U.S. GOVERNMENT SPONSORED MORTGAGE-BACKED SECURITIES-15.42% FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC)-4.76% Pass Through Ctfs., 7.00%, 06/01/15 to 06/01/32(e) 98,893 104,652 - ------------------------------------------------------------------------------ 6.00%, 04/01/16 to 11/01/33(e) 398,146 405,308 - ------------------------------------------------------------------------------ 5.50%, 10/01/18 to 02/01/37(e) 173,517 175,864 - ------------------------------------------------------------------------------ 7.50%, 11/01/30 to 05/01/31(e) 16,200 17,507 - ------------------------------------------------------------------------------ 6.50%, 05/01/32 to 08/01/32(e) 26,117 27,149 - ------------------------------------------------------------------------------ Pass Through Ctfs., TBA, 5.00%, 07/01/38(e)(j) 603,000 577,843 - ------------------------------------------------------------------------------ 5.50%, 07/01/38(e)(j) 275,000 270,918 - ------------------------------------------------------------------------------ 6.00%, 07/01/38(e)(j) 785,000 792,972 ============================================================================== 2,372,213 ============================================================================== FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)-8.53% Pass Through Ctfs., 6.50%, 04/01/14 to 10/01/35(e) 400,841 416,711 - ------------------------------------------------------------------------------ 7.50%, 11/01/15 to 03/01/31(e) 89,817 96,715 - ------------------------------------------------------------------------------ 7.00%, 02/01/16 to 09/01/32(e) 59,092 62,342 - ------------------------------------------------------------------------------ 6.00%, 01/01/17 to 03/01/37(e)(k) 84,502 86,904 - ------------------------------------------------------------------------------ 5.00%, 04/01/18(e) 189,337 189,128 - ------------------------------------------------------------------------------ 4.50%, 11/01/18(e) 83,600 81,781 - ------------------------------------------------------------------------------ 5.50%, 03/01/21(e) 1,451 1,463 - ------------------------------------------------------------------------------ 8.00%, 08/01/21 to 12/01/23(e) 20,064 21,718 - ------------------------------------------------------------------------------ Pass Through Ctfs., TBA, 5.50%, 07/01/23 to 07/01/38(e)(j) 1,831,000 1,810,556 - ------------------------------------------------------------------------------ 6.00%, 07/01/23(e)(j) 173,000 177,352 - ------------------------------------------------------------------------------ 7.00%, 07/01/38(e)(j) 451,000 472,846 - ------------------------------------------------------------------------------ 6.00%, 08/01/38(e)(j) 159,000 159,969 - ------------------------------------------------------------------------------ 5.00%, 07/01/38(e)(j) 700,000 671,016 ============================================================================== 4,248,501 ==============================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. BASIC BALANCED FUND
PRINCIPAL AMOUNT VALUE - ------------------------------------------------------------------------------ GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA)-2.13% Pass Through Ctfs., 7.50%, 06/15/23 to 10/15/31(e) $ 31,627 $ 34,026 - ------------------------------------------------------------------------------ 8.50%, 11/15/24(e) 57,824 63,916 - ------------------------------------------------------------------------------ 8.00%, 08/15/25(e) 9,349 10,232 - ------------------------------------------------------------------------------ 6.50%, 03/15/29 to 01/15/37(e) 387,322 403,231 - ------------------------------------------------------------------------------ 6.00%, 09/15/31 to 05/15/33(e) 248,005 253,105 - ------------------------------------------------------------------------------ 5.50%, 12/15/33 to 02/15/34(e) 181,781 181,630 - ------------------------------------------------------------------------------ 7.00%, 06/15/37(e) 111,630 117,516 ============================================================================== 1,063,656 ============================================================================== Total U.S. Government Sponsored Mortgage- Backed Securities (Cost $7,719,091) 7,684,370 ============================================================================== SHARES PREFERRED STOCKS-3.58% OFFICE SERVICES & SUPPLIES-1.17% Pitney Bowes International Holdings Inc.,- Series D, 4.85% Pfd.(e)(g) 6 585,757 ============================================================================== OTHER DIVERSIFIED FINANCIAL SERVICES-2.41% Auction Pass Through Trust, Series 2007-T2, Class A, 7.78% Pfd. (Acquired 12/14/07; Cost $600,000)(d)(g)(i) 8 600,004 - ------------------------------------------------------------------------------ Series 2007-T3, Class A, 8.40% Pfd. (Acquired 10/22/07; Cost $600,000)(d)(g)(i) 8 600,004 ============================================================================== 1,200,008 ============================================================================== Total Preferred Stocks (Cost $1,778,455) 1,785,765 ============================================================================== PRINCIPAL AMOUNT ASSET-BACKED SECURITIES-1.81% COLLATERALIZED MORTGAGE OBLIGATIONS-0.64% Federal Home Loan Bank- Series TQ-2015, Class A, Pass Through Ctfs., 5.07%, 10/20/15(e) $ 102,933 103,146 - ------------------------------------------------------------------------------ Morgan Stanley Capital I- Series 2008-T29, Class A1, Pass Through Ctfs., 6.23%, 01/11/43(e)(i) 58,489 58,900 - ------------------------------------------------------------------------------ Option One Mortgage Securities Corp.- Series 2007-4A, Floating Rate Notes, 2.58%, 04/25/12 (Acquired 05/11/07; Cost $47,228)(d)(g)(i) 47,228 41,560 - ------------------------------------------------------------------------------ Structured Asset Securities Corp., Series 2007-OSI, Class A2, Floating Rate Pass Through Ctfs., 2.57%, 06/25/37(e)(g) 126,049 114,395 ============================================================================== 318,001 ============================================================================== OTHER DIVERSIFIED FINANCIAL SERVICES-1.17% Citicorp Lease Pass-Through Trust- Series 1999-1, Class A2, Pass Through Ctfs., 8.04%, 12/15/19(d)(e) 325,000 337,725 - ------------------------------------------------------------------------------ LILACS Repackaging 2005-I- Series A, Sr. Sec. Notes, 5.14%, 04/15/15 (Acquired 07/14/05; Cost $484,024)(d)(i) 484,024 245,400 ============================================================================== 583,125 ============================================================================== Total Asset-Backed Securities (Cost $1,176,668) 901,126 ============================================================================== U.S. GOVERNMENT SPONSORED AGENCY SECURITIES-0.89% FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)-0.40% Sr. Unsec. Floating Rate Global Notes, 5.12%, 02/17/09(e)(g) 200,000 202,432 ============================================================================== STUDENT LOAN MARKETING ASSOCIATION-0.49% Sr. Unsec. Unsub. Floating Rate Medium-Term Notes, 2.49%, 12/15/08(e)(g) 90,000 86,259 - ------------------------------------------------------------------------------ Series A, Sr. Unsec. Unsub. Medium-Term Notes, 4.00%, 01/15/09(e) 100,000 99,045 - ------------------------------------------------------------------------------ Sr. Unsec. Unsub. Medium-Term Notes, 5.05%, 11/14/14(e) 70,000 57,770 ============================================================================== 243,074 ============================================================================== Total U.S. Government Sponsored Agency Securities (Cost $450,636) 445,506 ============================================================================== MUNICIPAL OBLIGATIONS-0.56% Denver (City & County of) Colorado; Airport Series 2000 C, Ref. VRD RB, (INS-MBIA Insurance Corp.) 10.00%, 11/15/25(f)(l)(m)(n) 100,000 100,000 - ------------------------------------------------------------------------------ Detroit (City of), Michigan; Series 2005 A-1, Taxable Capital Improvement Limited Tax GO, (INS-Ambac Assurance Corp.) 4.96%, 04/01/20(e)(f) 65,000 57,696 - ------------------------------------------------------------------------------ Industry (City of), California Urban Development Agency (Project No. 3); Series 2003, Taxable Allocation RB, (INS-MBIA Insurance Corp.) 6.10%, 05/01/24(e)(f) 125,000 121,169 ============================================================================== Total Municipal Obligations (Cost $292,785) 278,865 ============================================================================== SHARES MONEY MARKET FUNDS-0.02% Liquid Assets Portfolio-Institutional Class(o) 5,123 5,123 - ------------------------------------------------------------------------------ Premier Portfolio-Institutional Class(o) 5,123 5,123 ============================================================================== Total Money Market Funds (Cost $10,246) 10,246 ============================================================================== TOTAL INVESTMENTS-109.10% (Cost $57,518,080) 54,364,340 ============================================================================== OTHER ASSETS LESS LIABILITIES-(9.10)% (4,534,919) ============================================================================== NET ASSETS-100.00% $49,829,421 ______________________________________________________________________________ ==============================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. BASIC BALANCED FUND Investment Abbreviations: ADR - American Depositary Receipt Conv. - Convertible Ctfs. - Certificates Deb. - Debentures GO - General Obligation Bonds Gtd. - Guaranteed INS - Insurer Jr. - Junior LILACS - Life Insurance and Life Annuities Based Charitable Securities Pfd. - Preferred RB - Revenue Bonds Ref. - Refunding REIT - Real Estate Investment Trust Sec. - Secured Sr. - Senior Sub. - Subordinated TBA - To Be Announced Unsec. - Unsecured Unsub. - Unsubordinated VRD - Variable Rate Demand
Notes to Schedule of Investments: (a) Industry and/or sector 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 MSCI Inc. and Standard & Poor's. (b) Non-income producing security. (c) In accordance with the procedures established by the Board of Trustees, the foreign security is fair valued using adjusted closing market prices. The aggregate value of these securities at June 30, 2008 was $1,399,033, which represented 2.81% of the Fund's Net Assets. See Note 1A. (d) Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended. The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at June 30, 2008 was $4,514,500, which represented 9.06% of the Fund's Net Assets. Unless otherwise indicated, these securities are not considered to be illiquid. (e) In accordance with the procedures established by the Board of Trustees, security fair valued based on an evaluated quote provided by an independent pricing service. The aggregate value of these securities at June 30, 2008 was $21,884,621, which represented 43.92% of the Fund's Net Assets. See Note 1A. (f) Principal and/or interest payments are secured by the bond insurance company listed. (g) Interest or dividend rate is redetermined periodically. Rate shown is the rate in effect on June 30, 2008. (h) Perpetual bond with no specified maturity date. (i) Security considered to be illiquid. The Fund is limited to investing 15% of net assets in illiquid securities at the time of purchase. The aggregate value of these securities considered illiquid at June 30, 2008 was $1,626,551, which represented 3.26% of the Fund's Net Assets. (j) Security purchased on a forward commitment basis. This security is subject to dollar roll transactions. See Note 1I. (k) All or a portion of the value was pledged as collateral to cover margin requirements for open futures contracts. See Note 1L and Note 8. (l) Security subject to the alternative minimum tax. (m) Demand security payable upon demand by the Fund at specified time intervals no greater than thirteen months. Interest rate is redetermined periodically. Rate shown is the rate in effect on June 30, 2008. (n) Security is considered a cash equivalent. (o) The money market fund and the Fund are affiliated by having the same investment advisor. See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. BASIC BALANCED FUND STATEMENT OF ASSETS AND LIABILITIES June 30, 2008 (Unaudited) ASSETS: Investments, at value (Cost $57,507,834) $54,354,094 - ------------------------------------------------------ Investments in affiliated money market funds (Cost $10,246) 10,246 ====================================================== Total investments (Cost $57,518,080) 54,364,340 ====================================================== Cash 434,021 - ------------------------------------------------------ Foreign currencies, at value (Cost $41,037) 41,590 - ------------------------------------------------------ Receivables for: Investments sold 561,297 - ------------------------------------------------------ Variation margin 1,500 - ------------------------------------------------------ Fund shares sold 428 - ------------------------------------------------------ Dividends and Interest 182,809 - ------------------------------------------------------ Principal paydowns 3,061 - ------------------------------------------------------ Investment for trustee deferred compensation and retirement plans 32,650 ====================================================== Total assets 55,621,696 ______________________________________________________ ====================================================== LIABILITIES: Payables for: Investments purchased 5,312,933 - ------------------------------------------------------ Fund shares reacquired 28,130 - ------------------------------------------------------ Accrued fees to affiliates 31,877 - ------------------------------------------------------ Accrued other operating expenses 55,001 - ------------------------------------------------------ Trustee deferred compensation and retirement plans 40,461 - ------------------------------------------------------ Unrealized depreciation on swap agreements 270,750 - ------------------------------------------------------ Premiums received on swap agreements 53,123 ====================================================== Total liabilities 5,792,275 ====================================================== Net assets applicable to shares outstanding $49,829,421 ______________________________________________________ ====================================================== NET ASSETS CONSIST OF: Shares of beneficial interest $59,443,098 - ------------------------------------------------------ Undistributed net investment income 2,780,738 - ------------------------------------------------------ Undistributed net realized gain (loss) (8,994,381) - ------------------------------------------------------ Unrealized appreciation (depreciation) (3,400,034) ====================================================== $49,829,421 ______________________________________________________ ====================================================== NET ASSETS: Series I $45,387,872 ______________________________________________________ ====================================================== Series II $ 4,441,549 ______________________________________________________ ====================================================== SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED NUMBER OF SHARES AUTHORIZED: Series I 4,366,242 ______________________________________________________ ====================================================== Series II 430,665 ______________________________________________________ ====================================================== Series I: Net asset value per share $ 10.40 ______________________________________________________ ====================================================== Series II: Net asset value per share $ 10.31 ______________________________________________________ ======================================================
STATEMENT OF OPERATIONS For the six months ended June 30, 2008 (Unaudited) INVESTMENT INCOME: Interest $ 661,161 - ------------------------------------------------------ Dividends (net of foreign withholding taxes of $6,540) 433,002 - ------------------------------------------------------ Dividends from affiliated money market funds 8,643 ====================================================== Total investment income 1,102,806 ====================================================== EXPENSES: Advisory fees 211,527 - ------------------------------------------------------ Administrative services fees 82,659 - ------------------------------------------------------ Custodian fees 19,436 - ------------------------------------------------------ Distribution fees -- Series II 6,073 - ------------------------------------------------------ Transfer agent fees 4,498 - ------------------------------------------------------ Trustees' and officer's fees and benefits 8,973 - ------------------------------------------------------ Professional services fees 27,410 - ------------------------------------------------------ Other 13,322 ====================================================== Total expenses 373,898 ====================================================== Less: Fees waived and expense offset arrangement(s) (111,471) ====================================================== Net expenses 262,427 ====================================================== Net investment income 840,379 ====================================================== REALIZED AND UNREALIZED GAIN (LOSS) FROM: Net realized gain (loss) from: Investment securities (includes net gains (losses) from securities sold to affiliates of $(26,674)) 1,647,219 - ------------------------------------------------------ Foreign currencies (50) - ------------------------------------------------------ Futures contracts 28,360 - ------------------------------------------------------ Swap agreements 49,800 ====================================================== 1,725,329 ====================================================== Change in net unrealized appreciation (depreciation) of: Investment securities (9,715,454) - ------------------------------------------------------ Foreign currencies 649 - ------------------------------------------------------ Futures contracts 18,490 - ------------------------------------------------------ Swap agreements (89,762) ====================================================== (9,786,077) ====================================================== Net realized and unrealized gain (loss) (8,060,748) ====================================================== Net increase (decrease) in net assets resulting from operations $(7,220,369) ______________________________________________________ ======================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. BASIC BALANCED FUND STATEMENT OF CHANGES IN NET ASSETS For the six months ended June 30, 2008 and the year ended December 31, 2007 (Unaudited)
JUNE 30, DECEMBER 31, 2008 2007 - -------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income $ 840,379 $ 1,896,485 - -------------------------------------------------------------------------------------------------------- Net realized gain 1,725,329 6,821,284 - -------------------------------------------------------------------------------------------------------- Change in net unrealized appreciation (depreciation) (9,786,077) (6,118,608) ======================================================================================================== Net increase (decrease) in net assets resulting from operations (7,220,369) 2,599,161 ======================================================================================================== Distributions to shareholders from net investment income: Series I -- (1,869,328) - -------------------------------------------------------------------------------------------------------- Series II -- (151,655) ======================================================================================================== Total distributions from net investment income -- (2,020,983) ======================================================================================================== Share transactions-net: Series I (7,012,241) (25,823,599) - -------------------------------------------------------------------------------------------------------- Series II (232,622) (549,210) ======================================================================================================== Net increase (decrease) in net assets resulting from share transactions (7,244,863) (26,372,809) ======================================================================================================== Net increase (decrease) in net assets (14,465,232) (25,794,631) ======================================================================================================== NET ASSETS: Beginning of period 64,294,653 90,089,284 ======================================================================================================== End of period (including undistributed net investment income of $2,780,738 and $1,940,359, respectively) $ 49,829,421 $ 64,294,653 ________________________________________________________________________________________________________ ========================================================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. BASIC BALANCED FUND NOTES TO FINANCIAL STATEMENTS June 30, 2008 (Unaudited) NOTE 1--SIGNIFICANT ACCOUNTING POLICIES AIM V.I. Basic Balanced Fund (the "Fund") is a series portfolio of AIM Variable Insurance Funds (the "Trust"). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of twenty separate portfolios, (each constituting a "Fund"). 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 Fund or class will be voted on exclusively by the shareholders of such Fund 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 Fund 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. 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, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. 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 prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. 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, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. 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. Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer's assets, general economic conditions, interest rates, investor perceptions and market liquidity. 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. AIM V.I. BASIC BALANCED FUND 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. The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds as received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. 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, the investment advisor 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. The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. 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 by a significant amount. 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 AND FORWARD COMMITMENT TRANSACTIONS -- The Fund may engage in dollar roll and forward commitment transactions with respect to mortgage- backed securities issued by GNMA, FNMA and FHLMC. These transactions are often conducted on a to be announced ("TBA") basis. In a TBA mortgage- backed transaction, the seller does not specify the particular securities to be delivered. Rather, a Fund agrees to accept any security that meets specified terms, such as an agreed upon issuer, coupon rate and terms of the underlying mortgages. TBA mortgage-backed transactions generally settle once a month on a specific date. 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 coupon 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. Forward commitment transactions involve commitments by the Fund to acquire or sell TBA mortgage-backed securities from/to a financial institution, such as a bank or broker-dealer at a specified future date and amount. The TBA mortgage-backed security is marked to market until settlement and the unrealized appreciation or depreciation is recorded in the statement of operations. At the time the Fund enters into the dollar roll or forward commitment transaction, mortgage-backed securities or other liquid assets held by the Fund having a dollar value equal to the purchase price or in an amount sufficient to honor the forward commitment will be segregated. AIM V.I. BASIC BALANCED FUND 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. Forward commitment transactions involve the risk that a counter-party to the transaction may fail to complete the transaction. If this occurs, the Fund may lose the opportunity to purchase or sell the security at the agreed upon price. Settlement dates of forward commitment transactions may be a month or more after entering into these transactions and as a result the market values of the securities may vary from the purchase or sale prices. Therefore, forward commitment transactions may increase the Fund's overall interest rate exposure. 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. 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. 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 recalculating the value of the contracts on a daily basis. 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. 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 an upfront payment and/or 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 an upfront payment and/or a fixed payment over the life of the agreement. 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. Payments received or paid at the beginning of the agreement are reflected as such on the Statement of Assets and Liabilities and may be referred to as upfront payments. The Fund amortizes upfront payments and/or accrues for the fixed payment stream 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 AIM V.I. BASIC BALANCED FUND 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. N. COLLATERAL -- To the extent the Fund has pledged or segregated a security as collateral and that security is subsequently sold, it is the Fund's practice to replace such collateral no later than the next business day. NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES The Trust has entered into a master investment advisory agreement with Invesco Aim Advisors, Inc. (the "Advisor" or "Invesco Aim"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Advisor based on the annual rate of the Fund's average daily net assets as follows:
AVERAGE NET ASSETS RATE - ------------------------------------------------------------------- First $150 million 0.75% - ------------------------------------------------------------------- Over $150 million 0.50% ___________________________________________________________________ ===================================================================
Through December 31, 2009, the Advisor has contractually agreed to waive advisory fees to the extent necessary so that the advisory fees payable by the Fund (based on the Fund's average daily net assets) do not exceed the annual rate of:
AVERAGE NET ASSETS RATE - ------------------------------------------------------------------- First $150 million 0.62% - ------------------------------------------------------------------- Next $4.85 billion 0.50% - ------------------------------------------------------------------- Next $5 billion 0.475% - ------------------------------------------------------------------- Over $10 billion 0.45% ___________________________________________________________________ ===================================================================
Under the terms of a master sub-advisory agreement approved by shareholders of the Fund on February 29, 2008, effective May 1, 2008, between the Advisor and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Global Asset Management (N.A.), Inc., Invesco Hong Kong Limited, Invesco Institutional (N.A.), Inc., Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the "Affiliated Sub-Advisors") the Advisor, not the Fund, may pay 40% of the fees paid to the Advisor to any such Affiliated Sub- Advisor(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Advisor(s). The Advisor 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, 2010. 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 Invesco Ltd. ("Invesco") 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. To the extent that the annualized expense ratio does not exceed the expense limitation, the Advisor will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year. Further, the Advisor has contractually agreed, through at least April 30, 2010, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Advisor receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds. For the six months ended June 30, 2008, the Advisor waived advisory fees of $111,138. At the request of the Trustees of the Trust, Invesco agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the six months ended June 30, 2008, Invesco did not reimburse any expenses. The Trust has entered into a master administrative services agreement with Invesco Aim pursuant to which the Fund has agreed to pay Invesco Aim a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco Aim for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants' accounts. Pursuant to such agreement, for the six months ended June 30, 2008, Invesco Aim was paid $24,863 for accounting and fund administrative services and reimbursed $57,796 for services provided by insurance companies. The Trust has entered into a transfer agency and service agreement with Invesco Aim Investment Services, Inc. ("IAIS") pursuant to which the Fund has agreed to pay IAIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IAIS for certain expenses incurred by IAIS in the course of providing such services. For the six months ended June 30, 2008, 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 Invesco Aim Distributors, Inc. ("IADI") 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 IADI 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 AIM V.I. BASIC BALANCED FUND 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 six months ended June 30, 2008, expenses incurred under the Plan are detailed in the Statement of Operations as distribution fees. Certain officers and trustees of the Trust are officers and directors of Invesco Aim, IAIS and/or IADI. NOTE 3--SUPPLEMENTAL INFORMATION The Fund adopted the provisions of Statement of Financial Accounting Standards No. 157, "Fair Value Measurements" (SFAS 157), effective with the beginning of the Fund's fiscal year. SFAS 157 establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (level 1) and the lowest priority to unobservable inputs (level 3) market prices are not readily available or are unreliable. Based on the inputs the securities or other instruments are tiered into three levels of hierarchy under SFAS 157. Changes in valuation methods may result in transfers in or out of an investment's assigned level within the hierarchy, Level 1 -- Quoted prices in an active market for identical assets. Level 2 -- Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk and others. Level 3 -- Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund's own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. Below is a summary of the tiered input levels, as of the end of the reporting period, June 30, 2008. The inputs or methods used for valuing securities may not be an indication of the risk associated with investing in those securities.
INVESTMENTS IN OTHER INPUT LEVEL SECURITIES INVESTMENTS* - ------------------------------------------------------- Level 1 $29,455,019 $ 23,966 - ------------------------------------------------------- Level 2 24,909,321 (270,750) - ------------------------------------------------------- Level 3 -- -- ======================================================= $54,364,340 $(246,784) _______________________________________________________ =======================================================
* Other investments include futures and swap contracts, which are included at the unrealized appreciation/(depreciation). NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS The Fund is permitted to purchase or sell securities from or to certain other AIM Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment advisor (or affiliated investment advisors), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the six months ended June 30, 2008, the Fund engaged in securities sales of $404,135, which resulted in net realized gains (losses) of $(26,674), and securities purchases of $201,750. NOTE 5--EXPENSE OFFSET ARRANGEMENT The expense offset arrangement is comprised of custodian credits which result from periodic overnight cash balances at the custodian. For the six months ended June 30, 2008, the Fund received credits from this arrangement, which resulted in the reduction of the Fund's total expenses of $333. 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 certain Trustees and Officers of the Fund. 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, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund. During the six months ended June 30, 2008, the Fund paid legal fees of $1,583 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. BASIC BALANCED FUND NOTE 7--CASH BALANCES The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The State Street Bank and Trust Company ("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 Invesco Aim, not to exceed the contractually agreed upon rate. NOTE 8--FUTURES CONTRACTS
OPEN FUTURES CONTRACTS AT PERIOD-END - ------------------------------------------------------------------------------------------------------------------------- UNREALIZED NUMBER OF MONTH/ VALUE APPRECIATION CONTRACT CONTRACTS COMMITMENT 06/30/08 (DEPRECIATION) - ------------------------------------------------------------------------------------------------------------------------- U.S. Treasury 5 Year Notes 4 September-2008/Long $ 442,219 $ (228) - ------------------------------------------------------------------------------------------------------------------------- U.S. Treasury 10 Year Notes 11 September-2008/Long 1,253,140 24,194 ========================================================================================================================= $1,695,359 $23,966 _________________________________________________________________________________________________________________________ =========================================================================================================================
NOTE 9--CREDIT DEFAULT SWAP AGREEMENTS
OPEN CREDIT DEFAULT SWAP AGREEMENTS AT PERIOD-END - ------------------------------------------------------------------------------------------------------------------------------- BUY/SELL (PAY)/RECEIVE EXPIRATION COUNTERPARTY REFERENCE ENTITY PROTECTION FIXED RATE DATE - ------------------------------------------------------------------------------------------------------------------------------- Lehman Brothers Special Financing Inc. CDX North America Investment Grade High Volatility Index Sell 0.75%(a) 06/20/12 - ------------------------------------------------------------------------------------------------------------------------------- Lehman Brothers Special Financing Inc. MBIA Inc. Sell 1.90% 09/20/08 - ------------------------------------------------------------------------------------------------------------------------------- Lehman Brothers Special Financing Inc. Residential Capital, LLC Sell 2.75% 09/20/08 - ------------------------------------------------------------------------------------------------------------------------------- Lehman Brothers Special Financing Inc. Residential Capital, LLC Sell 6.80% 09/20/08 - ------------------------------------------------------------------------------------------------------------------------------- Merrill Lynch International AMBAC Financial Group, Inc. Sell 2.30% 12/20/08 - ------------------------------------------------------------------------------------------------------------------------------- Merrill Lynch International AMBAC Financial Group, Inc. Sell 6.75% 12/20/08 - ------------------------------------------------------------------------------------------------------------------------------- Merrill Lynch International Assured Guaranty Sell 5.00% 03/20/09 - ------------------------------------------------------------------------------------------------------------------------------- Merrill Lynch International CIT Group, Inc. Sell 2.40% 09/20/08 - ------------------------------------------------------------------------------------------------------------------------------- Merrill Lynch International CIT Group, Inc. Sell 2.50% 09/20/08 - ------------------------------------------------------------------------------------------------------------------------------- Merrill Lynch International Lehman Brothers Holdings Inc. Sell 0.90% 09/20/08 - ------------------------------------------------------------------------------------------------------------------------------- UBS AG AMBAC Financial Group, Inc. Sell 5.10% 12/20/08 - ------------------------------------------------------------------------------------------------------------------------------- UBS AG AMBAC Financial Group, Inc. Sell 11.00% 12/20/08 - ------------------------------------------------------------------------------------------------------------------------------- UBS AG MBIA Inc. Sell 7.10% 12/20/08 - ------------------------------------------------------------------------------------------------------------------------------- UBS AG Pulte Homes, Inc. Sell 4.20% 12/20/08 =============================================================================================================================== Total Credit Default Swap Agreements _______________________________________________________________________________________________________________________________ =============================================================================================================================== OPEN CREDIT DEFAULT SWAP AGREEMENTS AT PERIOD-END - ------------------------------------------------------ NOTIONAL UNREALIZED AMOUNT APPRECIATION COUNTERPARTY (000) (DEPRECIATION) - ------------------------------------------------------ Lehman Brothers Special Financing Inc. $1,500 $ (81,650) - ------------------------------------------------------ Lehman Brothers Special Financing Inc. 600 (40,844) - ------------------------------------------------------ Lehman Brothers Special Financing Inc. 100 (4,610) - ------------------------------------------------------ Lehman Brothers Special Financing Inc. 200 (7,391) - ------------------------------------------------------ Merrill Lynch International 330 (46,865) - ------------------------------------------------------ Merrill Lynch International 165 (20,289) - ------------------------------------------------------ Merrill Lynch International 130 (6,653) - ------------------------------------------------------ Merrill Lynch International 155 (2,664) - ------------------------------------------------------ Merrill Lynch International 70 (1,187) - ------------------------------------------------------ Merrill Lynch International 295 (2,396) - ------------------------------------------------------ UBS AG 165 (21,455) - ------------------------------------------------------ UBS AG 150 (15,716) - ------------------------------------------------------ UBS AG 180 (19,936) - ------------------------------------------------------ UBS AG 330 906 ====================================================== Total Credit Default Swap Agreements $4,370 $(270,750) ______________________________________________________ ======================================================
(a) Unamortized premium at period-end of $53,123. NOTE 10--TAX INFORMATION The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund's fiscal year-end. Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions. The Fund had a capital loss carryforward as of December 31, 2007 which expires as follows:
CAPITAL LOSS EXPIRATION CARRYFORWARD* - ----------------------------------------------------------------------------------------------- December 31, 2010 $10,514,572 _______________________________________________________________________________________________ ===============================================================================================
* 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. BASIC BALANCED 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 six months ended June 30, 2008 was $14,281,957 and $20,714,693, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period end.
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS - ------------------------------------------------------------------------------------------------ Aggregate unrealized appreciation of investment securities $ 4,398,558 - ------------------------------------------------------------------------------------------------ Aggregate unrealized (depreciation) of investment securities (7,753,724) ================================================================================================ Net unrealized appreciation (depreciation) of investment securities $(3,355,166) ________________________________________________________________________________________________ ================================================================================================ Cost of investments for tax purposes is $57,719,506.
NOTE 12--SHARE INFORMATION
CHANGES IN SHARES OUTSTANDING - ----------------------------------------------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED JUNE 30, 2008(A) DECEMBER 31, 2007 ------------------------ --------------------------- SHARES AMOUNT SHARES AMOUNT - ----------------------------------------------------------------------------------------------------------------------- Sold: Series I 76,811 $ 857,859 982,742 $ 11,912,341 - ----------------------------------------------------------------------------------------------------------------------- Series II 23,224 253,969 39,272 478,310 ======================================================================================================================= Issued as reinvestment of dividends: Series I -- -- 155,131 1,869,328 - ----------------------------------------------------------------------------------------------------------------------- Series II -- -- 12,669 151,655 ======================================================================================================================= Reacquired: Series I (707,516) (7,870,100) (3,206,335) (39,605,268) - ----------------------------------------------------------------------------------------------------------------------- Series II (43,977) (486,591) (96,959) (1,179,175) ======================================================================================================================= (651,458) $(7,244,863) (2,113,480) $(26,372,809) _______________________________________________________________________________________________________________________ =======================================================================================================================
(a) There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 81% of the outstanding shares of the Fund. The Fund and the Fund's principal underwriter or advisor, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco Aim and/or Invesco Aim affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco Aim and or Invesco Aim affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. AIM V.I. BASIC BALANCED FUND NOTE 13--FINANCIAL HIGHLIGHTS The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
SERIES I ------------------------------------------------------------------------------------ SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, --------------------------------------------------------------- 2008 2007 2006 2005 2004 2003 - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 11.81 $ 11.92 $ 10.99 $ 10.59 $ 9.99 $ 8.75 - --------------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income(a) 0.17 0.28 0.25 0.18 0.13 0.14 - --------------------------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) (1.58) (0.01) 0.91 0.38 0.62 1.29 ================================================================================================================================= Total from investment operations (1.41) 0.27 1.16 0.56 0.75 1.43 ================================================================================================================================= Less dividends from net investment income -- (0.38) (0.23) (0.16) (0.15) (0.19) ================================================================================================================================= Net asset value, end of period $ 10.40 $ 11.81 $ 11.92 $ 10.99 $ 10.59 $ 9.99 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Total return(b) (11.94)% 2.20% 10.55% 5.29% 7.52% 16.36% _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratios/supplemental data: Net assets, end of period (000s omitted) $45,388 $59,000 $84,212 $90,633 $99,070 $97,665 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 0.91%(c) 0.91% 0.91% 0.95% 1.12% 1.11% - --------------------------------------------------------------------------------------------------------------------------------- Without fee waivers and/or expense reimbursements 1.30%(c) 1.18% 1.15% 1.15% 1.12% 1.11% ================================================================================================================================= Ratio of net investment income to average net assets 3.00%(c) 2.31% 2.16% 1.68% 1.24% 1.47% _________________________________________________________________________________________________________________________________ ================================================================================================================================= Portfolio turnover rate(d) 25% 47% 44% 44% 51% 131% _________________________________________________________________________________________________________________________________ =================================================================================================================================
(a) Calculated using average shares outstanding. (b) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. (c) Ratios are annualized and based on average daily net assets of $51,831,852. (d) Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year.
SERIES II ----------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, -------------------------------------------------- 2008 2007 2006 2005 2004 2003 - -------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 11.73 $11.84 $10.91 $10.53 $ 9.95 $ 8.73 - -------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income(a) 0.15 0.25 0.22 0.15 0.10 0.12 - -------------------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) (1.57) (0.01) 0.91 0.37 0.62 1.29 ========================================================================================================================== Total from investment operations (1.42) 0.24 1.13 0.52 0.72 1.41 ========================================================================================================================== Less dividends from net investment income -- (0.35) (0.20) (0.14) (0.14) (0.19) ========================================================================================================================== Net asset value, end of period $ 10.31 $11.73 $11.84 $10.91 $10.53 $ 9.95 __________________________________________________________________________________________________________________________ ========================================================================================================================== Total return(b) (12.11)% 1.94% 10.36% 4.91% 7.24% 16.15% __________________________________________________________________________________________________________________________ ========================================================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $ 4,442 $5,295 $5,878 $5,870 $5,642 $4,133 __________________________________________________________________________________________________________________________ ========================================================================================================================== Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 1.16%(c) 1.16% 1.16% 1.20% 1.37% 1.36% - -------------------------------------------------------------------------------------------------------------------------- Without fee waivers and/or expense reimbursements 1.55%(c) 1.43% 1.40% 1.40% 1.37% 1.36% ========================================================================================================================== Ratio of net investment income to average net assets 2.75%(c) 2.06% 1.91% 1.43% 0.99% 1.22% __________________________________________________________________________________________________________________________ ========================================================================================================================== Portfolio turnover rate(d) 25% 47% 44% 44% 51% 131% __________________________________________________________________________________________________________________________ ==========================================================================================================================
(a) Calculated using average shares outstanding. (b) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. (c) Ratios are annualized and based on average daily net assets of $4,885,251. (d) Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year. AIM V.I. BASIC BALANCED FUND NOTE 14--LEGAL PROCEEDINGS Terms used in the Legal Proceedings Note are defined terms solely for the purpose of this note. 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 Invesco Aim and IADI (Order No. 05-1318). The WVASC makes findings of fact that Invesco Aim and IADI 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 Invesco Aim and IADI violated the West Virginia securities laws. The WVASC orders Invesco Aim and IADI 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. By agreement with the Commissioner of Securities, Invesco Aim's time to respond to that Order has been indefinitely suspended. Civil lawsuits, including purported class action and shareholder derivative suits, have been filed against certain of the AIM Funds, Invesco Funds Group, Inc. ("IFG"), Invesco Aim, IADI 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; and - that certain AIM Funds inadequately employed fair value pricing. These lawsuits allege as theories of recovery, depending on the lawsuit, violations of various provisions of the Federal and state securities laws Employee Retirement Income Security Act of 1974, as amended ("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. The case pending in Illinois State Court regarding fair value pricing was dismissed with prejudice on May 6, 2008. 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 Invesco 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 ERISA purportedly brought on behalf of participants in the Invesco 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 Invesco defendants' motion to dismiss the Amended Class Action Complaint for Violations of ERISA and dismissed such Complaint. Plaintiff appealed this ruling. On June 16, 2008, the Fourth Court of Appeals reversed the dismissal and remanded this lawsuit back to the MDL Court for further proceedings. IFG, Invesco Aim, IADI 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, Invesco Aim and IADI 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, Invesco Aim and/or related entities and individuals in the future. At the present time, management of Invesco 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 Invesco Aim, IADI or the Fund. AIM V.I. BASIC BALANCED FUND NOTE 14--LEGAL PROCEEDINGS--(CONTINUED) CALCULATING YOUR ONGOING FUND EXPENSES EXAMPLE As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2008, through June 30, 2008. The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower. ACTUAL EXPENSES The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled "Actual Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
- --------------------------------------------------------------------------------------------------- HYPOTHETICAL (5% ANNUAL RETURN BEFORE ACTUAL EXPENSES) ------------------------------------------------------ BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE CLASS (01/01/08) (06/30/08)(1) PERIOD(2) (06/30/08) PERIOD(2) RATIO - --------------------------------------------------------------------------------------------------- Series I $1,000.00 $880.60 $4.25 $1,020.34 $4.57 0.91% - --------------------------------------------------------------------------------------------------- Series II 1,000.00 878.90 5.42 1,019.10 5.82 1.16 - ---------------------------------------------------------------------------------------------------
(1) The actual ending account value is based on the actual total return of the Fund for the period January 1, 2008, through June 30, 2008, 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 182/366 to reflect the most recent fiscal half year. AIM V.I. BASIC BALANCED FUND APPROVAL OF INVESTMENT ADVISORY AGREEMENT The Board of Trustees (the Board) of AIM renewal process, the Trustees receive from one another and attributed different Variable Insurance Funds is required under comparative performance and fee data weight to the various factors. The the Investment Company Act of 1940 to regarding the AIM Funds prepared by an Trustees recognized that the advisory approve annually the renewal of the AIM independent company, Lipper, Inc. arrangements and resulting advisory fees V.I. Basic Balanced Fund (the Fund) (Lipper), under the direction and for the Fund and the other AIM Funds are investment advisory agreement with Invesco supervision of the independent Senior the result of years of review and Aim Advisors, Inc. (Invesco Aim). During Officer who also prepares a separate negotiation between the Trustees and contract renewal meetings held on June analysis of this information for the Invesco Aim, that the Trustees may focus 18-19, 2008, the Board as a whole and the Trustees. Each Sub-Committee then makes to a greater extent on certain aspects of disinterested or "independent" Trustees, recommendations to the Investments these arrangements in some years than in voting separately, approved the Committee regarding the performance, fees others, and that the Trustees' continuance of the Fund's investment and expenses of their assigned funds. The deliberations and conclusions in a advisory agreement for another year, Investments Committee considers each particular year may be based in part on effective July 1, 2008. In doing so, the Sub-Committee's recommendations and makes their deliberations and conclusions of Board determined that the Fund's its own recommendations regarding the these same arrangements throughout the investment advisory agreement is in the performance, fees and expenses of the AIM year and in prior years. best interests of the Fund and its Funds to the full Board. The Investments shareholders and that the compensation to Committee also considers each FACTORS AND CONCLUSIONS AND SUMMARY OF Invesco Aim under the Fund's investment Sub-Committee's recommendations in making INDEPENDENT WRITTEN FEE EVALUATION advisory agreement is fair and reasonable. its annual recommendation to the Board The discussion below serves as a summary The independent Trustees met separately whether to approve the continuance of each of the Senior Officer's independent during their evaluation of the Fund's AIM Fund's investment advisory agreement written evaluation with respect to the investment advisory agreement with and sub-advisory agreements for another Fund's investment advisory agreement as independent legal counsel from whom they year. well as a discussion of the material received independent legal advice, and the The independent Trustees are assisted factors and related conclusions that independent Trustees also received in their annual evaluation of the Fund's formed the basis for the Board's approval assistance during their deliberations from investment advisory agreement by the of the Fund's investment advisory the independent Senior Officer, a independent Senior Officer. One agreement and sub-advisory agreements. full-time officer of the AIM Funds who responsibility of the Senior Officer is to Unless otherwise stated, information set reports directly to the independent manage the process by which the AIM Funds' forth below is as of June 19, 2008 and Trustees. proposed management fees are negotiated does not reflect any changes that may have during the annual contract renewal process occurred since that date, including but THE BOARD'S FUND EVALUATION PROCESS to ensure that they are negotiated in a not limited to changes to the Fund's The Board's Investments Committee has manner that is at arms' length and performance, advisory fees, expense established three Sub-Committees that are reasonable. Accordingly, the Senior limitations and/or fee waivers. responsible for overseeing the management Officer must either supervise a of a number of the series portfolios of competitive bidding process or prepare an I. Investment Advisory Agreement the AIM Funds. This Sub-Committee independent written evaluation. The Senior A. Nature, Extent and Quality of structure permits the Trustees to focus on Officer has recommended that an Services Provided by Invesco Aim the performance of the AIM Funds that have independent written evaluation be provided The Board reviewed the advisory services been assigned to them. The Sub-Committees and, at the direction of the Board, has provided to the Fund by Invesco Aim under meet throughout the year to review the prepared an independent written the Fund's investment advisory agreement, performance of their assigned funds, and evaluation. the performance of Invesco Aim in the Sub-Committees review monthly and During the annual contract renewal providing these services, and the quarterly comparative performance process, the Board considered the factors credentials and experience of the officers information and periodic asset flow data discussed below under the heading "Factors and employees of Invesco Aim who provide for their assigned funds. These materials and Conclusions and Summary of Independent these services. The Board's review of the are prepared under the direction and Written Fee Evaluation" in evaluating the qualifications of Invesco Aim to provide supervision of the independent Senior fairness and reasonableness of the Fund's these services included the Board's Officer. Over the course of each year, the investment advisory agreement and consideration of Invesco Aim's portfolio Sub-Committees meet with portfolio sub-advisory agreements at the contract and product review process, various back managers for their assigned funds and renewal meetings and at their meetings office support functions provided by other members of management and review throughout the year as part of their Invesco Aim and its affiliates, and with these individuals the performance, ongoing oversight of the Fund. The Fund's Invesco Aim's equity and fixed income investment objective(s), policies, investment advisory agreement and trading operations. The Board concluded strategies and limitations of these funds. sub-advisory agreements were considered that the nature, extent and quality of the In addition to their meetings separately, although the Board also advisory services provided to the Fund by throughout the year, the Sub-Committees considered the common interests of all of Invesco Aim were appropriate and that meet at designated contract renewal the AIM Funds in their deliberations. The Invesco Aim currently is providing meetings each year to conduct an in-depth Board considered all of the information satisfactory advisory services in review of the performance, fees and provided to them and did not identify any accordance with the terms of the Fund's expenses of their assigned funds. During particular factor that was controlling. investment advisory agreement. In the contract Each Trustee may have evaluated the addition, based on their ongoing meetings information provided differently throughout the year with the Fund's portfolio manager or continued
AIM V.I. BASIC BALANCED FUND managers, the Board concluded that these the Board's focus on fund performance. the comparative advisory fee information individuals are competent and able to However, due to the Fund's and the fee waivers/expense limitations continue to carry out their underperformance, the Board also concluded discussed above, the Board concluded that responsibilities under the Fund's that it would be appropriate for the Board the Fund's advisory fees were fair and investment advisory agreement. to continue to monitor more closely the reasonable. In determining whether to continue the performance of the Fund. Although the Fund's investment advisory agreement, the independent written evaluation of the D. Economies of Scale and Breakpoints Board considered the prior relationship Fund's Senior Officer only considered Fund The Board considered the extent to which between Invesco Aim and the Fund, as well performance through the most recent there are economies of scale in Invesco as the Board's knowledge of Invesco Aim's calendar year, the Board also reviewed Aim's provision of advisory services to operations, and concluded that it was more recent Fund performance and this the Fund. The Board also considered beneficial to maintain the current review did not change their conclusions. whether the Fund benefits from such relationship, in part, because of such economies of scale through contractual knowledge. The Board also considered the C. Advisory Fees and Fee Waivers breakpoints in the Fund's advisory fee steps that Invesco Aim and its affiliates The Board compared the Fund's contractual schedule or through advisory fee waivers have taken over the last several years to advisory fee rate to the contractual or expense limitations. The Board noted improve the quality and efficiency of the advisory fee rates of funds in the Fund's that the Fund's contractual advisory fee services they provide to the AIM Funds in Lipper expense group that are not managed schedule includes one breakpoint, but the areas of investment performance, by Invesco Aim, at a common asset level that, due to the Fund's asset level at the product line diversification, and as of the end of the past calendar end of the past calendar year and the way distribution, fund operations, shareholder year. The Board noted that the Fund's in which the breakpoint has been services and compliance. The Board contractual advisory fee rate was below structured, the Fund has yet to benefit concluded that the quality and efficiency the median contractual advisory fee rate from the breakpoint. The Board also noted of the services Invesco Aim and its of funds in its expense group. The Board that Invesco Aim's contractual advisory affiliates provide to the AIM Funds in also reviewed the methodology used by fee waiver discussed above includes each of these areas have generally Lipper in determining contractual fee breakpoints based on net asset levels. improved, and support the Board's approval rates. Based on this information, the Board of the continuance of the Fund's The Board also compared the Fund's concluded that the Fund's advisory fees investment advisory agreement. effective fee rate (the advisory fee after would reflect economies of scale at higher any advisory fee waivers and before any asset levels. The Board also noted that B. Fund Performance expense limitations/waivers) to the the Fund shares directly in economies of The Board compared the Fund's performance advisory fee rates of other clients of scale through lower fees charged by third during the past one, three and five Invesco Aim and its affiliates with party service providers based on the calendar years to the performance of funds investment strategies comparable to those combined size of all of the AIM Funds and in the Fund's performance group that are of the Fund, including two mutual funds affiliates. not managed by Invesco Aim, and against advised by Invesco Aim. The Board noted the performance of all funds in the Lipper that the Fund's rate was above the rates E. Profitability and Financial Variable Annuity Underlying Funds - for the two mutual funds, one of which is Resources of Invesco Aim Mixed-Asset Target Allocation Moderate an asset allocation fund that does not pay The Board reviewed information from Index. The Board also reviewed the an advisory fee. Invesco Aim concerning the costs of the criteria used by Invesco Aim to identify The Board noted that Invesco Aim has advisory and other services that Invesco the funds in the Fund's performance group contractually agreed to waive advisory Aim and its affiliates provide to the Fund for inclusion in the Lipper reports. The fees of the Fund through December 31, 2009 and the profitability of Invesco Aim and Board noted that the Fund's performance and that this fee waiver includes its affiliates in providing these was in the fourth quintile of its breakpoints based on net asset levels. The services. The Board also reviewed performance group for the one year period Board considered the contractual nature of information concerning the financial and the fifth quintile for the three and this fee waiver and noted that it remains condition of Invesco Aim and its five year periods (the first quintile in effect until December 31, 2009. The affiliates. The Board also reviewed with being the best performing funds and the Board also noted that Invesco Aim has Invesco Aim the methodology used to fifth quintile being the worst performing contractually agreed to waive fees and/or prepare the profitability information. The funds). The Board noted that the Fund's limit expenses of the Fund through at Board considered the overall profitability performance was below the performance of least April 30, 2010 in an amount of Invesco Aim, as well as the the Index for the one, three and five year necessary to limit total annual operating profitability of Invesco Aim in connection periods. The Board also noted that Invesco expenses to a specified percentage of with managing the Fund. The Board noted Aim acknowledges the Fund's average daily net assets for each class of that Invesco Aim continues to operate at a underperformance and is focused on the the Fund. The Board considered the net profit, although increased expenses in longer term and business issues that contractual nature of this fee waiver and recent years have reduced the affect the Fund's performance. The Board noted that it remains in effect until at profitability of Invesco Aim and its also considered the steps Invesco Aim has least April 30, 2010. The Board also affiliates. The Board concluded that the taken over the last several years to considered the effect this fee waiver Fund's fees were fair and reasonable, and improve the quality and efficiency of the would have on the Fund's total estimated that the level of profits realized by services that Invesco Aim provides to the expenses. Invesco Aim and its affiliates from AIM Funds. The Board concluded that After taking account of the Fund's providing services to the Fund was not Invesco Aim continues to be responsive to contractual advisory fee rate, as well as excessive in light of the nature, quality and extent of the services provided. The continued
AIM V.I. BASIC BALANCED FUND Board considered whether Invesco Aim is Aim's expenses. The Board also noted that and personnel that are geographically financially sound and has the resources research obtained through soft dollar dispersed in financial centers around the necessary to perform its obligations under arrangements may be used by Invesco Aim in world, have been formed in part for the the Fund's investment advisory agreement, making investment decisions for the Fund purpose of researching and compiling and concluded that Invesco Aim has the and may therefore benefit Fund information and making recommendations on financial resources necessary to fulfill shareholders. The Board concluded that the markets and economies of various these obligations. Invesco Aim's soft dollar arrangements countries and securities of companies were appropriate. The Board also concluded located in such countries or on various F. Independent Written Evaluation of that, based on their review and types of investments and investment the Fund's Senior Officer representations made by Invesco Aim, these techniques, and providing investment The Board noted that, at their direction, arrangements were consistent with advisory services. The Board concluded the Senior Officer of the Fund, who is regulatory requirements. that the sub-advisory agreements will independent of Invesco Aim and Invesco The Board considered the fact that the benefit the Fund and its shareholders by Aim's affiliates, had prepared an Fund's uninvested cash and cash collateral permitting Invesco Aim to utilize the independent written evaluation to assist from any securities lending arrangements additional resources and talent of the the Board in determining the may be invested in money market funds Affiliated Sub-Advisers in managing the reasonableness of the proposed management advised by Invesco Aim pursuant to Fund. fees of the AIM Funds, including the Fund. procedures approved by the Board. The The Board noted that they had relied upon Board noted that Invesco Aim will receive B. Fund Performance the Senior Officer's written evaluation advisory fees from these affiliated money The Board did not view Fund performance as instead of a competitive bidding process. market funds attributable to such a relevant factor in considering whether In determining whether to continue the investments, although Invesco Aim has to approve the sub-advisory agreements for Fund's advisory agreement, the Board contractually agreed to waive through at the Fund, as no Affiliated Sub-Adviser considered the Senior Officer's written least April 30, 2010, the advisory fees served as sub-adviser to the Fund prior to evaluation. payable by the Fund in an amount equal to May 1, 2008. 100% of the net advisory fees Invesco Aim G. Collateral Benefits to Invesco Aim receives from the affiliated money market C. Sub-Advisory Fees and its Affiliates funds with respect to the Fund's The Board considered the services to be The Board considered various other investment of uninvested cash, but not provided by the Affiliated Sub-Advisers benefits received by Invesco Aim and its cash collateral. The Board considered the pursuant to the sub-advisory agreements affiliates resulting from Invesco Aim's contractual nature of this fee waiver and and the services to be provided by Invesco relationship with the Fund, including the noted that it remains in effect until at Aim pursuant to the Fund's investment fees received by Invesco Aim and its least April 30, 2010. The Board concluded advisory agreement, as well as the affiliates for their provision of that the Fund's investment of uninvested allocation of fees between Invesco Aim and administrative, transfer agency and cash and cash collateral from any the Affiliated Sub-Advisers pursuant to distribution services to the Fund. The securities lending arrangements in the the sub-advisory agreements. The Board Board considered the performance of affiliated money market funds is in the noted that the sub-advisory fees have no Invesco Aim and its affiliates in best interests of the Fund and its direct effect on the Fund or its providing these services and the shareholders. shareholders, as they are paid by Invesco organizational structure employed by Aim to the Affiliated Sub-Advisers, and Invesco Aim and its affiliates to provide II. Sub-Advisory Agreements that Invesco Aim and the Affiliated these services. The Board also considered A. Nature, Extent and Quality of Sub-Advisers are affiliates. After taking that these services are provided to the Services Provided by Affiliated account of the Fund's contractual Fund pursuant to written contracts which Sub-Advisers sub-advisory fee rate, as well as other are reviewed and approved on an annual The Board reviewed the services to be relevant factors, the Board concluded that basis by the Board. The Board concluded provided by Invesco Trimark Ltd., Invesco the Fund's sub-advisory fees were fair and that Invesco Aim and its affiliates were Asset Management Deutschland, GmbH, reasonable. providing these services in a satisfactory Invesco Asset Management Limited, Invesco manner and in accordance with the terms of Asset Management (Japan) Limited, Invesco D. Financial Resources of the their contracts, and were qualified to Australia Limited, Invesco Global Asset Affiliated Sub-Advisers continue to provide these services to the Management (N.A.), Inc., Invesco Hong Kong The Board considered whether each Fund. Limited, Invesco Institutional (N.A.), Affiliated Sub-Adviser is financially The Board considered the benefits Inc. and Invesco Senior Secured sound and has the resources necessary to realized by Invesco Aim as a result of Management, Inc. (collectively, the perform its obligations under its portfolio brokerage transactions executed "Affiliated Sub-Advisers") under the respective sub-advisory agreement, and through Osoft dollarO arrangements. Under sub-advisory agreements and the concluded that each Affiliated Sub-Adviser these arrangements, portfolio brokerage credentials and experience of the officers has the financial resources necessary to commissions paid by the Fund and/or other and employees of the Affiliated fulfill these obligations. funds advised by Invesco Aim are used to Sub-Advisers who will provide these pay for research and execution services. services. The Board concluded that the The Board noted that soft dollar nature, extent and quality of the services arrangements shift the payment obligation to be provided by the Affiliated for the research and execution services Sub-Advisers were appropriate. The Board from Invesco Aim to the funds and noted that the Affiliated Sub-Advisers, therefore may reduce Invesco which have offices
AIM V.I. BASIC BALANCED FUND NOTE 14--LEGAL PROCEEDINGS--(CONTINUED) PROXY RESULTS A Special Meeting ("Meeting") of Shareholders of AIM V.I. Basic Balanced Fund, an investment portfolio of AIM Variable Insurance Funds, a Delaware statutory trust ("Trust"), was held on February 29, 2008. The Meeting was held for the following purposes: (1) Elect 13 trustees to the Board of Trustees of the Trust, each of whom will serve until his or her successor is elected and qualified. (2) Approve an amendment to the Trust's Agreement and Declaration of Trust that would permit the Board of Trustees of the Trust to terminate the Trust, the Fund, and each other series portfolio of the Trust, or a share class without a shareholder vote. (3) Approve a new sub-advisory agreement between Invesco Aim Advisors, Inc. and each of AIM Funds Management, Inc.; Invesco Asset Management Deutschland, GmbH; Invesco Asset Management Limited; Invesco Asset Management (Japan) Limited; Invesco Australia Limited; Invesco Global Asset Management (N.A.), Inc.; Invesco Hong Kong Limited; Invesco Institutional (N.A.), Inc.; and Invesco Senior Secured Management, Inc. The results of the voting on the above matters were as follows:
WITHHELD/ MATTERS VOTES FOR ABSTENTIONS** - ----------------------------------------------------------------------------------------------------------- (1)* Bob R. Baker...................................................... 474,883,590 19,741,622 Frank S. Bayley................................................... 474,653,109 19,972,103 James T. Bunch.................................................... 475,597,417 19,027,795 Bruce L. Crockett................................................. 474,900,579 19,724,633 Albert R. Dowden.................................................. 474,749,929 19,875,283 Jack M. Fields.................................................... 475,205,840 19,419,372 Martin L. Flanagan................................................ 475,248,336 19,376,876 Carl Frischling................................................... 474,453,674 20,171,538 Prema Mathai-Davis................................................ 473,569,192 21,056,020 Lewis F. Pennock.................................................. 475,072,501 19,552,711 Larry Soll, Ph.D. ................................................ 475,170,544 19,454,668 Raymond Stickel, Jr. ............................................. 475,420,825 19,204,387 Philip A. Taylor.................................................. 475,640,570 18,984,642
VOTES WITHHELD/ VOTES FOR AGAINST ABSTENTIONS - ------------------------------------------------------------------------------------------------------------------ (2)* Approve an amendment to the Trust's Agreement and Declaration of Trust that would permit the Board of Trustees of the Trust to terminate the Trust, the Fund, and each other series portfolio of the Trust, or a share class without a shareholder vote......................... 438,131,484 35,586,925 20,906,803 (3) Approve a new sub-advisory agreement between Invesco Aim Advisors, Inc. and each of AIM Funds Management, Inc.; Invesco Asset Management Deutschland, GmbH; Invesco Asset Management Limited; Invesco Asset Management (Japan) Limited; Invesco Australia Limited; Invesco Global Asset Management (N.A.), Inc.; Invesco Hong Kong Limited; Invesco Institutional (N.A.), Inc.; and Invesco Senior Secured Management, Inc. ................................ 5,077,445 81,476 202,711
* Proposals 1 and 2 required approval by a combined vote of all of the portfolios of AIM Variable Insurance Funds. ** Includes Broker Non-Votes. AIM V.I. BASIC BALANCED FUND [INVESCO AIM LOGO] AIM V.I. BASIC VALUE FUND - SERVICE MARK - Semiannual Report to Shareholders - June 30, 2008 AIM Investments [MOUNTAIN GRAPHIC] became INVESCO AIM on March 31, 2008. For more details, go to invescoaim.com 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 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 Invesco Aim Web site, invescoaim.com. On the home page, scroll down and click on 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, 2008, is available at our Web site. Go to invescoaim.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 noted, all data provided by Invesco Aim. THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND PROSPECTUS AND VARIABLE PRODUCT PROSPECTUS, WHICH CONTAIN MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ EACH CAREFULLY BEFORE INVESTING. Invesco Aim Distributors, Inc. NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE FUND PERFORMANCE ======================================================================================= PERFORMANCE SUMMARY FUND VS. INDEXES Cumulative total returns, 12/31/07 to 6/30/08, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower. Series I Shares -17.20% Series II Shares -17.35 S&P 500 Index(TRIANGLE) (Broad Market Index) -11.90 Russell 1000 Value Index(TRIANGLE) (Style-Specific Index) -13.57 Lipper VUF Large-Cap Value Funds Index(TRIANGLE) (Peer Group Index) -13.81 (TRIANGLE)Lipper Inc. The S&P 500--REGISTERED TRADEMARK-- INDEX is a market capitalization-weighted index covering all major areas of the U.S. economy. It is not the 500 largest companies, but rather the most widely held 500 companies chosen with respect to market size, liquidity, and their industry. The RUSSELL 1000--REGISTERED TRADEMARK-- VALUE INDEX measures the performance of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values. The Russell 1000 Value Index is a trademark/service mark of the Frank Russell Company. Russell--REGISTERED TRADEMARK-- is a trademark of the Frank Russell Company. The LIPPER VUF LARGE-CAP VALUE FUNDS INDEX is an equally weighted representation of the largest variable insurance underlying funds in the Lipper Large-Cap Value Funds category. These funds typically have a below-average price-to-earnings ratio, price-to-book ratio, and three-year sales-per-share growth value, compared to the S&P 500 Index. The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes. A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of an index of funds reflects fund expenses; performance of a market index does not. ======================================================================================= ========================================== AVERAGE ANNUAL TOTAL RETURNS PRINCIPAL VALUE WILL FLUCTUATE SO THAT YOU ABLE PRODUCT ISSUERS, WILL VARY AND WILL As of 6/30/08 MAY HAVE A GAIN OR LOSS WHEN YOU SELL LOWER THE TOTAL RETURN. SHARES. THE MOST RECENT MONTH-END PERFORMANCE SERIES I SHARES THE TOTAL ANNUAL FUND OPERATING EXPENSE DATA AT THE FUND LEVEL, EXCLUDING VARIABLE INCEPTION (9/10/01) 2.63% RATIO SET FORTH IN THE MOST RECENT FUND PRODUCT CHARGES, IS AVAILABLE ON THE 5 YEARS 5.71 PROSPECTUS AS OF THE DATE OF THIS REPORT INVESCO AIM AUTOMATED INFORMATION LINE, 1 YEAR -21.94 FOR SERIES I AND SERIES II SHARES WAS 866 702 4402. AS MENTIONED ABOVE, FOR THE 0.96% AND 1.21%, RESPECTIVELY. THE EXPENSE MOST RECENT MONTH-END PERFORMANCE SERIES II SHARES RATIOS PRESENTED ABOVE MAY VARY FROM THE INCLUDING VARIABLE PRODUCT CHARGES, PLEASE INCEPTION (9/10/01) 2.39% EXPENSE RATIOS PRESENTED IN OTHER SECTIONS CONTACT YOUR VARIABLE PRODUCT ISSUER OR 5 YEARS 5.44 OF THIS REPORT THAT ARE BASED ON EXPENSES FINANCIAL ADVISOR. 1 YEAR -22.11 INCURRED DURING THE PERIOD COVERED BY THIS REPORT. ========================================== AIM V.I. BASIC VALUE FUND, A SERIES PORTFOLIO OF AIM VARIABLE INSURANCE FUNDS, THE PERFORMANCE OF THE FUND'S SERIES I AND IS CURRENTLY OFFERED THROUGH INSURANCE SERIES II SHARE CLASSES WILL DIFFER COMPANIES ISSUING VARIABLE PRODUCTS. YOU PRIMARILY DUE TO DIFFERENT CLASS EXPENSES. CANNOT PURCHASE SHARES OF THE FUND THE PERFORMANCE DATA QUOTED REPRESENT DIRECTLY. PERFORMANCE FIGURES GIVEN PAST PERFORMANCE AND CANNOT GUARANTEE REPRESENT THE FUND AND ARE NOT INTENDED TO COMPARABLE FUTURE RESULTS; CURRENT REFLECT ACTUAL VARIABLE PRODUCT VALUES. PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE THEY DO NOT REFLECT SALES CHARGES, CONTACT YOUR VARIABLE PRODUCT ISSUER OR EXPENSES AND FEES ASSESSED IN CONNECTION FINANCIAL ADVISOR FOR THE MOST RECENT WITH A VARIABLE PRODUCT. SALES CHARGES, MONTH-END VARIABLE PRODUCT PERFORMANCE. EXPENSES AND FEES, WHICH ARE DETERMINED BY PERFORMANCE FIGURES REFLECT FUND EXPENSES, THE VARI- REINVESTED DISTRIBUTIONS AND CHANGES IN NET ASSET VALUE. INVESTMENT RETURN AND
AIM V.I. BASIC VALUE FUND PORTFOLIO COMPOSITION By sector, based on Net Assets as of June 30, 2008 - ------------------------------------------------------------------------- Financials 22.8% - ------------------------------------------------------------------------- Information Technology 20.8 - ------------------------------------------------------------------------- Consumer Discretionary 19.5 - ------------------------------------------------------------------------- Health Care 11.0 - ------------------------------------------------------------------------- Energy 8.7 - ------------------------------------------------------------------------- Industrials 8.6 - ------------------------------------------------------------------------- Consumer Staples 4.0 - ------------------------------------------------------------------------- Materials 2.8 - ------------------------------------------------------------------------- Money Market Funds Plus Other Assets Less Liabilities 1.8 _________________________________________________________________________ =========================================================================
SCHEDULE OF INVESTMENTS(a) June 30, 2008 (Unaudited)
SHARES VALUE - ------------------------------------------------------------------------------- COMMON STOCKS & OTHER EQUITY INTERESTS-98.24% ADVERTISING-5.14% Interpublic Group of Cos., Inc. (The)(b)(c) 1,592,806 $ 13,698,131 - ------------------------------------------------------------------------------- Omnicom Group Inc. 296,661 13,314,146 =============================================================================== 27,012,277 =============================================================================== APPAREL RETAIL-1.36% Gap, Inc. (The) 428,070 7,135,927 =============================================================================== BREWERS-2.62% Molson Coors Brewing Co.-Class B 253,490 13,772,112 =============================================================================== COMPUTER HARDWARE-3.49% Dell Inc.(c) 836,659 18,306,099 =============================================================================== CONSTRUCTION MATERIALS-2.81% Cemex S.A.B. de C.V.-ADR (Mexico)(b)(c) 597,818 14,766,105 =============================================================================== CONSUMER FINANCE-1.99% SLM Corp.(c) 539,667 10,442,556 =============================================================================== DATA PROCESSING & OUTSOURCED SERVICES-3.48% Western Union Co. 738,380 18,252,754 =============================================================================== DEPARTMENT STORES-1.59% Kohl's Corp.(c) 208,800 8,360,352 =============================================================================== DIVERSIFIED BANKS-0.85% Wachovia Corp.(b) 285,774 4,438,070 =============================================================================== EDUCATION SERVICES-1.66% Apollo Group Inc.-Class A(c) 196,400 8,692,664 =============================================================================== ELECTRONIC MANUFACTURING SERVICES-1.00% Tyco Electronics Ltd. 146,301 5,240,502 =============================================================================== GENERAL MERCHANDISE STORES-2.20% Target Corp. 248,820 11,567,642 =============================================================================== HEALTH CARE DISTRIBUTORS-2.47% Cardinal Health, Inc. 251,896 12,992,796 =============================================================================== HOME IMPROVEMENT RETAIL-2.30% Home Depot, Inc. (The) 516,042 12,085,704 =============================================================================== HOUSEHOLD APPLIANCES-1.58% Whirlpool Corp.(b) 134,400 8,296,512 =============================================================================== HUMAN RESOURCE & EMPLOYMENT SERVICES-2.92% Robert Half International, Inc. 638,870 15,313,714 =============================================================================== INDUSTRIAL CONGLOMERATES-3.19% General Electric Co. 284,342 7,589,088 - ------------------------------------------------------------------------------- Tyco International Ltd. 229,269 9,179,931 =============================================================================== 16,769,019 =============================================================================== INDUSTRIAL MACHINERY-2.52% Illinois Tool Works Inc. 278,647 13,238,519 =============================================================================== INSURANCE BROKERS-1.97% Marsh & McLennan Cos., Inc.(b) 389,136 10,331,561 =============================================================================== INVESTMENT BANKING & BROKERAGE-3.36% Merrill Lynch & Co., Inc. 264,364 8,382,982 - ------------------------------------------------------------------------------- Morgan Stanley 256,783 9,262,163 =============================================================================== 17,645,145 =============================================================================== LIFE SCIENCES TOOLS & SERVICES-2.05% Waters Corp.(c) 167,023 10,772,983 ===============================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. BASIC VALUE FUND
SHARES VALUE - ------------------------------------------------------------------------------- MANAGED HEALTH CARE-3.12% UnitedHealth Group Inc. 624,628 $ 16,396,485 =============================================================================== MOVIES & ENTERTAINMENT-1.47% Walt Disney Co. (The) 246,879 7,702,625 =============================================================================== MULTI-LINE INSURANCE-1.61% American International Group, Inc. 319,000 8,440,740 =============================================================================== OIL & GAS DRILLING-1.57% Transocean Inc. 54,172 8,255,271 =============================================================================== OIL & GAS EQUIPMENT & SERVICES-7.13% Halliburton Co. 351,276 18,642,217 - ------------------------------------------------------------------------------- Weatherford International Ltd.(c) 378,986 18,793,916 =============================================================================== 37,436,133 =============================================================================== OTHER DIVERSIFIED FINANCIAL SERVICES-4.33% Citigroup Inc. 717,997 12,033,630 - ------------------------------------------------------------------------------- JPMorgan Chase & Co. 311,585 10,690,481 =============================================================================== 22,724,111 =============================================================================== PACKAGED FOODS & MEATS-1.37% Unilever N.V. (Netherlands) 253,501 7,196,217 =============================================================================== PHARMACEUTICALS-3.37% Sanofi-Aventis (France)(b)(d) 136,245 9,063,764 - ------------------------------------------------------------------------------- Wyeth 180,470 8,655,341 =============================================================================== 17,719,105 =============================================================================== PROPERTY & CASUALTY INSURANCE-1.53% XL Capital Ltd.-Class A 391,219 8,043,463 =============================================================================== PUBLISHING-2.20% McGraw-Hill Cos., Inc. (The) 288,100 11,558,572 =============================================================================== SEMICONDUCTOR EQUIPMENT-6.34% ASML Holding N.V. (Netherlands)(d) 590,431 14,380,025 - ------------------------------------------------------------------------------- KLA-Tencor Corp.(b) 465,121 18,935,076 =============================================================================== 33,315,101 =============================================================================== SEMICONDUCTORS-2.79% Maxim Integrated Products, Inc. 692,623 14,648,976 =============================================================================== SPECIALIZED FINANCE-3.50% Moody's Corp.(b) 532,892 18,352,800 =============================================================================== SYSTEMS SOFTWARE-3.72% CA Inc. 432,806 9,993,491 - ------------------------------------------------------------------------------- Microsoft Corp. 347,318 9,554,718 =============================================================================== 19,548,209 =============================================================================== THRIFTS & MORTGAGE FINANCE-3.64% Fannie Mae 733,525 14,311,073 - ------------------------------------------------------------------------------- Washington Mutual, Inc.(b) 973,690 4,800,291 =============================================================================== 19,111,364 =============================================================================== Total Common Stocks & Other Equity Interests (Cost $521,844,887) 515,882,185 =============================================================================== MONEY MARKET FUNDS-0.95% Liquid Assets Portfolio-Institutional Class(e) 2,491,067 2,491,067 - ------------------------------------------------------------------------------- Premier Portfolio-Institutional Class(e) 2,491,067 2,491,067 =============================================================================== Total Money Market Funds (Cost $4,982,134) 4,982,134 =============================================================================== TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)-99.19% (Cost $526,827,021) 520,864,319 =============================================================================== INVESTMENTS PURCHASED WITH CASH COLLATERAL FROM SECURITIES ON LOAN MONEY MARKET FUNDS-7.96% Liquid Assets Portfolio-Institutional Class (Cost $41,782,155)(e)(f) 41,782,155 41,782,155 =============================================================================== TOTAL INVESTMENTS-107.15% (Cost $568,609,176) 562,646,474 =============================================================================== OTHER ASSETS LESS LIABILITIES-(7.15)% (37,525,912) =============================================================================== NET ASSETS-100.00% $525,120,562 _______________________________________________________________________________ ===============================================================================
Investment Abbreviations: ADR - American Depositary Receipt
Notes to Schedule of Investments: (a) Industry and/or sector 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 MSCI Inc. and Standard & Poor's. (b) All or a portion of this security was out on loan at June 30, 2008. (c) Non-income producing security. (d) In accordance with the procedures established by the Board of Trustees, the foreign security is fair valued using adjusted closing market prices. The aggregate value of these securities at June 30, 2008 was $23,443,789, which represented 4.46% 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. (f) 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 1I. See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. BASIC VALUE FUND STATEMENT OF ASSETS AND LIABILITIES June 30, 2008 (Unaudited) ASSETS: Investments, at value (Cost $521,844,887)* $515,882,185 - ------------------------------------------------------ Investments in affiliated money market funds (Cost $46,764,289) 46,764,289 ====================================================== Total investments (Cost $568,609,176) 562,646,474 ====================================================== Cash 519,878 - ------------------------------------------------------ Receivables for: Investments sold 4,081,598 - ------------------------------------------------------ Fund shares sold 470,640 - ------------------------------------------------------ Dividends 304,540 - ------------------------------------------------------ Investment for trustee deferred compensation and retirement plans 25,202 - ------------------------------------------------------ Other assets 24,856 ====================================================== Total assets 568,073,188 ______________________________________________________ ====================================================== LIABILITIES: Payables for: Fund shares reacquired 524,469 - ------------------------------------------------------ Collateral upon return of securities loaned 41,782,155 - ------------------------------------------------------ Accrued fees to affiliates 525,140 - ------------------------------------------------------ Accrued other operating expenses 43,223 - ------------------------------------------------------ Trustee deferred compensation and retirement plans 77,639 ====================================================== Total liabilities 42,952,626 ====================================================== Net assets applicable to shares outstanding $525,120,562 ______________________________________________________ ====================================================== NET ASSETS CONSIST OF: Shares of beneficial interest $396,319,352 - ------------------------------------------------------ Undistributed net investment income 6,010,250 - ------------------------------------------------------ Undistributed net realized gain 128,753,667 - ------------------------------------------------------ Unrealized appreciation (depreciation) (5,962,707) ====================================================== $525,120,562 ______________________________________________________ ====================================================== NET ASSETS: Series I $295,053,988 ______________________________________________________ ====================================================== Series II $230,066,574 ______________________________________________________ ====================================================== SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED NUMBER OF SHARES AUTHORIZED: Series I 27,990,441 ______________________________________________________ ====================================================== Series II 22,053,114 ______________________________________________________ ====================================================== Series I: Net asset value per share $ 10.54 ______________________________________________________ ====================================================== Series II: Net asset value per share $ 10.43 ______________________________________________________ ======================================================
* At June 30, 2008, securities with an aggregate value of $40,467,303 were on loan to brokers. STATEMENT OF OPERATIONS For the six months ended June 30, 2008 (Unaudited) INVESTMENT INCOME: Dividends (net of foreign withholding taxes of $106,893) $ 5,840,251 - ------------------------------------------------------- Dividends from affiliated money market funds (includes securities lending income of $137,566) 264,225 ======================================================= Total investment income 6,104,476 ======================================================= EXPENSES: Advisory fees 2,031,384 - ------------------------------------------------------- Administrative services fees 814,393 - ------------------------------------------------------- Custodian fees 15,698 - ------------------------------------------------------- Distribution fees -- Series II 327,507 - ------------------------------------------------------- Transfer agent fees 14,605 - ------------------------------------------------------- Trustees' and officer's fees and benefits 16,280 - ------------------------------------------------------- Other 166,819 ======================================================= Total expenses 3,386,686 ======================================================= Less: Fees waived and expense offset arrangement(s) (7,201) - ------------------------------------------------------- Net expenses 3,379,485 ======================================================= Net investment income 2,724,991 ======================================================= REALIZED AND UNREALIZED GAIN (LOSS) FROM: Net realized gain from: Investment securities (includes net gains (losses) from securities sold to affiliates of $(29,674)) 40,823,889 - ------------------------------------------------------- Foreign currencies 29,023 ======================================================= 40,852,912 ======================================================= Change in net unrealized appreciation (depreciation) of: Investment securities (159,155,420) - ------------------------------------------------------- Foreign currencies 2 ======================================================= (159,155,418) ======================================================= Net realized and unrealized gain (loss) (118,302,506) ======================================================= Net increase (decrease) in net assets resulting from operations $(115,577,515) _______________________________________________________ =======================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. BASIC VALUE FUND STATEMENT OF CHANGES IN NET ASSETS For the six months ended June 30, 2008 and the year ended December 31, 2007 (Unaudited)
JUNE 30, DECEMBER 31, 2008 2007 - --------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income $ 2,724,991 $ 3,355,188 - --------------------------------------------------------------------------------------------------------- Net realized gain 40,852,912 90,845,412 - --------------------------------------------------------------------------------------------------------- Change in net unrealized appreciation (depreciation) (159,155,418) (79,569,597) ========================================================================================================= Net increase (decrease) in net assets resulting from operations (115,577,515) 14,631,003 ========================================================================================================= Distributions to shareholders from net investment income: Series I -- (2,486,739) - --------------------------------------------------------------------------------------------------------- Series II -- (1,064,477) ========================================================================================================= Total distributions from net investment income -- (3,551,216) ========================================================================================================= Distributions to shareholders from net realized gains: Series I -- (23,181,770) - --------------------------------------------------------------------------------------------------------- Series II -- (17,896,086) ========================================================================================================= Total distributions from net realized gains -- (41,077,856) ========================================================================================================= Share transactions-net: Series I (39,713,987) (72,884,455) - --------------------------------------------------------------------------------------------------------- Series II (23,190,150) (22,324,644) ========================================================================================================= Net increase (decrease) in net assets resulting from share transactions (62,904,137) (95,209,099) ========================================================================================================= Net increase (decrease) in net assets (178,481,652) (125,207,168) _________________________________________________________________________________________________________ ========================================================================================================= NET ASSETS: Beginning of period 703,602,214 828,809,382 - --------------------------------------------------------------------------------------------------------- End of period (including undistributed net investment income of $6,010,250 and $3,285,259, respectively) $ 525,120,562 $ 703,602,214 _________________________________________________________________________________________________________ =========================================================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. BASIC VALUE FUND NOTES TO FINANCIAL STATEMENTS June 30, 2008 (Unaudited) NOTE 1--SIGNIFICANT ACCOUNTING POLICIES AIM V.I. Basic Value Fund (the "Fund") is a series portfolio of AIM Variable Insurance Funds (the "Trust"). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of twenty separate portfolios, (each constituting a "Fund"). 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 Fund or class will be voted on exclusively by the shareholders of such Fund 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 Fund 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. 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 prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. 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, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. 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, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. 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. Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer's assets, general economic conditions, interest rates, investor perceptions and market liquidity. 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. The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds as received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. AIM V.I. BASIC VALUE FUND 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, the investment advisor 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. The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. 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 by a significant amount. 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. SECURITIES LENDING -- 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 by the securities lending provider. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its sponsored agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds and is shown as such on the Schedule of Investments. 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. Dividends received on cash collateral investments for securities lending transactions, which are net of compensation to counterparties, is included in Dividends from affiliates on the Statement of Operations. The aggregate value of securities out on loan is shown as a footnote on the Statement of Assets and Liabilities. 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. AIM V.I. BASIC VALUE 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. NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES The Trust has entered into a master investment advisory agreement with Invesco Aim Advisors, Inc. (the "Advisor" or "Invesco Aim"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Advisor based on the annual rate of the Fund's average daily net assets as follows:
AVERAGE NET ASSETS RATE - ------------------------------------------------------------------- First $250 million 0.695% - ------------------------------------------------------------------- Next $250 million 0.67% - ------------------------------------------------------------------- Next $500 million 0.645% - ------------------------------------------------------------------- Next $1.5 billion 0.62% - ------------------------------------------------------------------- Next $2.5 billion 0.595% - ------------------------------------------------------------------- Next $2.5 billion 0.57% - ------------------------------------------------------------------- Next $2.5 billion 0.545% - ------------------------------------------------------------------- Over $10 billion 0.52% ___________________________________________________________________ ===================================================================
Under the terms of a master sub-advisory agreement approved by shareholders of the Fund on February 29, 2008, effective May 1, 2008, between the Advisor and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Global Asset Management (N.A.), Inc., Invesco Hong Kong Limited, Invesco Institutional (N.A.), Inc., Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the "Affiliated Sub-Advisors") the Advisor, not the Fund, may pay 40% of the fees paid to the Advisor to any such Affiliated Sub- Advisor(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Advisor(s). The Advisor 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, 2010. 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 Invesco Ltd. ("Invesco") 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. To the extent that the annualized expense ratio does not exceed the expense limitation, the Advisor will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year. The Advisor did not waive fees and/or reimburse expenses during the period under this expense limitation. Further, the Advisor has contractually agreed, through at least April 30, 2010, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Advisor receives from the affiliated money market funds on investments by the Fund of uninvested cash (but not cash collateral from securities lending) in such affiliated money market funds. For the six months ended June 30, 2008, the Advisor waived advisory fees of $5,897. At the request of the Trustees of the Trust, Invesco agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the six months ended June 30, 2008, Invesco did not reimburse any expenses. The Trust has entered into a master administrative services agreement with Invesco Aim pursuant to which the Fund has agreed to pay Invesco Aim a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco Aim for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants' accounts. Pursuant to such agreement, for the six months ended June 30, 2008, Invesco Aim was paid $74,085 for accounting and fund administrative services and reimbursed $740,308 for services provided by insurance companies. The Trust has entered into a transfer agency and service agreement with Invesco Aim Investment Services, Inc. ("IAIS") pursuant to which the Fund has agreed to pay IAIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IAIS for certain expenses incurred by IAIS in the course of providing such services. For the six months ended June 30, 2008, expenses incurred under the agreement are shown in the Statement of Operations as transfer agent fees. AIM V.I. BASIC VALUE FUND The Trust has entered into a master distribution agreement with Invesco Aim Distributors, Inc. ("IADI") 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 IADI 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 six months ended June 30, 2008, expenses incurred under the Plan are detailed in the Statement of Operations as distribution fees. Certain officers and trustees of the Trust are officers and directors of Invesco Aim, IAIS and/or IADI. NOTE 3--SUPPLEMENTAL INFORMATION The Fund adopted the provisions of Statement of Financial Accounting Standards No. 157, "Fair Value Measurements" (SFAS 157), effective with the beginning of the Fund's fiscal year. SFAS 157 establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (level 1) and the lowest priority to unobservable inputs (level 3) market prices are not readily available or are unreliable. Based on the inputs the securities or other instruments are tiered into three levels of hierarchy under SFAS 157. Changes in valuation methods may result in transfers in or out of an investment's assigned level within the hierarchy, Level 1--Quoted prices in an active market for identical assets. Level 2--Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk and others. Level 3--Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund's own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. Below is a summary of the tiered input levels, as of the end of the reporting period, June 30, 2008. The inputs or methods used for valuing securities may not be an indication of the risk associated with investing in those securities.
INVESTMENTS IN INPUT LEVEL SECURITIES - -------------------------------------- Level 1 $539,202,685 - -------------------------------------- Level 2 23,443,789 - -------------------------------------- Level 3 -- ====================================== $562,646,474 ______________________________________ ======================================
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS The Fund is permitted to purchase or sell securities from or to certain other AIM Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment advisor (or affiliated investment advisors), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the six months ended June 30, 2008, the Fund engaged in securities sales of $752,164, which resulted in net realized gains (losses) of $(29,674), and securities purchases of $424,631. NOTE 5--EXPENSE OFFSET ARRANGEMENT The expense offset arrangement is comprised of custodian credits which result from periodic overnight cash balances at the custodian. For the six months ended June 30, 2008, the Fund received credits from this arrangement, which resulted in the reduction of the Fund's total expenses of $1,304. 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 certain Trustees and Officers of the Fund. 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, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund. During the six months ended June 30, 2008, the Fund paid legal fees of $2,356 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. BASIC VALUE FUND NOTE 7--CASH BALANCES The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The State Street Bank and Trust Company ("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 Invesco Aim, not to exceed the contractually agreed upon rate. NOTE 8--TAX INFORMATION The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund's fiscal year-end. The Fund did not have a capital loss carryforward as of December 31, 2007. 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 six months ended June 30, 2008 was $173,912,688 and $231,919,073, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period end.
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS - ------------------------------------------------------------------------------------------------ Aggregate unrealized appreciation of investment securities $ 87,755,803 - ------------------------------------------------------------------------------------------------ Aggregate unrealized (depreciation) of investment securities (96,581,430) ================================================================================================ Net unrealized appreciation (depreciation) of investment securities $ (8,825,627) ________________________________________________________________________________________________ ================================================================================================ Cost of investments for tax purposes is $571,472,101.
NOTE 10--SHARE INFORMATION
CHANGES IN SHARES OUTSTANDING - ------------------------------------------------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED JUNE 30, 2008(a) DECEMBER 31, 2007 --------------------------- ---------------------------- SHARES AMOUNT SHARES AMOUNT - ------------------------------------------------------------------------------------------------------------------------- Sold: Series I 428,639 $ 5,038,495 1,186,578 $ 16,337,122 - ------------------------------------------------------------------------------------------------------------------------- Series II 668,392 7,646,865 3,442,657 47,498,968 ========================================================================================================================= Issued as reinvestment of dividends: Series I -- -- 1,956,442 25,668,509 - ------------------------------------------------------------------------------------------------------------------------- Series II -- -- 1,458,505 18,960,563 ========================================================================================================================= Reacquired: Series I (3,848,897) (44,752,482) (8,375,086) (114,890,086) - ------------------------------------------------------------------------------------------------------------------------- Series II (2,678,447) (30,837,015) (6,480,533) (88,784,175) ========================================================================================================================= (5,430,313) $(62,904,137) (6,811,437) $ (95,209,099) _________________________________________________________________________________________________________________________ =========================================================================================================================
(a) There are entities that are each record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 64% of the outstanding shares of the Fund. The Fund and the Fund's principal underwriter or advisor, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco Aim and/or Invesco Aim affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco Aim and or Invesco Aim affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. AIM V.I. BASIC VALUE FUND NOTE 11--FINANCIAL HIGHLIGHTS The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
SERIES I --------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ------------------------------------------------------------ 2008 2007 2006 2005 2004 2003 - ------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 12.73 $ 13.35 $ 12.37 $ 11.84 $ 10.66 $ 7.98 - ------------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income 0.07 0.07(a) 0.07(a) 0.05 0.02 0.00 - ------------------------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) (2.26) 0.17 1.54 0.63 1.16 2.68 =============================================================================================================================== Total from investment operations (2.19) 0.24 1.61 0.68 1.18 2.68 =============================================================================================================================== Less distributions: Dividends from net investment income -- (0.08) (0.05) (0.01) -- (0.00) - ------------------------------------------------------------------------------------------------------------------------------- Distributions from net realized gains -- (0.78) (0.58) (0.14) -- -- =============================================================================================================================== Total distributions -- (0.86) (0.63) (0.15) -- (0.00) =============================================================================================================================== Net asset value, end of period $ 10.54 $ 12.73 $ 13.35 $ 12.37 $ 11.84 $ 10.66 _______________________________________________________________________________________________________________________________ =============================================================================================================================== Total return(b) (17.20)% 1.62% 13.12% 5.74% 11.07% 33.63% _______________________________________________________________________________________________________________________________ =============================================================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $295,054 $399,974 $489,352 $487,332 $496,837 $309,384 _______________________________________________________________________________________________________________________________ =============================================================================================================================== Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 1.02%(c) 0.96% 0.97% 0.97% 1.02% 1.04% - ------------------------------------------------------------------------------------------------------------------------------- Without fee waivers and/or expense reimbursements 1.02%(c) 0.99% 1.02% 1.02% 1.02% 1.04% =============================================================================================================================== Ratio of net investment income to average net assets 1.02%(c) 0.52% 0.54% 0.38% 0.17% 0.01% _______________________________________________________________________________________________________________________________ =============================================================================================================================== Portfolio turnover rate(d) 29% 25% 15% 16% 14% 18% _______________________________________________________________________________________________________________________________ ===============================================================================================================================
(a) Calculated using average shares outstanding. (b) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. (c) Ratios are annualized and based on average daily net assets of $340,832,287. (d) Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year. AIM V.I. BASIC VALUE FUND NOTE 11--FINANCIAL HIGHLIGHTS--(CONTINUED)
SERIES II --------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ------------------------------------------------------------ 2008 2007 2006 2005 2004 2003 - ------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 12.62 $ 13.24 $ 12.26 $ 11.76 $ 10.61 $ 7.96 - ------------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) 0.05 0.04(a) 0.04(a) 0.02 (0.01) (0.02) - ------------------------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) (2.24) 0.16 1.54 0.62 1.16 2.67 =============================================================================================================================== Total from investment operations (2.19) 0.20 1.58 0.64 1.15 2.65 =============================================================================================================================== Less distributions: Dividends from net investment income -- (0.04) (0.02) -- -- (0.00) - ------------------------------------------------------------------------------------------------------------------------------- Distributions from net realized gains -- (0.78) (0.58) (0.14) -- -- =============================================================================================================================== Total distributions -- (0.82) (0.60) (0.14) -- (0.00) =============================================================================================================================== Net asset value, end of period $ 10.43 $ 12.62 $ 13.24 $ 12.26 $ 11.76 $ 10.61 _______________________________________________________________________________________________________________________________ =============================================================================================================================== Total return(b) (17.35)% 1.36% 12.94% 5.43% 10.84% 33.29% _______________________________________________________________________________________________________________________________ =============================================================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $230,067 $303,628 $339,457 $363,393 $353,605 $253,877 _______________________________________________________________________________________________________________________________ =============================================================================================================================== Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 1.27%(c) 1.21% 1.22% 1.22% 1.27% 1.29% - ------------------------------------------------------------------------------------------------------------------------------- Without fee waivers and/or expense reimbursements 1.27%(c) 1.24% 1.27% 1.27% 1.27% 1.29% =============================================================================================================================== Ratio of net investment income (loss) to average net assets 0.77%(c) 0.27% 0.29% 0.13% (0.08)% (0.24)% _______________________________________________________________________________________________________________________________ =============================================================================================================================== Portfolio turnover rate(d) 29% 25% 15% 16% 14% 18% _______________________________________________________________________________________________________________________________ ===============================================================================================================================
(a) Calculated using average shares outstanding. (b) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. (c) Ratios are annualized and based on average daily net assets of $263,445,360. (d) Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year. NOTE 12--LEGAL PROCEEDINGS Terms used in the Legal Proceedings Note are defined terms solely for the purpose of this note. 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 Invesco Aim and IADI (Order No. 05-1318). The WVASC makes findings of fact that Invesco Aim and IADI 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 Invesco Aim and IADI violated the West Virginia securities laws. The WVASC orders Invesco Aim and IADI 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. By agreement with the Commissioner of Securities, Invesco Aim's time to respond to that Order has been indefinitely suspended. Civil lawsuits, including purported class action and shareholder derivative suits, have been filed against certain of the AIM Funds, Invesco Funds Group, Inc. ("IFG"), Invesco Aim, IADI 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; and - that certain AIM Funds inadequately employed fair value pricing. These lawsuits allege as theories of recovery, depending on the lawsuit, violations of various provisions of the Federal and state securities laws Employee Retirement Income Security Act of 1974, as amended ("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. The case pending in Illinois State Court regarding fair value pricing was dismissed with prejudice on May 6, 2008. 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 Invesco 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 ERISA purportedly brought on behalf of participants in the Invesco 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 AIM V.I. BASIC VALUE FUND NOTE 12--LEGAL PROCEEDINGS--(CONTINUED) remain nominal defendants in the Consolidated Amended Fund Derivative Complaint. On September 15, 2006, the MDL Court granted the Invesco defendants' motion to dismiss the Amended Class Action Complaint for Violations of ERISA and dismissed such Complaint. Plaintiff appealed this ruling. On June 16, 2008, the Fourth Court of Appeals reversed the dismissal and remanded this lawsuit back to the MDL Court for further proceedings.. IFG, Invesco Aim, IADI 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, Invesco Aim and IADI 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, Invesco Aim and/or related entities and individuals in the future. At the present time, management of Invesco 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 Invesco Aim, IADI or the Fund. AIM V.I. BASIC VALUE FUND CALCULATING YOUR ONGOING FUND EXPENSES EXAMPLE As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2008, through June 30, 2008. The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower. ACTUAL EXPENSES The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled "Actual Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
- --------------------------------------------------------------------------------------------------- HYPOTHETICAL (5% ANNUAL RETURN BEFORE ACTUAL EXPENSES) ------------------------------------------------------ BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE CLASS (01/01/08) (06/30/08)(1) PERIOD(2) (06/30/08) PERIOD(2) RATIO - --------------------------------------------------------------------------------------------------- Series I $1,000.00 $828.00 $4.64 $1,019.79 $5.12 1.02% - --------------------------------------------------------------------------------------------------- Series II 1,000.00 826.50 5.77 1,018.55 6.37 1.27 - ---------------------------------------------------------------------------------------------------
(1) The actual ending account value is based on the actual total return of the Fund for the period January 1, 2008, through June 30, 2008, 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 182/366 to reflect the most recent fiscal half year. AIM V.I. BASIC VALUE FUND APPROVAL OF INVESTMENT ADVISORY AGREEMENT The Board of Trustees (the Board) of AIM renewal process, the Trustees receive from one another and attributed different Variable Insurance Funds is required under comparative performance and fee data weight to the various factors. The the Investment Company Act of 1940 to regarding the AIM Funds prepared by an Trustees recognized that the advisory approve annually the renewal of the AIM independent company, Lipper, Inc. arrangements and resulting advisory fees V.I. Basic Value Fund (the Fund) (Lipper), under the direction and for the Fund and the other AIM Funds are investment advisory agreement with Invesco supervision of the independent Senior the result of years of review and Aim Advisors, Inc. (Invesco Aim). During Officer who also prepares a separate negotiation between the Trustees and contract renewal meetings held on June analysis of this information for the Invesco Aim, that the Trustees may focus 18-19, 2008, the Board as a whole and the Trustees. Each Sub-Committee then makes to a greater extent on certain aspects of disinterested or "independent" Trustees, recommendations to the Investments these arrangements in some years than in voting separately, approved the Committee regarding the performance, fees others, and that the Trustees' continuance of the Fund's investment and expenses of their assigned funds. The deliberations and conclusions in a advisory agreement for another year, Investments Committee considers each particular year may be based in part on effective July 1, 2008. In doing so, the Sub-Committee's recommendations and makes their deliberations and conclusions of Board determined that the Fund's its own recommendations regarding the these same arrangements throughout the investment advisory agreement is in the performance, fees and expenses of the AIM year and in prior years. best interests of the Fund and its Funds to the full Board. The Investments shareholders and that the compensation to Committee also considers each FACTORS AND CONCLUSIONS AND SUMMARY OF Invesco Aim under the Fund's investment Sub-Committee's recommendations in making INDEPENDENT WRITTEN FEE EVALUATION advisory agreement is fair and reasonable. its annual recommendation to the Board The discussion below serves as a summary The independent Trustees met separately whether to approve the continuance of each of the Senior Officer's independent during their evaluation of the Fund's AIM Fund's investment advisory agreement written evaluation with respect to the investment advisory agreement with and sub-advisory agreements for another Fund's investment advisory agreement as independent legal counsel from whom they year. well as a discussion of the material received independent legal advice, and the The independent Trustees are assisted factors and related conclusions that independent Trustees also received in their annual evaluation of the Fund's formed the basis for the Board's approval assistance during their deliberations from investment advisory agreement by the of the Fund's investment advisory the independent Senior Officer, a independent Senior Officer. One agreement and sub-advisory agreements. full-time officer of the AIM Funds who responsibility of the Senior Officer is to Unless otherwise stated, information set reports directly to the independent manage the process by which the AIM Funds' forth below is as of June 19, 2008 and Trustees. proposed management fees are negotiated does not reflect any changes that may have during the annual contract renewal process occurred since that date, including but THE BOARD'S FUND EVALUATION PROCESS to ensure that they are negotiated in a not limited to changes to the Fund's The Board's Investments Committee has manner that is at arms' length and performance, advisory fees, expense established three Sub-Committees that are reasonable. Accordingly, the Senior limitations and/or fee waivers. responsible for overseeing the management Officer must either supervise a of a number of the series portfolios of competitive bidding process or prepare an I. Investment Advisory Agreement the AIM Funds. This Sub-Committee independent written evaluation. The Senior A.Nature, Extent and Quality of structure permits the Trustees to focus on Officer has recommended that an Services Provided by Invesco Aim the performance of the AIM Funds that have independent written evaluation be provided The Board reviewed the advisory services been assigned to them. The Sub-Committees and, at the direction of the Board, has provided to the Fund by Invesco Aim under meet throughout the year to review the prepared an independent written the Fund's investment advisory agreement, performance of their assigned funds, and evaluation. the performance of Invesco Aim in the Sub-Committees review monthly and During the annual contract renewal providing these services, and the quarterly comparative performance process, the Board considered the factors credentials and experience of the officers information and periodic asset flow data discussed below under the heading "Factors and employees of Invesco Aim who provide for their assigned funds. These materials and Conclusions and Summary of Independent these services. The Board's review of the are prepared under the direction and Written Fee Evaluation" in evaluating the qualifications of Invesco Aim to provide supervision of the independent Senior fairness and reasonableness of the Fund's these services included the Board's Officer. Over the course of each year, the investment advisory agreement and consideration of Invesco Aim's portfolio Sub-Committees meet with portfolio sub-advisory agreements at the contract and product review process, various back managers for their assigned funds and renewal meetings and at their meetings office support functions provided by other members of management and review throughout the year as part of their Invesco Aim and its affiliates, and with these individuals the performance, ongoing oversight of the Fund. The Fund's Invesco Aim's equity and fixed income investment objective(s), policies, investment advisory agreement and trading operations. The Board concluded strategies and limitations of these funds. sub-advisory agreements were considered that the nature, extent and quality of the In addition to their meetings separately, although the Board also advisory services provided to the Fund by throughout the year, the Sub-Committees considered the common interests of all of Invesco Aim were appropriate and that meet at designated contract renewal the AIM Funds in their deliberations. The Invesco Aim currently is providing meetings each year to conduct an in-depth Board considered all of the information satisfactory advisory services in review of the performance, fees and provided to them and did not identify any accordance with the terms of the Fund's expenses of their assigned funds. During particular factor that was controlling. investment advisory agreement. In the contract Each Trustee may have evaluated the addition, based on their ongoing meetings information provided differently throughout the year with the Fund's portfolio manager or continued
AIM V.I. BASIC VALUE FUND managers, the Board concluded that these focus on fund performance. However, due to noted that it remains in effect until at individuals are competent and able to the Fund's underperformance, the Board least April 30, 2010. The Board also continue to carry out their also concluded that it would be considered the effect this expense responsibilities under the Fund's appropriate for the Board to continue to limitation would have on the Fund's investment advisory agreement. monitor and review the performance of the estimated total expenses. In determining whether to continue the Fund closely. Although the independent After taking account of the Fund's Fund's investment advisory agreement, the written evaluation of the Fund's Senior contractual advisory fee rate, as well as Board considered the prior relationship Officer only considered Fund performance the comparative advisory fee information between Invesco Aim and the Fund, as well through the most recent calendar year, the and the expense limitation discussed as the Board's knowledge of Invesco Aim's Board also reviewed more recent Fund above, the Board concluded that the Fund's operations, and concluded that it was performance and this review did not change advisory fees were fair and reasonable. beneficial to maintain the current their conclusions. relationship, in part, because of such D. Economies of Scale and Breakpoints knowledge. The Board also considered the C. Advisory Fees and Fee Waivers The Board considered the extent to steps that Invesco Aim and its affiliates The Board compared the Fund's contractual which there are economies of scale in have taken over the last several years to advisory fee rate to the contractual Invesco Aim's provision of advisory improve the quality and efficiency of the advisory fee rates of funds in the Fund's services to the Fund. The Board also services they provide to the AIM Funds in Lipper expense group that are not managed considered whether the Fund benefits from the areas of investment performance, by Invesco Aim, at a common asset level such economies of scale through product line diversification, and as of the end of the past calendar contractual breakpoints in the Fund's distribution, fund operations, shareholder year. The Board noted that the Fund's advisory fee schedule or through advisory services and compliance. The Board contractual advisory fee rate was above fee waivers or expense limitations. The concluded that the quality and efficiency the median contractual advisory fee rate Board noted that the Fund's contractual of the services Invesco Aim and its of funds in its expense group. The Board advisory fee schedule includes seven affiliates provide to the AIM Funds in also reviewed the methodology used by breakpoints and that the level of the each of these areas have generally Lipper in determining contractual fee Fund's advisory fees, as a percentage of improved, and support the Board's approval rates. the Fund's net assets, has decreased as of the continuance of the Fund's The Board also compared the Fund's net assets increased because of the investment advisory agreement. effective fee rate (the advisory fee after breakpoints. Based on this information, any advisory fee waivers and before any the Board concluded that the Fund's B. Fund Performance expense limitations/waivers) to the advisory fees appropriately reflect The Board compared the Fund's performance advisory fee rates of other clients of economies of scale at current asset during the past one, three and five Invesco Aim and its affiliates with levels. The Board also noted that the Fund calendar years to the performance of funds investment strategies comparable to those shares directly in economies of scale in the Fund's performance group that are of the Fund, including three mutual funds through lower fees charged by third party not managed by Invesco Aim, and against advised by Invesco Aim. The Board noted service providers based on the combined the performance of all funds in the Lipper that the Fund's rate was above the rates size of all of the AIM Funds and Variable Annuity Underlying Funds - Large for the three mutual funds. affiliates. Cap Value Index. The Board also reviewed Additionally, the Board compared the the criteria used by Invesco Aim to Fund's effective fee rate to the advisory E. Profitability and Financial identify the funds in the Fund's fees paid by numerous separately managed Resources of Invesco Aim performance group for inclusion in the accounts/wrap accounts advised by Invesco The Board reviewed information from Lipper reports. The Board noted that the Aim affiliates. The Board noted that the Invesco Aim concerning the costs of the Fund's performance was in the fourth Fund's rate was generally above the rates advisory and other services that Invesco quintile of its performance group for the for the separately managed accounts/wrap Aim and its affiliates provide to the Fund one and five year periods and the fifth accounts. The Board considered that and the profitability of Invesco Aim and quintile for the three year period (the management of the separately managed its affiliates in providing these first quintile being the best performing accounts/wrap accounts by the Invesco Aim services. The Board also reviewed funds and the fifth quintile being the affiliates involves different levels of information concerning the financial worst performing funds). The Board noted services and different operational and condition of Invesco Aim and its that the Fund's performance was below the regulatory requirements than Invesco Aim's affiliates. The Board also reviewed with performance of the Index for the one, management of the Fund. The Board Invesco Aim the methodology used to three and five year periods. The Board concluded that these differences are prepare the profitability information. The also noted that Invesco Aim acknowledges appropriately reflected in the fee Board considered the overall profitability the Fund's underperformance and is focused structure for the Fund. of Invesco Aim, as well as the on the longer term and business issues The Board noted that Invesco Aim has profitability of Invesco Aim in connection that affect the Fund's performance. The contractually agreed to waive fees and/or with managing the Fund. The Board noted Board also considered the steps Invesco limit expenses of the Fund through at that Invesco Aim continues to operate at a Aim has taken over the last several years least April 30, 2010 in an amount net profit, although increased expenses in to improve the quality and efficiency of necessary to limit total annual operating recent years have reduced the the services that Invesco Aim provides to expenses to a specified percentage of profitability of Invesco Aim and its the AIM Funds. The Board concluded that average daily net assets for each class of affiliates. The Board concluded that the Invesco Aim continues to be responsive to the Fund. The Board considered the Fund's fees were fair and reasonable, and the Board's contractual nature of this fee waiver and that the level of profits realized by Invesco Aim and its affiliates from continued
AIM V.I. BASIC VALUE FUND providing services to the Fund was not ment obligation for the research and by the Affiliated Sub-Advisers were excessive in light of the nature, quality execution services from Invesco Aim to the appropriate. The Board noted that the and extent of the services provided. The funds and therefore may reduce Invesco Affiliated Sub-Advisers, which have Board considered whether Invesco Aim is Aim's expenses. The Board also noted that offices and personnel that are financially sound and has the resources research obtained through soft dollar geographically dispersed in financial necessary to perform its obligations under arrangements may be used by Invesco Aim in centers around the world, have been formed the Fund's investment advisory agreement, making investment decisions for the Fund in part for the purpose of researching and and concluded that Invesco Aim has the and may therefore benefit Fund compiling information and making financial resources necessary to fulfill shareholders. The Board concluded that recommendations on the markets and these obligations. Invesco Aim's soft dollar arrangements economies of various countries and were appropriate. The Board also concluded securities of companies located in such F. Independent Written Evaluation of that, based on their review and countries or on various types of the Fund's Senior Officer representations made by Invesco Aim, these investments and investment techniques, and The Board noted that, at their arrangements were consistent with providing investment advisory services. direction, the Senior Officer of the Fund, regulatory requirements. The Board concluded that the sub-advisory who is independent of Invesco Aim and The Board considered the fact that the agreements will benefit the Fund and its Invesco Aim's affiliates, had prepared an Fund's uninvested cash and cash collateral shareholders by permitting Invesco Aim to independent written evaluation to assist from any securities lending arrangements utilize the additional resources and the Board in determining the may be invested in money market funds talent of the Affiliated Sub-Advisers in reasonableness of the proposed management advised by Invesco Aim pursuant to managing the Fund. fees of the AIM Funds, including the Fund. procedures approved by the Board. The The Board noted that they had relied upon Board noted that Invesco Aim will receive B. Fund Performance the Senior Officer's written evaluation advisory fees from these affiliated money The Board did not view Fund performance as instead of a competitive bidding process. market funds attributable to such a relevant factor in considering whether In determining whether to continue the investments, although Invesco Aim has to approve the sub-advisory agreements for Fund's investment advisory agreement, the contractually agreed to waive through at the Fund, as no Affiliated Sub-Adviser Board considered the Senior Officer's least April 30, 2010, the advisory fees currently manages any portion of the written evaluation. payable by the Fund in an amount equal to Fund's assets. 100% of the net advisory fees Invesco Aim G. Collateral Benefits to Invesco Aim receives from the affiliated money market C. Sub-Advisory Fees and its Affiliates funds with respect to the Fund's The Board considered the services to be The Board considered various other investment of uninvested cash, but not provided by the Affiliated Sub-Advisers benefits received by Invesco Aim and its cash collateral. The Board considered the pursuant to the sub-advisory agreements affiliates resulting from Invesco Aim's contractual nature of this fee waiver and and the services to be provided by Invesco relationship with the Fund, including the noted that it remains in effect until at Aim pursuant to the Fund's investment fees received by Invesco Aim and its least April 30, 2010. The Board concluded advisory agreement, as well as the affiliates for their provision of that the Fund's investment of uninvested allocation of fees between Invesco Aim and administrative, transfer agency and cash and cash collateral from any the Affiliated Sub-Advisers pursuant to distribution services to the Fund. The securities lending arrangements in the the sub-advisory agreements. The Board Board considered the performance of affiliated money market funds is in the noted that the sub-advisory fees have no Invesco Aim and its affiliates in best interests of the Fund and its direct effect on the Fund or its providing these services and the shareholders. shareholders, as they are paid by Invesco organizational structure employed by Aim to the Affiliated Sub-Advisers, and Invesco Aim and its affiliates to provide II. Sub-Advisory Agreements that Invesco Aim and the Affiliated these services. The Board also considered A. Nature, Extent and Quality of Sub-Advisers are affiliates. After taking that these services are provided to the Services Provided by Affiliated account of the Fund's contractual Fund pursuant to written contracts which Sub-Advisers sub-advisory fee rate, as well as other are reviewed and approved on an annual The Board reviewed the services to be relevant factors, the Board concluded that basis by the Board. The Board concluded provided by Invesco Trimark Ltd., Invesco the Fund's sub-advisory fees were fair and that Invesco Aim and its affiliates were Asset Management Deutschland, GmbH, reasonable. providing these services in a satisfactory Invesco Asset Management Limited, Invesco manner and in accordance with the terms of Asset Management (Japan) Limited, Invesco D. Financial Resources of the their contracts, and were qualified to Australia Limited, Invesco Global Asset Affiliated Sub-Advisers continue to provide these services to the Management (N.A.), Inc., Invesco Hong Kong The Board considered whether each Fund. Limited, Invesco Institutional (N.A.), Affiliated Sub-Adviser is financially The Board considered the benefits Inc. and Invesco Senior Secured sound and has the resources necessary to realized by Invesco Aim as a result of Management, Inc. (collectively, the perform its obligations under its portfolio brokerage transactions executed "Affiliated Sub-Advisers") under the respective sub-advisory agreement, and through "soft dollar" arrangements. Under sub-advisory agreements and the concluded that each Affiliated Sub-Adviser these arrangements, portfolio brokerage credentials and experience of the officers has the financial resources necessary to commissions paid by the Fund and/or other and employees of the Affiliated fulfill these obligations. funds advised by Invesco Aim are used to Sub-Advisers who will provide these pay for research and execution services. services. The Board concluded that the The Board noted that soft dollar nature, extent and quality of the services arrangements shift the pay- to be provided
AIM V.I. BASIC VALUE FUND PROXY RESULTS A Special Meeting ("Meeting") of Shareholders of AIM V.I. Basic Value Fund, an investment portfolio of AIM Variable Insurance Funds, a Delaware statutory trust ("Trust"), was held on February 29, 2008. The Meeting was held for the following purposes: (1) Elect 13 trustees to the Board of Trustees of the Trust, each of whom will serve until his or her successor is elected and qualified. (2) Approve an amendment to the Trust's Agreement and Declaration of Trust that would permit the Board of Trustees of the Trust to terminate the Trust, the Fund, and each other series portfolio of the Trust, or a share class without a shareholder vote. (3) Approve a new sub-advisory agreement between Invesco Aim Advisors, Inc. and each of AIM Funds Management, Inc.; Invesco Asset Management Deutschland, GmbH; Invesco Asset Management Limited; Invesco Asset Management (Japan) Limited; Invesco Australia Limited; Invesco Global Asset Management (N.A.), Inc.; Invesco Hong Kong Limited; Invesco Institutional (N.A.), Inc.; and Invesco Senior Secured Management, Inc. The results of the voting on the above matters were as follows:
WITHHELD/ MATTERS VOTES FOR ABSTENTIONS** - ------------------------------------------------------------------------------------------------------------ (1)* Bob R. Baker.................................................... 474,883,590 19,741,622 Frank S. Bayley................................................. 474,653,109 19,972,103 James T. Bunch.................................................. 475,597,417 19,027,795 Bruce L. Crockett............................................... 474,900,579 19,724,633 Albert R. Dowden................................................ 474,749,929 19,875,283 Jack M. Fields.................................................. 475,205,840 19,419,372 Martin L. Flanagan.............................................. 475,248,336 19,376,876 Carl Frischling................................................. 474,453,674 20,171,538 Prema Mathai-Davis.............................................. 473,569,192 21,056,020 Lewis F. Pennock................................................ 475,072,501 19,552,711 Larry Soll, Ph.D................................................ 475,170,544 19,454,668 Raymond Stickel, Jr............................................. 475,420,825 19,204,387 Philip A. Taylor................................................ 475,640,570 18,984,642
WITHHELD/ VOTES FOR VOTES AGAINST ABSTENTIONS - --------------------------------------------------------------------------------------------------------------------- (2)* Approve an amendment to the Trust's Agreement and Declaration of Trust that would permit the Board of Trustees of the Trust to terminate the Trust, the Fund, and each other series portfolio of the Trust, or a share class without a shareholder vote.............. 438,131,484 35,586,925 20,906,803 (3) Approve a new sub-advisory agreement between Invesco Aim Advisors, Inc. and each of AIM Funds Management, Inc.; Invesco Asset Management Deutschland, GmbH; Invesco Asset Management Limited; Invesco Asset Management (Japan) Limited; Invesco Australia Limited; Invesco Global Asset Management (N.A.), Inc.; Invesco Hong Kong Limited; Invesco Institutional (N.A.), Inc.; and Invesco Senior Secured Management, Inc............ 47,444,423 1,726,481 2,208,825
* Proposals 1 and 2 required approval by a combined vote of all of the portfolios of AIM Variable Insurance Funds. ** Includes Broker Non-Votes. AIM V.I. BASIC VALUE FUND [Invesco Aim Logo] AIM V.I. Capital Appreciation Fund - - service mark - Semiannual Report to Shareholders - June 30, 2008 AIM Investments [Mountain Graphic] became Invesco Aim on March 31, 2008. For more details, go to invescoaim.com 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 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 Invesco Aim Web site, invescoaim.com. On the home page, scroll down and click on 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, 2008, is available at our Web site. Go to invescoaim.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 noted, all data provided by Invesco Aim. This report must be accompanied or preceded by a currently effective Fund prospectus and variable product prospectus, which contain more complete information, including sales charges and expenses. Investors should read each carefully before investing. Invesco Aim Distributors, Inc. NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE Fund Performance Performance Summary Fund vs. Indexes Cumulative total returns, 12/31/07 to 6/30/08, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower.
Series I Shares -11.24% Series II Shares -11.37 S&P 500 Index+ (Broad Market Index) -11.90 Russell 1000 Growth Index+ (Style-Specific Index) -9.06 Lipper VUF Multi-Cap Growth Funds Category Average+ (Peer Group) -11.94
+Lipper Inc. The S&P 500--REGISTERED TRADEMARK--Index is a market capitalization-weighted index covering all major areas of the U.S. economy. It is not the 500 largest companies, but rather the most widely held 500 companies chosen with respect to market size, liquidity, and their industry. The Russell 1000--REGISTERED TRADEMARK--Growth Index measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values. The Russell 1000 Growth Index is a trademark/service mark of the Frank Russell Company. Russell--REGISTERED TRADEMARK--is a trademark of the Frank Russell Company. The Lipper VUF Multi-Cap Growth Funds Category Average represents an average of all of the variable insurance underlying funds in the Lipper Multi-Cap Growth Funds category. These funds typically have an above-average price-to-earnings ratio, price-to-book ratio, and three-year sales-per-share growth value, compared to the S&P Composite 1500 Index. The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes. A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of an index of funds reflects fund expenses; performance of a market index does not. Average Annual Total Returns As of 6/30/08
Series I Shares Inception (5/5/93) 7.85% 10 Years 2.31 5 Years 7.36 1 Year -9.32 Series II Shares 10 Years 2.05% 5 Years 7.09 1 Year -9.58
Series II shares inception date is August 21, 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 restated historical performance of Series I shares (for periods prior to inception of Series II shares) adjusted to reflect the Rule 12b-1 fees applicable to Series II shares. The inception date of Series I shares is May 5, 1993. The performance of the Fund's Series I and Series II share classes will differ primarily due to different class expenses. The performance data quoted represent past performance and cannot guarantee comparable future results; current performance may be lower or higher. Please contact your variable product issuer or financial advisor for the most recent month-end variable product performance. Performance figures reflect Fund expenses, reinvested distributions and changes in net asset value. Investment return and principal value will fluctuate so that you may have a gain or loss when you sell shares. The total annual Fund operating expense ratio set forth in the most recent Fund prospectus as of the date of this report for Series I and Series II shares was 0.88% and 1.13%, respectively. The expense ratios presented above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report. AIM V.I. Capital Appreciation Fund, a series portfolio of AIM Variable Insurance Funds, is currently offered through insurance companies issuing variable products. You cannot purchase shares of the Fund directly. Performance figures given represent the Fund and are not intended to reflect actual variable product values. They do not reflect sales charges, expenses and fees assessed in connection with a variable product. Sales charges, expenses and fees, which are determined by the variable product issuers, will vary and will lower the total return. The most recent month-end performance data at the Fund level, excluding variable product charges, is available on this Invesco Aim automated information line, 866 702 4402. As mentioned above, for the most recent month-end performance including variable product charges, please contact your variable product issuer or financial advisor. AIM V.I. Capital Appreciation Fund PORTFOLIO COMPOSITION By sector, based on Net Assets, as of June 30, 2008 - ------------------------------------------------------------------------- Industrials 23.0% - ------------------------------------------------------------------------- Energy 17.0 - ------------------------------------------------------------------------- Consumer Staples 15.9 - ------------------------------------------------------------------------- Information Technology 14.0 - ------------------------------------------------------------------------- Materials 10.0 - ------------------------------------------------------------------------- Health Care 9.7 - ------------------------------------------------------------------------- Consumer Discretionary 3.1 - ------------------------------------------------------------------------- Financials 3.0 - ------------------------------------------------------------------------- Telecommunication Services 1.7 - ------------------------------------------------------------------------- Money Market Funds Plus Other Assets Less Liabilities 2.6 =========================================================================
SCHEDULE OF INVESTMENTS(a) June 30, 2008 (Unaudited)
SHARES VALUE - --------------------------------------------------------------------------------- COMMON STOCKS & OTHER EQUITY INTERESTS-97.39% AEROSPACE & DEFENSE-9.99% General Dynamics Corp. 229,024 $ 19,283,821 - --------------------------------------------------------------------------------- Honeywell International Inc. 251,146 12,627,621 - --------------------------------------------------------------------------------- Lockheed Martin Corp. 57,616 5,684,395 - --------------------------------------------------------------------------------- Precision Castparts Corp. 226,513 21,829,058 - --------------------------------------------------------------------------------- Raytheon Co. 311,179 17,513,154 - --------------------------------------------------------------------------------- Rockwell Collins, Inc. 93,841 4,500,614 - --------------------------------------------------------------------------------- Spirit AeroSystems Holdings Inc.-Class A(b) 744,488 14,279,280 - --------------------------------------------------------------------------------- Teledyne Technologies Inc.(b) 19,450 948,965 - --------------------------------------------------------------------------------- United Technologies Corp. 292,899 18,071,868 ================================================================================= 114,738,776 ================================================================================= APPLICATION SOFTWARE-2.78% Adobe Systems Inc.(b) 365,406 14,393,342 - --------------------------------------------------------------------------------- Amdocs Ltd.(b) 310,128 9,123,966 - --------------------------------------------------------------------------------- Autodesk, Inc.(b) 247,693 8,374,500 ================================================================================= 31,891,808 ================================================================================= AUTO PARTS & EQUIPMENT-0.90% BorgWarner, Inc. 151,199 6,710,212 - --------------------------------------------------------------------------------- Johnson Controls, Inc. 124,727 3,577,170 ================================================================================= 10,287,382 ================================================================================= BIOTECHNOLOGY-1.74% Genentech, Inc.(b) 78,777 5,979,174 - --------------------------------------------------------------------------------- Gilead Sciences, Inc.(b) 263,340 13,943,853 ================================================================================= 19,923,027 ================================================================================= COAL & CONSUMABLE FUELS-1.35% CONSOL Energy Inc. 78,877 8,863,408 - --------------------------------------------------------------------------------- Peabody Energy Corp. 75,679 6,663,536 ================================================================================= 15,526,944 ================================================================================= COMMUNICATIONS EQUIPMENT-3.00% Cisco Systems, Inc.(b) 811,625 18,878,397 - --------------------------------------------------------------------------------- Nokia Oyj-ADR (Finland) 489,011 11,980,770 - --------------------------------------------------------------------------------- Research In Motion Ltd. (Canada)(b) 31,062 3,631,148 ================================================================================= 34,490,315 ================================================================================= COMPUTER HARDWARE-0.48% Apple Inc.(b) 33,104 5,542,934 ================================================================================= COMPUTER STORAGE & PERIPHERALS-0.60% Seagate Technology 362,640 6,937,303 ================================================================================= CONSTRUCTION & ENGINEERING-4.08% Chicago Bridge & Iron Co. N.V.-New York Shares 136,873 5,450,283 - --------------------------------------------------------------------------------- Fluor Corp. 63,038 11,730,111 - --------------------------------------------------------------------------------- Foster Wheeler Ltd.(b) 321,003 23,481,370 - --------------------------------------------------------------------------------- Jacobs Engineering Group Inc.(b) 76,562 6,178,553 ================================================================================= 46,840,317 ================================================================================= CONSTRUCTION & FARM MACHINERY & HEAVY TRUCKS-1.39% Joy Global Inc. 32,511 2,465,309 - --------------------------------------------------------------------------------- Komatsu Ltd. (Japan)(c) 486,188 13,521,148 ================================================================================= 15,986,457 =================================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. CAPITAL APPRECIATION FUND
SHARES VALUE - --------------------------------------------------------------------------------- CONSUMER ELECTRONICS-0.85% Garmin Ltd.(d) 228,265 $ 9,778,873 ================================================================================= DIVERSIFIED METALS & MINING-4.51% BHP Billiton Ltd. (Australia)(c) 276,989 11,793,432 - --------------------------------------------------------------------------------- Companhia Vale do Rio Doce-ADR (Brazil) 141,084 5,053,629 - --------------------------------------------------------------------------------- Rio Tinto plc (United Kingdom)(c) 124,674 15,286,468 - --------------------------------------------------------------------------------- Titanium Metals Corp. 196,622 2,750,742 - --------------------------------------------------------------------------------- Xstrata PLC (United Kingdom)(c) 211,865 16,838,257 ================================================================================= 51,722,528 ================================================================================= ELECTRICAL COMPONENTS & EQUIPMENT-0.75% Emerson Electric Co. 163,375 8,078,894 - --------------------------------------------------------------------------------- Woodward Governor Co. 15,928 567,992 ================================================================================= 8,646,886 ================================================================================= ELECTRONIC MANUFACTURING SERVICES-0.33% Trimble Navigation Ltd.(b) 105,895 3,780,452 ================================================================================= FERTILIZERS & AGRICULTURAL CHEMICALS-5.24% Monsanto Co. 208,030 26,303,313 - --------------------------------------------------------------------------------- Mosaic Co. (The)(b) 158,396 22,919,901 - --------------------------------------------------------------------------------- Potash Corp. of Saskatchewan Inc. (Canada) 48,062 10,985,532 ================================================================================= 60,208,746 ================================================================================= FOOD RETAIL-1.52% Kroger Co. (The) 605,944 17,493,603 ================================================================================= FOOTWEAR-0.68% NIKE, Inc.-Class B 130,775 7,795,498 ================================================================================= HEALTH CARE EQUIPMENT-4.08% Baxter International Inc. 337,176 21,559,034 - --------------------------------------------------------------------------------- Becton, Dickinson and Co. 162,584 13,218,079 - --------------------------------------------------------------------------------- St. Jude Medical, Inc.(b) 295,825 12,093,326 ================================================================================= 46,870,439 ================================================================================= HEALTH CARE SERVICES-1.34% Express Scripts, Inc.(b) 148,170 9,293,222 - --------------------------------------------------------------------------------- Quest Diagnostics Inc. 125,129 6,065,003 ================================================================================= 15,358,225 ================================================================================= HEAVY ELECTRICAL EQUIPMENT-1.59% ABB Ltd. (Switzerland)(c) 647,599 18,280,516 ================================================================================= HOUSEHOLD PRODUCTS-6.81% Clorox Co. (The) 326,874 17,062,823 - --------------------------------------------------------------------------------- Colgate-Palmolive Co. 429,815 29,700,217 - --------------------------------------------------------------------------------- Procter & Gamble Co. (The) 516,461 31,405,993 ================================================================================= 78,169,033 ================================================================================= INDUSTRIAL CONGLOMERATES-2.68% McDermott International, Inc.(b) 496,819 30,748,128 ================================================================================= INDUSTRIAL MACHINERY-0.74% Fanuc Ltd. (Japan)(c) 86,700 8,449,022 ================================================================================= INTEGRATED OIL & GAS-6.24% Exxon Mobil Corp. 332,310 29,286,480 - --------------------------------------------------------------------------------- Marathon Oil Corp. 225,094 11,675,626 - --------------------------------------------------------------------------------- Occidental Petroleum Corp. 341,635 30,699,321 ================================================================================= 71,661,427 ================================================================================= INTERNET SOFTWARE & SERVICES-0.73% Google Inc.-Class A(b) 15,848 8,342,704 ================================================================================= IT CONSULTING & OTHER SERVICES-2.60% Accenture Ltd.-Class A 596,535 24,290,905 - --------------------------------------------------------------------------------- Cognizant Technology Solutions Corp.-Class A(b) 169,441 5,508,527 ================================================================================= 29,799,432 ================================================================================= MARINE-1.59% Mitsui O.S.K. Lines, Ltd. (Japan)(c) 647,000 9,293,670 - --------------------------------------------------------------------------------- Nippon Yusen Kabushiki Kaisha (Japan)(c) 932,000 8,944,517 ================================================================================= 18,238,187 ================================================================================= MULTI-LINE INSURANCE-0.53% Assurant, Inc. 91,996 6,068,056 ================================================================================= OIL & GAS DRILLING-1.86% Transocean Inc. 139,922 21,322,714 ================================================================================= OIL & GAS EQUIPMENT & SERVICES-7.31% Baker Hughes Inc. 191,477 16,723,601 - --------------------------------------------------------------------------------- Cameron International Corp.(b) 280,883 15,546,874 - --------------------------------------------------------------------------------- National-Oilwell Varco Inc.(b) 373,046 33,096,641 - --------------------------------------------------------------------------------- Schlumberger Ltd. 173,137 18,600,108 ================================================================================= 83,967,224 ================================================================================= OIL & GAS REFINING & MARKETING-1.11% Valero Energy Corp. 308,079 12,686,693 ================================================================================= PACKAGED FOODS & MEATS-1.56% Kellogg Co. 372,502 17,887,546 ================================================================================= PERSONAL PRODUCTS-0.15% Chattem, Inc.(b)(d) 25,830 1,680,242 ================================================================================= PHARMACEUTICALS-2.52% Johnson & Johnson 323,965 20,843,908 - --------------------------------------------------------------------------------- Shire Ltd. (United Kingdom) 451,502 7,406,121 - --------------------------------------------------------------------------------- Shire Ltd. (United Kingdom)(e) 38,893 637,974 ================================================================================= 28,888,003 ================================================================================= PROPERTY & CASUALTY INSURANCE-2.51% ACE Ltd. 260,472 14,349,403 - --------------------------------------------------------------------------------- Chubb Corp. (The) 296,335 14,523,378 ================================================================================= 28,872,781 =================================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. CAPITAL APPRECIATION FUND
SHARES VALUE - --------------------------------------------------------------------------------- PUBLISHING-0.66% Morningstar, Inc.(b)(d) 104,557 $ 7,531,241 ================================================================================= SEMICONDUCTORS-0.32% NVIDIA Corp.(b) 197,588 3,698,847 ================================================================================= SOFT DRINKS-5.15% Coca-Cola Co. (The) 448,351 23,305,285 - --------------------------------------------------------------------------------- Hansen Natural Corp.(b)(d) 265,916 7,663,699 - --------------------------------------------------------------------------------- PepsiCo, Inc. 442,310 28,126,493 ================================================================================= 59,095,477 ================================================================================= SYSTEMS SOFTWARE-2.70% Microsoft Corp. 1,127,720 31,023,577 ================================================================================= TOBACCO-0.68% UST Inc. 143,318 7,826,596 ================================================================================= WIRELESS TELECOMMUNICATION SERVICES-1.74% China Mobile Ltd. (China)(c) 604,461 8,089,240 - --------------------------------------------------------------------------------- KDDI Corp. (Japan)(c) 1,924 11,913,227 ================================================================================= 20,002,467 ================================================================================= Total Common Stocks & Other Equity Interests (Cost $986,156,144) 1,118,060,426 ================================================================================= MONEY MARKET FUNDS-3.36% Liquid Assets Portfolio-Institutional Class(f) 19,249,298 19,249,298 - --------------------------------------------------------------------------------- Premier Portfolio-Institutional Class(f) 19,249,298 19,249,298 ================================================================================= Total Money Market Funds (Cost $38,498,596) 38,498,596 ================================================================================= TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)-100.74% (Cost $1,024,654,740) 1,156,559,022 ================================================================================= INVESTMENTS PURCHASED WITH CASH COLLATERAL FROM SECURITIES ON LOAN MONEY MARKET FUNDS-1.42% Liquid Assets Portfolio-Institutional Class (Cost $16,354,115)(f)(g) 16,354,115 16,354,115 ================================================================================= TOTAL INVESTMENTS-102.17% (Cost $1,041,008,855) 1,172,913,137 ================================================================================= OTHER ASSETS LESS LIABILITIES-(2.17)% (24,876,388) ================================================================================= NET ASSETS-100.00% $1,148,036,749 =================================================================================
Investment Abbreviations: ADR - American Depositary Receipt
Notes to Schedule of Investments: (a) Industry and/or sector 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 MSCI Inc. and Standard & Poor's. (b) Non-income producing security. (c) In accordance with the procedures established by the Board of Trustees, the foreign security is fair valued using adjusted closing market prices. The aggregate value of these securities at June 30, 2008 was $122,409,497, which represented 10.66% of the Fund's Net Assets. See Note 1A. (d) All or a portion of this security was out on loan at June 30, 2008. (e) Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended. The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The value of this security at June 30, 2008 represented 0.06% of the Fund's Net Assets. Unless otherwise indicated, this security is not considered to be illiquid. (f) The money market fund and the Fund are affiliated by having the same investment advisor. (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 1I. See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. CAPITAL APPRECIATION FUND STATEMENT OF ASSETS AND LIABILITIES June 30, 2008 (Unaudited) ASSETS: Investments, at value (Cost $986,156,144)* $1,118,060,426 - ------------------------------------------------------- Investments in affiliated money market funds (Cost $54,852,711) 54,852,711 ======================================================= Total investments (Cost $1,041,008,855) 1,172,913,137 ======================================================= Foreign currencies, at value (Cost $380,010) 381,490 - ------------------------------------------------------- Receivables for: Investments sold 434,552 - ------------------------------------------------------- Fund shares sold 111,539 - ------------------------------------------------------- Dividends 869,146 - ------------------------------------------------------- Investment for trustee deferred compensation and retirement plans 159,723 - ------------------------------------------------------- Other assets 20,973 ======================================================= Total assets 1,174,890,560 ======================================================= LIABILITIES: Payables for: Investments purchased 6,968,853 - ------------------------------------------------------- Fund shares reacquired 2,268,584 - ------------------------------------------------------- Collateral upon return of securities loaned 16,354,115 - ------------------------------------------------------- Accrued fees to affiliates 888,250 - ------------------------------------------------------- Accrued other operating expenses 73,372 - ------------------------------------------------------- Trustee deferred compensation and retirement plans 300,637 ======================================================= Total liabilities 26,853,811 ======================================================= Net assets applicable to shares outstanding $1,148,036,749 ======================================================= NET ASSETS CONSIST OF: Shares of beneficial interest $1,207,418,583 - ------------------------------------------------------- Undistributed net investment income (83,478) - ------------------------------------------------------- Undistributed net realized gain (loss) (191,203,969) - ------------------------------------------------------- Unrealized appreciation 131,905,613 ======================================================= $1,148,036,749 ======================================================= NET ASSETS: Series I $ 860,363,919 ======================================================= Series II $ 287,672,830 ======================================================= SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED NUMBER OF SHARES AUTHORIZED: Series I 33,006,285 ======================================================= Series II 11,210,665 ======================================================= Series I: Net asset value per share $ 26.07 ======================================================= Series II: Net asset value per share $ 25.66 =======================================================
* At June 30, 2008, securities with an aggregate value of $15,638,915 were on loan to brokers. STATEMENT OF OPERATIONS For the six months ended June 30, 2008 (Unaudited) INVESTMENT INCOME: Dividends (net of foreign withholding taxes of $41,542) $ 5,283,457 - ------------------------------------------------------- Dividends from affiliated money market funds (includes securities lending income of $67,050) 751,888 ======================================================= Total investment income 6,035,345 ======================================================= EXPENSES: Advisory fees 3,699,615 - ------------------------------------------------------- Administrative services fees 1,551,972 - ------------------------------------------------------- Custodian fees 28,447 - ------------------------------------------------------- Distribution fees -- Series II 378,829 - ------------------------------------------------------- Transfer agent fees 21,048 - ------------------------------------------------------- Trustees' and officer's fees and benefits 25,780 - ------------------------------------------------------- Other 154,361 ======================================================= Total expenses 5,860,052 ======================================================= Less: Fees waived and expense offset arrangement(s) (26,032) ======================================================= Net expenses 5,834,020 ======================================================= Net investment income 201,325 ======================================================= REALIZED AND UNREALIZED GAIN (LOSS) FROM: Net realized gain from: Investment securities (includes net gains (losses) from securities sold to affiliates of $(706,562)) 48,373,567 - ------------------------------------------------------- Foreign currencies 301,425 ======================================================= 48,674,992 ======================================================= Change in net unrealized appreciation (depreciation) of: Investment securities (209,547,593) - ------------------------------------------------------- Foreign currencies 982 ======================================================= (209,546,611) ======================================================= Net realized and unrealized gain (loss) (160,871,619) ======================================================= Net increase (decrease) in net assets resulting from operations $(160,670,294) =======================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. CAPITAL APPRECIATION FUND STATEMENT OF CHANGES IN NET ASSETS For the six months ended June 30, 2008 and the year ended December 31, 2007 (Unaudited)
JUNE 30, DECEMBER 31, 2008 2007 - --------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) $ 201,325 $ (453,651) - --------------------------------------------------------------------------------------- Net realized gain 48,674,992 84,198,829 - --------------------------------------------------------------------------------------- Change in net unrealized appreciation (depreciation) (209,546,611) 90,262,939 ======================================================================================= Net increase (decrease) in net assets resulting from operations (160,670,294) 174,008,117 ======================================================================================= Share transactions-net: Series I (104,892,403) (250,049,373) - --------------------------------------------------------------------------------------- Series II (22,371,658) (63,863,071) ======================================================================================= Net increase (decrease) in net assets resulting from share transactions (127,264,061) (313,912,444) ======================================================================================= Net increase (decrease) in net assets (287,934,355) (139,904,327) ======================================================================================= NET ASSETS: Beginning of period 1,435,971,104 1,575,875,431 ======================================================================================= End of period (including undistributed net investment income (loss) of $(83,478) and $(284,803), respectively) $1,148,036,749 $1,435,971,104 =======================================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. CAPITAL APPRECIATION FUND NOTES TO FINANCIAL STATEMENTS June 30, 2008 (Unaudited) NOTE 1--SIGNIFICANT ACCOUNTING POLICIES AIM V.I. Capital Appreciation Fund (the "Fund") is a series portfolio of AIM Variable Insurance Funds (the "Trust"). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of twenty separate portfolios, (each constituting a "Fund"). 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 Fund or class will be voted on exclusively by the shareholders of such Fund 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 Fund 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. 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 prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. 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, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. 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, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. 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. Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer's assets, general economic conditions, interest rates, investor perceptions and market liquidity. 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. The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds as received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. AIM V.I. CAPITAL APPRECIATION FUND 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, the investment advisor 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. The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. 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 by a significant amount. 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. SECURITIES LENDING -- 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 by the securities lending provider. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its sponsored agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds and is shown as such on the Schedule of Investments. 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. Dividends received on cash collateral investments for securities lending transactions, which are net of compensation to counterparties, is included in Dividends from affiliates on the Statement of Operations. The aggregate value of securities out on loan is shown as a footnote on the Statement of Assets and Liabilities. 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. AIM V.I. CAPITAL APPRECIATION 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. NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES The Trust has entered into a master investment advisory agreement with Invesco Aim Advisors, Inc. (the "Advisor" or "Invesco Aim"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Advisor based on the annual rate of the Fund's average daily net assets as follows:
AVERAGE NET ASSETS RATE - -------------------------------------------------------------- First $250 million 0.65% - -------------------------------------------------------------- Over $250 million 0.60% ==============================================================
Through December 31, 2009, the Advisor has contractually agreed to waive advisory fees to the extent necessary so that the advisory fees payable by the Fund (based on the Fund's average daily net assets) do not exceed the annual rate of:
AVERAGE NET ASSETS RATE - -------------------------------------------------------------- First $250 million 0.695% - -------------------------------------------------------------- Next $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% ==============================================================
Under the terms of a master sub-advisory agreement approved by shareholders of the Fund on February 29, 2008, effective May 1, 2008, between the Advisor and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Global Asset Management (N.A.), Inc., Invesco Hong Kong Limited, Invesco Institutional (N.A.), Inc., Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the "Affiliated Sub-Advisors") the Advisor, not the Fund, may pay 40% of the fees paid to the Advisor to any such Affiliated Sub- Advisor(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Advisor(s). The Advisor 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, 2010. 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 Invesco Ltd. ("Invesco") 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. The Advisor did not waive fees and/or reimburse expenses during the period under this expense limitation. Further, the Advisor has contractually agreed, through at least April 30, 2010, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Advisor receives from the affiliated money market funds on investments by the Fund of uninvested cash (but not cash collateral from securities lending) in such affiliated money market funds. For the six months ended June 30, 2008, the Advisor waived advisory fees of $25,472. At the request of the Trustees of the Trust, Invesco agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the six months ended June 30, 2008, Invesco did not reimburse any expenses. The Trust has entered into a master administrative services agreement with Invesco Aim pursuant to which the Fund has agreed to pay Invesco Aim a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco Aim for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants' accounts. Pursuant to such agreement, for the six months ended June 30, 2008, Invesco Aim was paid $144,409 for accounting and fund administrative services and reimbursed $1,407,563 for services provided by insurance companies. AIM V.I. CAPITAL APPRECIATION FUND The Trust has entered into a transfer agency and service agreement with Invesco Aim Investment Services, Inc. ("IAIS") pursuant to which the Fund has agreed to pay IAIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IAIS for certain expenses incurred by IAIS in the course of providing such services. For the six months ended June 30, 2008, 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 Invesco Aim Distributors, Inc. ("IADI") 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 IADI 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 six months ended June 30, 2008, expenses incurred under the Plan are detailed in the Statement of Operations as distribution fees. Certain officers and trustees of the Trust are officers and directors of Invesco Aim, IAIS and/or IADI. NOTE 3--SUPPLEMENTAL INFORMATION The Fund adopted the provisions of Statement of Financial Accounting Standards No. 157, "Fair Value Measurements" (SFAS 157), effective with the beginning of the Fund's fiscal year. SFAS 157 establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (level 1) and the lowest priority to unobservable inputs (level 3) market prices are not readily available or are unreliable. Based on the inputs the securities or other instruments are tiered into three levels of hierarchy under SFAS 157. Changes in valuation methods may result in transfers in or out of an investment's assigned level within the hierarchy, Level 1--Quoted prices in an active market for identical assets. Level 2--Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk and others. Level 3--Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund's own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. Below is a summary of the tiered input levels, as of the end of the reporting period, June 30, 2008. The inputs or methods used for valuing securities may not be an indication of the risk associated with investing in those securities.
INVESTMENTS IN INPUT LEVEL SECURITIES - -------------------------------------- Level 1 $1,050,503,639 - -------------------------------------- Level 2 122,409,498 - -------------------------------------- Level 3 -- ====================================== $1,172,913,137 ======================================
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS The Fund is permitted to purchase or sell securities from or to certain other AIM Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment advisor (or affiliated investment advisors), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the six months ended June 30, 2008, the Fund engaged in securities sales of $2,538,168, which resulted in net realized gains (losses) of $(706,562), and securities purchases of $1,643,750. NOTE 5--EXPENSE OFFSET ARRANGEMENT The expense offset arrangement is comprised of custodian credits which result from periodic overnight cash balances at the custodian. For the six months ended June 30, 2008, the Fund received credits from this arrangement, which resulted in the reduction of the Fund's total expenses of $560. 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 certain Trustees and Officers of the Fund. 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, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund. During the six months ended June 30, 2008, the Fund paid legal fees of $3,193 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--CASH BALANCES The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The State Street Bank and Trust Company ("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 Invesco Aim, not to exceed the contractually agreed upon rate. NOTE 8--TAX INFORMATION The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund's fiscal year-end. Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions. Under these limitation rules, the Fund is limited to utilizing $189,887,985 of capital loss carryforward in the fiscal year ended December 31, 2008. The Fund had a capital loss carryforward as of December 31, 2007 which expires as follows:
CAPITAL LOSS EXPIRATION CARRYFORWARD* - ------------------------------------------------------------------------------- December 31, 2009 $ 32,326,216 - ------------------------------------------------------------------------------- December 31, 2010 144,685,370 - ------------------------------------------------------------------------------- December 31, 2011 56,312,952 =============================================================================== Total capital loss carryforward $233,324,538 ===============================================================================
* Capital loss carryforward as of the dates listed above are reduced for limitations, 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 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 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 six months ended June 30, 2008 was $804,856,043 and $934,549,812, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period end.
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS - ------------------------------------------------------------------------------- Aggregate unrealized appreciation of investment securities $184,930,410 - ------------------------------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (59,580,551) =============================================================================== Net unrealized appreciation of investment securities $125,349,859 =============================================================================== Cost of investments for tax purposes is $1,047,563,278.
AIM V.I. CAPITAL APPRECIATION FUND NOTE 10--SHARE INFORMATION
CHANGES IN SHARES OUTSTANDING - -------------------------------------------------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED JUNE 30, 2008(a) DECEMBER 31, 2007 ---------------------------- ----------------------------- SHARES AMOUNT SHARES AMOUNT - -------------------------------------------------------------------------------------------------------------------------- Sold: Series I 950,588 $ 25,297,005 2,435,959 $ 69,086,990 - -------------------------------------------------------------------------------------------------------------------------- Series II 465,651 11,972,966 1,121,588 30,704,269 ========================================================================================================================== Reacquired: Series I (4,947,786) (130,189,408) (11,374,631) (319,136,363) - -------------------------------------------------------------------------------------------------------------------------- Series II (1,322,362) (34,344,624) (3,386,840) (94,567,340) ========================================================================================================================== (4,853,909) $(127,264,061) (11,203,924) $(313,912,444) ==========================================================================================================================
(a) There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate 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, Invesco Aim and/or Invesco Aim affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco Aim and or Invesco 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--FINANCIAL HIGHLIGHTS The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
SERIES I ------------------------------------------------------------------------------------------ SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, --------------------------------------------------------------------- 2008 2007 2006 2005 2004 2003 - --------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 29.37 $ 26.22 $ 24.67 $ 22.69 $ 21.28 $ 16.43 - --------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) 0.01 0.01 0.01 0.03 0.02(a) (0.04)(b) - --------------------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) (3.31) 3.14 1.55 1.97 1.39 4.89 =========================================================================================================================== Total from investment operations (3.30) 3.15 1.56 2.00 1.41 4.85 =========================================================================================================================== Less dividends from net investment income -- -- (0.01) (0.02) -- -- =========================================================================================================================== Net asset value, end of period $ 26.07 $ 29.37 $ 26.22 $ 24.67 $ 22.69 $ 21.28 =========================================================================================================================== Total return(c) (11.24)% 12.01% 6.34% 8.79% 6.62% 29.52% =========================================================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $860,364 $1,086,677 $1,204,559 $822,899 $886,990 $938,820 =========================================================================================================================== Ratio of expenses to average net assets 0.90%(d) 0.88% 0.91% 0.89% 0.91% 0.85% =========================================================================================================================== Ratio of net investment income (loss) to average net assets 0.10%(d) 0.03% 0.06% 0.11% 0.09%(a) (0.23)% =========================================================================================================================== Portfolio turnover rate(e) 67% 71% 120% 97% 74% 61% ===========================================================================================================================
(a) Net investment income (loss) per share and the ratio of net investment income (loss) to average net assets include a special cash dividend received of $3.00 per share owned of Microsoft Corp. on December 2, 2004. Net investment income (loss) per share and the ratio of net investment income (loss) to average net assets excluding the special dividend are $(0.04) and (0.17)%, respectively. (b) Calculated using average shares outstanding. (c) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. (d) Ratios are annualized and based on average daily net assets of $914,419,497. (e) Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year. AIM V.I. CAPITAL APPRECIATION FUND NOTE 11--FINANCIAL HIGHLIGHTS--(CONTINUED)
SERIES II -------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ----------------------------------------------------------- 2008 2007 2006 2005 2004 2003 - ------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $ 28.95 $ 25.91 $ 24.43 $ 22.50 $ 21.16 $ 16.38 - ------------------------------------------------------------------------------------------------------------------------------ Income from investment operations: Net investment income (loss) (0.02) (0.07) (0.05) (0.03) (0.02)(a) (0.09)(b) - ------------------------------------------------------------------------------------------------------------------------------ Net gains (losses) on securities (both realized and unrealized) (3.27) 3.11 1.53 1.96 1.36 4.87 ============================================================================================================================== Total from investment operations (3.29) 3.04 1.48 1.93 1.34 4.78 ============================================================================================================================== Net asset value, end of period $ 25.66 $ 28.95 $ 25.91 $ 24.43 $ 22.50 $ 21.16 ============================================================================================================================== Total return(c) (11.37)% 11.73% 6.06% 8.58% 6.33% 29.18% ============================================================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $287,673 $349,294 $371,316 $339,190 $136,982 $70,466 ============================================================================================================================== Ratio of expenses to average net assets 1.15%(d) 1.13% 1.16% 1.14% 1.16% 1.10% ============================================================================================================================== Ratio of net investment income (loss) to average net assets (0.15)%(d) (0.22)% (0.19)% (0.14)% (0.16)%(a) (0.48)% ============================================================================================================================== Portfolio turnover rate(e) 67% 71% 120% 97% 74% 61% ==============================================================================================================================
(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 are not annualized for periods less than one year and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. (d) Ratios are annualized and based on average daily net assets of $304,728,036. (e) Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year. NOTE 12--LEGAL PROCEEDINGS Terms used in the Legal Proceedings Note are defined terms solely for the purpose of this note. 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 Invesco Aim and IADI (Order No. 05-1318). The WVASC makes findings of fact that Invesco Aim and IADI 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 Invesco Aim and IADI violated the West Virginia securities laws. The WVASC orders Invesco Aim and IADI 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. By agreement with the Commissioner of Securities, Invesco Aim's time to respond to that Order has been indefinitely suspended. Civil lawsuits, including purported class action and shareholder derivative suits, have been filed against certain of the AIM Funds, Invesco Funds Group, Inc. ("IFG"), Invesco Aim, IADI 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; and - that certain AIM Funds inadequately employed fair value pricing. These lawsuits allege as theories of recovery, depending on the lawsuit, violations of various provisions of the Federal and state securities laws Employee Retirement Income Security Act of 1974, as amended ("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. The case pending in Illinois State Court regarding fair value pricing was dismissed with prejudice on May 6, 2008. 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 Invesco 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 ERISA purportedly brought on behalf of participants in the Invesco 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 Invesco defendants' motion to dismiss the Amended Class Action Complaint for Violations of ERISA and dismissed such Complaint. Plaintiff appealed this ruling. On June 16, 2008, the Fourth Court of Appeals reversed the dismissal and remanded this lawsuit back to the MDL Court for further proceedings. IFG, Invesco Aim, IADI 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 AIM V.I. CAPITAL APPRECIATION FUND NOTE 12--LEGAL PROCEEDINGS--(CONTINUED) 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, Invesco Aim and IADI 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, Invesco Aim and/or related entities and individuals in the future. At the present time, management of Invesco 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 Invesco Aim, IADI or the Fund. AIM V.I. CAPITAL APPRECIATION FUND CALCULATING YOUR ONGOING FUND EXPENSES EXAMPLE As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2008, through June 30, 2008. The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower. ACTUAL EXPENSES The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled "Actual Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
- --------------------------------------------------------------------------------------------------- HYPOTHETICAL (5% ANNUAL RETURN BEFORE ACTUAL EXPENSES) ------------------------------------------------------ BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE CLASS (01/01/08) (06/30/08)(1) PERIOD(2) (06/30/08) PERIOD(2) RATIO - --------------------------------------------------------------------------------------------------- Series I $1,000.00 $887.60 $4.22 $1,020.39 $4.52 0.90% - --------------------------------------------------------------------------------------------------- Series II 1,000.00 886.30 5.39 1,019.14 5.77 1.15 - ---------------------------------------------------------------------------------------------------
(1) The actual ending account value is based on the actual total return of the Fund for the period January 1, 2008, through June 30, 2008, 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 182/366 to reflect the most recent fiscal half year. AIM V.I. CAPITAL APPRECIATION FUND Approval of Investment Advisory Agreement The Board of Trustees (the Board) of AIM Variable Insurance Funds is required under the Investment Company Act of 1940 to approve annually the renewal of the AIM V.I. Capital Appreciation Fund (the Fund) investment advisory agreement with Invesco Aim Advisors, Inc. (Invesco Aim). During contract renewal meetings held on June 18-19, 2008, the Board as a whole and the disinterested or "independent" Trustees, voting separately, approved the continuance of the Fund's investment advisory agreement for another year, effective July 1, 2008. In doing so, the Board determined that the Fund's investment advisory agreement is in the best interests of the Fund and its shareholders and that the compensation to Invesco Aim under the Fund's investment advisory agreement is fair and reasonable. The independent Trustees met separately during their evaluation of the Fund's investment advisory agreement with independent legal counsel from whom they received independent legal advice, and the independent Trustees also received assistance during their deliberations from the independent Senior Officer, a full-time officer of the AIM Funds who reports directly to the independent Trustees. The Board's Fund Evaluation Process The Board's Investments Committee has established three Sub-Committees that are responsible for overseeing the management of a number of the series portfolios of the AIM Funds. This Sub-Committee structure permits the Trustees to focus on the performance of the AIM Funds that have been assigned to them. The Sub-Committees meet throughout the year to review the performance of their assigned funds, and the Sub-Committees review monthly and quarterly comparative performance information and periodic asset flow data for their assigned funds. These materials are prepared under the direction and supervision of the independent Senior Officer. Over the course of each year, the Sub-Committees meet with portfolio managers for their assigned funds and other members of management and review with these individuals the performance, investment objective(s), policies, strategies and limitations of these funds. In addition to their meetings throughout the year, the Sub-Committees meet at designated contract renewal meetings each year to conduct an in-depth review of the performance, fees and expenses of their assigned funds. During the contract renewal process, the Trustees receive comparative performance and fee data regarding the AIM Funds prepared by an independent company, Lipper, Inc. (Lipper), under the direction and supervision of the independent Senior Officer who also prepares a separate analysis of this information for the Trustees. Each Sub-Committee then makes recommendations to the Investments Committee regarding the performance, fees and expenses of their assigned funds. The Investments Committee considers each Sub-Committee's recommendations and makes its own recommendations regarding the performance, fees and expenses of the AIM Funds to the full Board. The Investments Committee also considers each Sub-Committee's recommendations in making its annual recommendation to the Board whether to approve the continuance of each AIM Fund's investment advisory agreement and sub-advisory agreements for another year. The independent Trustees are assisted in their annual evaluation of the Fund's investment advisory agreement by the independent Senior Officer. One responsibility of the Senior Officer is to manage the process by which the AIM Funds' proposed management fees are negotiated during the annual contract renewal process to ensure that they are negotiated in a manner that is at arms' length and reasonable. Accordingly, the Senior Officer must either supervise a competitive bidding process or prepare an independent written evaluation. The Senior Officer has recommended that an independent written evaluation be provided and, at the direction of the Board, has prepared an independent written evaluation. During the annual contract renewal process, the Board considered the factors discussed below under the heading "Factors and Conclusions and Summary of Independent Written Fee Evaluation" in evaluating the fairness and reasonableness of the Fund's investment advisory agreement and sub-advisory agreements at the contract renewal meetings and at their meetings throughout the year as part of their ongoing oversight of the Fund. The Fund's investment advisory agreement and sub-advisory agreements were considered separately, although the Board also considered the common interests of all of the AIM Funds in their deliberations. The Board considered all of the information provided to them and did not identify any particular factor that was controlling. Each Trustee may have evaluated the information provided differently from one another and attributed different weight to the various factors. The Trustees recognized that the advisory arrangements and resulting advisory fees for the Fund and the other AIM Funds are the result of years of review and negotiation between the Trustees and Invesco Aim, that the Trustees may focus to a greater extent on certain aspects of these arrangements in some years than in others, and that the Trustees' deliberations and conclusions in a particular year may be based in part on their deliberations and conclusions of these same arrangements throughout the year and in prior years. Factors and Conclusions and Summary of Independent Written Fee Evaluation The discussion below serves as a summary of the Senior Officer's independent written evaluation with respect to the Fund's investment advisory agreement as well as a discussion of the material factors and related conclusions that formed the basis for the Board's approval of the Fund's investment advisory agreement and sub-advisory agreements. Unless otherwise stated, information set forth below is as of June 19, 2008 and does not reflect any changes that may have occurred since that date, including but not limited to changes to the Fund's performance, advisory fees, expense limitations and/or fee waivers. I. Investment Advisory Agreement A. Nature, Extent and Quality of Services Provided by Invesco Aim The Board reviewed the advisory services provided to the Fund by Invesco Aim under the Fund's investment advisory agreement, the performance of Invesco Aim in providing these services, and the credentials and experience of the officers and employees of Invesco Aim who provide these services. The Board's review of the qualifications of Invesco Aim to provide these services included the Board's consideration of Invesco Aim's portfolio and product review process, various back office support functions provided by Invesco Aim, and Invesco Aim's equity and fixed income trading operations. The Board concluded that the nature, extent and quality of the advisory services provided to the Fund by Invesco Aim were appropriate and that Invesco Aim currently is providing satisfactory advisory services in accordance with the terms of the Fund's investment advisory agreement. In addition, based on their ongoing meetings throughout the year with the Fund's portfolio manager or managers, AIM V.I. Capital Appreciation Fund the Board concluded that these individuals are competent and able to continue to carry out their responsibilities under the Fund's investment advisory agreement. In determining whether to continue the Fund's investment advisory agreement, the Board considered the prior relationship between Invesco Aim and the Fund, as well as the Board's knowledge of Invesco Aim's operations, and concluded that it was beneficial to maintain the current relationship, in part, because of such knowledge. The Board also considered the steps that Invesco Aim and its affiliates have taken over the last several years to improve the quality and efficiency of the services they provide to the AIM Funds in the areas of investment performance, product line diversification, distribution, fund operations, shareholder services and compliance. The Board concluded that the quality and efficiency of the services Invesco Aim and its affiliates provide to the AIM Funds in each of these areas have generally improved, and support the Board's approval of the continuance of the Fund's investment advisory agreement. B. Fund Performance The Board compared the Fund's performance during the past one, three and five calendar years to the performance of funds in the Fund's performance group that are not managed by Invesco Aim, and against the performance of all funds in the Lipper Variable Annuity Underlying Funds - Multi-Cap Growth Index and the Lipper Variable Annuity Underlying Funds - Large-Cap Growth Index. The Board also reviewed the criteria used by Invesco Aim to identify the funds in the Fund's performance group for inclusion in the Lipper reports. The Board noted that the Fund's performance was in the fourth quintile of its performance group for the one, three and five year periods (the first quintile being the best performing funds and the fifth quintile being the worst performing funds). The Board noted that the Fund's performance was below the performance of both Indexes for the one, three and five year periods. The Board noted that Invesco Aim made changes to the Fund's portfolio management team in 2005 and 2008, which need more time to be evaluated before a conclusion can be reached that the changes have adequately addressed the Fund's underperformance. The Board also considered the steps Invesco Aim has taken over the last several years to improve the quality and efficiency of the services that Invesco Aim provides to the AIM Funds. The Board concluded that Invesco Aim continues to be responsive to the Board's focus on fund performance. Although the independent written evaluation of the Fund's Senior Officer only considered Fund performance through the most recent calendar year, the Board also reviewed more recent Fund performance and this review did not change their conclusions. C. Advisory Fees and Fee Waivers The Board compared the Fund's contractual advisory fee rate to the contractual advisory fee rates of funds in the Fund's expense group that are not managed by Invesco Aim, at a common asset level and as of the end of the past calendar year. The Board noted that the Fund's contractual advisory fee rate was below the median contractual advisory fee of funds in its expense group. The Board also reviewed the methodology used by Lipper in determining contractual fee rates. The Board also compared the Fund's effective fee rate (the advisory fee after any advisory fee waivers and before any expense limitations/waivers) to the advisory fee rates of other clients of Invesco Aim and its affiliates with investment strategies comparable to those of the Fund, including two mutual funds advised by Invesco Aim and four mutual funds sub-advised by an Invesco Aim affiliate. The Board noted that the Fund's rate was: (i) below the rate for one mutual fund and above the rate for the other mutual fund; and (ii) above the sub-advisory fee rates for the four sub-advised mutual funds. The Board noted that Invesco Aim has contractually agreed to waive advisory fees of the Fund through December 31, 2009 and that this fee waiver includes breakpoints based on net asset levels. The Board considered the contractual nature of this fee waiver and noted that it remains in effect until December 31, 2009. The Board also noted that Invesco Aim has contractually agreed to waive fees and/or limit expenses of the Fund through at least April 30, 2010 in an amount necessary to limit total annual operating expenses to a specified percentage of average daily net assets for each class of the Fund. The Board considered the contractual nature of this fee waiver and noted that it remains in effect until at least April 30, 2010. The Board also considered the effect these fee waivers/expense limitations would have on the Fund's estimated total expenses. After taking account of the Fund's contractual advisory fee rate, as well as the comparative advisory fee information and the fee waivers/expense limitations discussed above, the Board concluded that the Fund's advisory fees were fair and reasonable. D. Economies of Scale and Breakpoints The Board considered the extent to which there are economies of scale in Invesco Aim's provision of advisory services to the Fund. The Board also considered whether the Fund benefits from such economies of scale through contractual breakpoints in the Fund's advisory fee schedule or through advisory fee waivers or expense limitations. The Board noted that the Fund's contractual advisory fee schedule includes one breakpoint and that the level of the Fund's advisory fees, as a percentage of the Fund's net assets, has decreased as net assets increased because of the breakpoint. The Board also noted that Invesco Aim's contractual advisory fee waiver discussed above includes breakpoints based on net asset levels. Based on this information, the Board concluded that the Fund's advisory fees appropriately reflect economies of scale at current asset levels. The Board also noted that the Fund shares directly in economies of scale through lower fees charged by third party service providers based on the combined size of all of the AIM Funds and affiliates. E. Profitability and Financial Resources of Invesco Aim The Board reviewed information from Invesco Aim concerning the costs of the advisory and other services that Invesco Aim and its affiliates provide to the Fund and the profitability of Invesco Aim and its affiliates in providing these services. The Board also reviewed information concerning the financial condition of Invesco Aim and its affiliates. The Board also reviewed with Invesco Aim the methodology used to prepare the profitability information. The Board considered the overall profitability of Invesco Aim, as well as the profitability of Invesco Aim in connection with managing the Fund. The Board noted that Invesco Aim continues to operate at a net profit, although increased expenses in recent years have reduced the profitability of Invesco Aim and its affiliates, in light of Invesco Aim's profitability. The Board concluded that the Fund's fees were fair and reasonable, and that the level of profits realized by Invesco Aim and its affiliates from providing services to the Fund was not excessive in light of the nature, quality and extent of the services provided. The Board considered whether Invesco Aim is AIM V.I. Capital Appreciation Fund financially sound and has the resources necessary to perform its obligations under the Fund's investment advisory agreement, and concluded that Invesco Aim has the financial resources necessary to fulfill these obligations. F. Independent Written Evaluation of the Fund's Senior Officer The Board noted that, at their direction, the Senior Officer of the Fund, who is independent of Invesco Aim and Invesco Aim's affiliates, had prepared an independent written evaluation to assist the Board in determining the reasonableness of the proposed management fees of the AIM Funds, including the Fund. The Board noted that they had relied upon the Senior Officer's written evaluation instead of a competitive bidding process. In determining whether to continue the Fund's investment advisory agreement, the Board considered the Senior Officer's written evaluation. G. Collateral Benefits to Invesco Aim and its Affiliates The Board considered various other benefits received by Invesco Aim and its affiliates resulting from Invesco Aim's relationship with the Fund, including the fees received by Invesco Aim and its affiliates for their provision of administrative, transfer agency and distribution services to the Fund. The Board considered the performance of Invesco Aim and its affiliates in providing these services and the organizational structure employed by Invesco Aim and its affiliates to provide these services. The Board also considered that these services are provided to the Fund pursuant to written contracts which are reviewed and approved on an annual basis by the Board. The Board concluded that Invesco Aim and its affiliates were providing these services in a satisfactory manner and in accordance with the terms of their contracts, and were qualified to continue to provide these services to the Fund. The Board considered the benefits realized by Invesco Aim as a result of portfolio brokerage transactions executed through "soft dollar" arrangements. Under these arrangements, portfolio brokerage commissions paid by the Fund and/or other funds advised by Invesco Aim are used to pay for research and execution services. The Board noted that soft dollar arrangements shift the payment obligation for the research and execution services from Invesco Aim to the funds and therefore may reduce Invesco Aim's expenses. The Board also noted that research obtained through soft dollar arrangements may be used by Invesco Aim in making investment decisions for the Fund and may therefore benefit Fund shareholders. The Board concluded that Invesco Aim's soft dollar arrangements were appropriate. The Board also concluded that, based on their review and representations made by Invesco Aim, these arrangements were consistent with regulatory requirements. The Board considered the fact that the Fund's uninvested cash and cash collateral from any securities lending arrangements may be invested in money market funds advised by Invesco Aim pursuant to procedures approved by the Board. The Board noted that Invesco Aim will receive advisory fees from these affiliated money market funds attributable to such investments, although Invesco Aim has contractually agreed to waive through at least April 30, 2010, the advisory fees payable by the Fund in an amount equal to 100% of the net advisory fees Invesco Aim receives from the affiliated money market funds with respect to the Fund's investment of uninvested cash, but not cash collateral. The Board considered the contractual nature of this fee waiver and noted that it remains in effect until at least April 30, 2010. The Board concluded that the Fund's investment of uninvested cash and cash collateral from any securities lending arrangements in the affiliated money market funds is in the best interests of the Fund and its shareholders. II. Sub-Advisory Agreements A. Nature, Extent and Quality of Services Provided by Affiliated Sub-Advisers The Board reviewed the services to be provided by Invesco Trimark Ltd., Invesco Asset Management Deutschland, GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Global Asset Management (N.A.), Inc., Invesco Hong Kong Limited, Invesco Institutional (N.A.), Inc. and Invesco Senior Secured Management, Inc. (collectively, the "Affiliated Sub-Advisers") under the sub-advisory agreements and the credentials and experience of the officers and employees of the Affiliated Sub-Advisers who will provide these services. The Board concluded that the nature, extent and quality of the services to be provided by the Affiliated Sub-Advisers were appropriate. The Board noted that the Affiliated Sub-Advisers, which have offices and personnel that are geographically dispersed in financial centers around the world, have been formed in part for the purpose of researching and compiling information and making recommendations on the markets and economies of various countries and securities of companies located in such countries or on various types of investments and investment techniques, and providing investment advisory services. The Board concluded that the sub-advisory agreements will benefit the Fund and its shareholders by permitting Invesco Aim to utilize the additional resources and talent of the Affiliated Sub-Advisers in managing the Fund. B. Fund Performance The Board did not view Fund performance as a relevant factor in considering whether to approve the sub-advisory agreements for the Fund, as no Affiliated Sub-Adviser currently manages any portion of the Fund's assets. C. Sub-Advisory Fees The Board considered the services to be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory agreements and the services to be provided by Invesco Aim pursuant to the Fund's investment advisory agreement, as well as the allocation of fees between Invesco Aim and the Affiliated Sub-Advisers pursuant to the sub-advisory agreements. The Board noted that the sub-advisory fees have no direct effect on the Fund or its shareholders, as they are paid by Invesco Aim to the Affiliated Sub-Advisers, and that Invesco Aim and the Affiliated Sub-Advisers are affiliates. After taking account of the Fund's contractual sub-advisory fee rate, as well as other relevant factors, the Board concluded that the Fund's sub-advisory fees were fair and reasonable. D. Financial Resources of the Affiliated Sub-Advisers The Board considered whether each Affiliated Sub-Adviser is financially sound and has the resources necessary to perform its obligations under its respective sub-advisory agreement, and concluded that each Affiliated Sub-Adviser has the financial resources necessary to fulfill these obligations. PROXY RESULTS A Special Meeting ("Meeting") of Shareholders of AIM V.I. Capital Appreciation Fund, an investment portfolio of AIM Variable Insurance Funds, a Delaware statutory trust ("Trust"), was held on February 29, 2008. The Meeting was held for the following purposes: (1) Elect 13 trustees to the Board of Trustees of the Trust, each of whom will serve until his or her successor is elected and qualified. (2) Approve an amendment to the Trust's Agreement and Declaration of Trust that would permit the Board of Trustees of the Trust to terminate the Trust, the Fund, and each other series portfolio of the Trust, or a share class without a shareholder vote. (3) Approve a new sub-advisory agreement between Invesco Aim Advisors, Inc. and each of AIM Funds Management, Inc.; Invesco Asset Management Deutschland, GmbH; Invesco Asset Management Limited; Invesco Asset Management (Japan) Limited; Invesco Australia Limited; Invesco Global Asset Management (N.A.), Inc.; Invesco Hong Kong Limited; Invesco Institutional (N.A.), Inc.; and Invesco Senior Secured Management, Inc. The results of the voting on the above matters were as follows:
WITHHELD/ MATTERS VOTES FOR ABSTENTIONS** - ----------------------------------------------------------------------------------------------------------- (1)* Bob R. Baker...................................................... 474,883,590 19,741,622 Frank S. Bayley................................................... 474,653,109 19,972,103 James T. Bunch.................................................... 475,597,417 19,027,795 Bruce L. Crockett................................................. 474,900,579 19,724,633 Albert R. Dowden.................................................. 474,749,929 19,875,283 Jack M. Fields.................................................... 475,205,840 19,419,372 Martin L. Flanagan................................................ 475,248,336 19,376,876 Carl Frischling................................................... 474,453,674 20,171,538 Prema Mathai-Davis................................................ 473,569,192 21,056,020 Lewis F. Pennock.................................................. 475,072,501 19,552,711 Larry Soll, Ph.D. ................................................ 475,170,544 19,454,668 Raymond Stickel, Jr. ............................................. 475,420,825 19,204,387 Philip A. Taylor.................................................. 475,640,570 18,984,642
VOTES WITHHELD/ VOTES FOR AGAINST ABSTENTIONS - ------------------------------------------------------------------------------------------------------------------ (2)* Approve an amendment to the Trust's Agreement and Declaration of Trust that would permit the Board of Trustees of the Trust to terminate the Trust, the Fund, and each other series portfolio of the Trust, or a share class without a shareholder vote......................... 438,131,484 35,586,925 20,906,803 (3) Approve a new sub-advisory agreement between Invesco Aim Advisors, Inc. and each of AIM Funds Management, Inc.; Invesco Asset Management Deutschland, GmbH; Invesco Asset Management Limited; Invesco Asset Management (Japan) Limited; Invesco Australia Limited; Invesco Global Asset Management (N.A.), Inc.; Invesco Hong Kong Limited; Invesco Institutional (N.A.), Inc.; and Invesco Senior Secured Management, Inc.................................. 41,406,650 1,961,600 2,151,473
* Proposals 1 and 2 required approval by a combined vote of all of the portfolios of AIM Variable Insurance Funds. ** Includes Broker Non-Votes. AIM V.I. CAPITAL APPRECIATION FUND [INVESCO AIM LOGO] AIM V.I. CAPITAL DEVELOPMENT FUND - SERVICE MARK - Semiannual Report to Shareholders - June 30, 2008 AIM Investments [MOUNTAIN GRAPHIC] became INVESCO AIM on March 31, 2008. For more details, go to invescoaim.com 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 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 Invesco Aim Web site, invescoaim.com. On the home page, scroll down and click on 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, 2008, is available at our Web site. Go to invescoaim.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 noted, all data provided by Invesco Aim. THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND PROSPECTUS AND VARIABLE PRODUCT PROSPECTUS, WHICH CONTAIN MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ EACH CAREFULLY BEFORE INVESTING. Invesco Aim Distributors, Inc. NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE FUND PERFORMANCE ======================================================================================= PERFORMANCE SUMMARY SHARES WAS 1.05% AND 1.30%, RESPECTIVELY.(1) THE TOTAL ANNUAL FUND FUND VS. INDEXES OPERATING EXPENSE RATIO SET FORTH IN THE Cumulative total returns, 12/31/07 to 6/30/08, excluding variable product issuer MOST RECENT FUND PROSPECTUS AS OF THE DATE charges. If variable product issuer charges were included, returns would be OF THIS REPORT FOR SERIES I AND SERIES II lower. SHARES WAS 1.06% AND 1.31%, RESPECTIVELY. THE EXPENSE RATIOS PRESENTED ABOVE MAY Series I Shares -12.31% VARY FROM THE EXPENSE RATIOS PRESENTED IN Series II Shares -12.41 OTHER SECTIONS OF THIS REPORT THAT ARE S&P 500 Indext(TRIANGLE) (Broad Market Index) -11.90 BASED ON EXPENSES INCURRED DURING THE Russell Midcap Growth Indext(TRIANGLE) (Style-Specific Index) -6.81 PERIOD COVERED BY THIS REPORT. Lipper VUF Mid-Cap Growth Funds Index (TRIANGLE) (Peer Group Index) -8.98 AIM V.I. CAPITAL DEVELOPMENT FUND, A SERIES PORTFOLIO OF AIM VARIABLE INSURANCE (TRIANGLE)Lipper Inc. FUNDS, IS CURRENTLY OFFERED THROUGH INSURANCE COMPANIES ISSUING VARIABLE The S&P 500--REGISTERED TRADEMARK-- INDEX is a market capitalization-weighted index PRODUCTS. YOU CANNOT PURCHASE SHARES OF covering all major areas of the U.S. economy. It is not the 500 largest companies, but THE FUND DIRECTLY. PERFORMANCE FIGURES rather the most widely held 500 companies chosen with respect to market size, GIVEN REPRESENT THE FUND AND ARE NOT liquidity, and their industry. INTENDED TO REFLECT ACTUAL VARIABLE The RUSSELL MIDCAP--REGISTERED TRADEMARK-- GROWTH INDEX measures the performance of PRODUCT VALUES. THEY DO NOT REFLECT SALES those Russell Midcap companies with higher price-to-book ratios and higher forecasted CHARGES, EXPENSES AND FEES ASSESSED IN growth values. The Russell Midcap Growth Index is a trademark/service mark of the Frank CONNECTION WITH A VARIABLE PRODUCT. SALES Russell Company. Russell--REGISTERED TRADEMARK-- is a trademark of the Frank Russell CHARGES, EXPENSES AND FEES, WHICH ARE Company. DETERMINED BY THE VARIABLE PRODUCT The LIPPER VUF MID-CAP GROWTH FUNDS INDEX is an equally weighted representation of ISSUERS, WILL VARY AND WILL LOWER THE the largest variable insurance underlying funds in the Lipper Mid-Cap Growth Funds TOTAL RETURN. category. These funds have an above-average price-to-earnings ratio, price-to-book THE MOST RECENT MONTH-END PERFORMANCE ratio, and three-year sales-per-share growth value, compared to the S&P MidCap 400 DATA AT THE FUND LEVEL, EXCLUDING VARIABLE Index. PRODUCT CHARGES, IS AVAILABLE ON THE The Fund is not managed to track the performance of any particular index, including INVESCO AIM AUTOMATED INFORMATION LINE, the indexes defined here, and consequently, the performance of the Fund may deviate 866 702 4402. AS MENTIONED ABOVE, FOR THE significantly from the performance of the indexes. MOST RECENT MONTH-END PERFORMANCE A direct investment cannot be made in an index. Unless otherwise indicated, index INCLUDING VARIABLE PRODUCT CHARGES, PLEASE results include reinvested dividends, and they do not reflect sales charges. CONTACT YOUR VARIABLE PRODUCT ISSUER OR Performance of an index of funds reflects fund expenses; performance of a market index FINANCIAL ADVISOR. does not. ======================================================================================= (1) Total annual operating expenses less ========================================== contractual advisory fee waivers by AVERAGE ANNUAL TOTAL RETURNS THE RULE 12B-1 FEES APPLICABLE TO SERIES the advisor in effect through at least As of 6/30/08 II SHARES. THE INCEPTION DATE OF SERIES I April 30, 2010. See current prospectus SHARES IS MAY 1, 1998. THE PERFORMANCE OF for more information. SERIES I SHARES THE FUND'S SERIES I AND SERIES II SHARE Inception (5/1/98) 6.13% CLASSES WILL DIFFER PRIMARILY DUE TO 10 Years 6.74 DIFFERENT CLASS EXPENSES. 5 Years 11.11 THE PERFORMANCE DATA QUOTED REPRESENT 1 Year -15.46 PAST PERFORMANCE AND CANNOT GUARANTEE COMPARABLE FUTURE RESULTS; CURRENT SERIES II SHARES PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE 10 Years 6.48% CONTACT YOUR VARIABLE PRODUCT ISSUER OR 5 Years 10.82 FINANCIAL ADVISOR FOR THE MOST RECENT 1 Year -15.69 MONTH-END VARIABLE PRODUCT PERFORMANCE. ========================================== PERFORMANCE FIGURES REFLECT FUND EXPENSES, REINVESTED DISTRIBUTIONS AND CHANGES IN SERIES II SHARES' INCEPTION DATES IS NET ASSET VALUE. INVESTMENT RETURN AND AUGUST 21, 2001. RETURNS SINCE THAT DATE PRINCIPAL VALUE WILL FLUCTUATE SO THAT YOU ARE HISTORICAL. ALL OTHER RETURNS ARE THE MAY HAVE A GAIN OR LOSS WHEN YOU SELL BLENDED RETURNS OF THE HISTORICAL SHARES. PERFORMANCE OF SERIES II SHARES SINCE THE NET ANNUAL FUND OPERATING EXPENSE THEIR INCEPTION AND THE RESTATED RATIO SET FORTH IN THE MOST RECENT FUND HISTORICAL PERFORMANCE OF SERIES I SHARES PROSPECTUS AS OF THE DATE OF THIS REPORT (FOR PERIODS PRIOR TO INCEPTION OF SERIES FOR SERIES I AND SERIES II II SHARES) ADJUSTED TO REFLECT
AIM V.I. CAPITAL DEVELOPMENT FUND PORTFOLIO COMPOSITION By sector, based on Net Assets as of June 30, 2008 - ------------------------------------------------------------------------- Information Technology 17.0% - ------------------------------------------------------------------------- Industrials 15.7 - ------------------------------------------------------------------------- Consumer Discretionary 14.7 - ------------------------------------------------------------------------- Energy 13.0 - ------------------------------------------------------------------------- Health Care 11.6 - ------------------------------------------------------------------------- Financials 9.4 - ------------------------------------------------------------------------- Materials 5.8 - ------------------------------------------------------------------------- Telecommunication Services 3.4 - ------------------------------------------------------------------------- Consumer Staples 2.7 - ------------------------------------------------------------------------- Utilities 1.1 - ------------------------------------------------------------------------- Money Market Funds Plus Other Assets Less Liabilities 5.6 _________________________________________________________________________ =========================================================================
SCHEDULE OF INVESTMENTS(a) June 30, 2008 (Unaudited)
SHARES VALUE - ------------------------------------------------------------------------------ COMMON STOCKS & OTHER EQUITY INTERESTS-94.36% AEROSPACE & DEFENSE-2.18% L-3 Communications Holdings, Inc. 30,214 $ 2,745,546 - ------------------------------------------------------------------------------ Precision Castparts Corp. 33,358 3,214,711 ============================================================================== 5,960,257 ============================================================================== AIR FREIGHT & LOGISTICS-1.15% Robinson (C.H.) Worldwide, Inc. 56,968 3,124,125 ============================================================================== APPAREL RETAIL-4.26% Aeropostale, Inc.(b) 85,532 2,679,717 - ------------------------------------------------------------------------------ Guess?, Inc. 72,195 2,703,703 - ------------------------------------------------------------------------------ Ross Stores, Inc. 86,294 3,065,163 - ------------------------------------------------------------------------------ Urban Outfitters, Inc.(b) 101,941 3,179,540 ============================================================================== 11,628,123 ============================================================================== APPAREL, ACCESSORIES & LUXURY GOODS-2.61% Coach, Inc.(b) 81,626 2,357,359 - ------------------------------------------------------------------------------ Hanesbrands, Inc.(b) 136,165 3,695,518 - ------------------------------------------------------------------------------ Under Armour, Inc.-Class A(b)(c) 41,869 1,073,521 ============================================================================== 7,126,398 ============================================================================== APPLICATION SOFTWARE-4.70% Amdocs Ltd.(b) 93,468 2,749,829 - ------------------------------------------------------------------------------ ANSYS, Inc.(b) 84,842 3,997,755 - ------------------------------------------------------------------------------ Citrix Systems, Inc.(b) 44,945 1,321,832 - ------------------------------------------------------------------------------ Solera Holdings Inc.(b) 171,666 4,748,282 ============================================================================== 12,817,698 ============================================================================== ASSET MANAGEMENT & CUSTODY BANKS-1.45% Affiliated Managers Group, Inc.(b) 43,885 3,952,283 ============================================================================== BIOTECHNOLOGY-2.29% Genzyme Corp.(b) 39,000 2,808,780 - ------------------------------------------------------------------------------ OSI Pharmaceuticals, Inc.(b) 83,473 3,449,104 ============================================================================== 6,257,884 ============================================================================== CASINOS & GAMING-0.70% International Game Technology 76,619 1,913,943 ============================================================================== COAL & CONSUMABLE FUELS-1.61% Massey Energy Co. 47,000 4,406,250 ============================================================================== COMMUNICATIONS EQUIPMENT-1.29% Infinera Corp.(b) 117,889 1,039,781 - ------------------------------------------------------------------------------ Juniper Networks, Inc.(b) 111,669 2,476,818 - ------------------------------------------------------------------------------ Lantronix Inc.-Wts. expiring 02/09/11 (Acquired 02/09/07; Cost $0)(b)(d)(e) 576 0 ============================================================================== 3,516,599 ============================================================================== COMPUTER & ELECTRONICS RETAIL-0.38% GameStop Corp.-Class A(b) 25,549 1,032,180 ============================================================================== COMPUTER STORAGE & PERIPHERALS-1.83% Logitech International S.A. (Switzerland)(b) 95,970 2,571,996 - ------------------------------------------------------------------------------ NetApp, Inc.(b) 112,196 2,430,165 ============================================================================== 5,002,161 ==============================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. CAPITAL DEVELOPMENT FUND
SHARES VALUE - ------------------------------------------------------------------------------ CONSTRUCTION & ENGINEERING-2.50% Chicago Bridge & Iron Co. N.V.-New York Shares 63,660 $ 2,534,941 - ------------------------------------------------------------------------------ Foster Wheeler Ltd.(b) 58,557 4,283,445 ============================================================================== 6,818,386 ============================================================================== CONSTRUCTION & FARM MACHINERY & HEAVY TRUCKS-1.53% Joy Global Inc. 55,208 4,186,423 ============================================================================== CONSUMER FINANCE-1.11% SLM Corp.(b) 156,869 3,035,415 ============================================================================== DATA PROCESSING & OUTSOURCED SERVICES-1.28% Alliance Data Systems Corp.(b) 61,605 3,483,763 ============================================================================== DISTRIBUTORS-0.85% LKQ Corp.(b) 128,884 2,328,934 ============================================================================== DIVERSIFIED COMMERCIAL & PROFESSIONAL SERVICES-3.50% Corrections Corp. of America(b) 139,419 3,829,840 - ------------------------------------------------------------------------------ Equifax Inc. 40,070 1,347,153 - ------------------------------------------------------------------------------ IHS Inc.-Class A(b) 62,936 4,380,346 ============================================================================== 9,557,339 ============================================================================== DRUG RETAIL-1.55% Shoppers Drug Mart Corp. (Canada) 77,000 4,218,320 ============================================================================== EDUCATION SERVICES-2.24% Apollo Group Inc.-Class A(b) 61,822 2,736,242 - ------------------------------------------------------------------------------ ITT Educational Services, Inc.(b) 40,996 3,387,499 ============================================================================== 6,123,741 ============================================================================== ELECTRICAL COMPONENTS & EQUIPMENT-1.18% General Cable Corp.(b) 52,979 3,223,772 ============================================================================== ELECTRONIC EQUIPMENT MANUFACTURERS-1.44% Amphenol Corp.-Class A 87,305 3,918,248 ============================================================================== FERTILIZERS & AGRICULTURAL CHEMICALS-0.75% Potash Corp. of Saskatchewan Inc. (Canada) 8,958 2,047,530 ============================================================================== HEALTH CARE EQUIPMENT-2.14% Hologic, Inc.(b) 136,630 2,978,534 - ------------------------------------------------------------------------------ St. Jude Medical, Inc.(b) 70,000 2,861,600 ============================================================================== 5,840,134 ============================================================================== HEALTH CARE SERVICES-1.75% Express Scripts, Inc.(b) 33,000 2,069,760 - ------------------------------------------------------------------------------ Pediatrix Medical Group, Inc.(b) 54,932 2,704,302 ============================================================================== 4,774,062 ============================================================================== HOTELS, RESORTS & CRUISE LINES-0.88% Choice Hotels International, Inc. 90,123 2,388,260 ============================================================================== HOUSEWARES & SPECIALTIES-0.87% Jarden Corp.(b) 130,266 2,376,052 ============================================================================== INDEPENDENT POWER PRODUCERS & ENERGY TRADERS-1.12% KGEN Power Corp. (Acquired 01/12/07; Cost $2,219,196)(b)(d)(e) 158,514 3,051,395 ============================================================================== INDUSTRIAL MACHINERY-1.76% Flowserve Corp. 35,101 4,798,307 ============================================================================== INVESTMENT BANKING & BROKERAGE-2.24% Lazard Ltd.-Class A (Bermuda) 87,365 2,983,515 - ------------------------------------------------------------------------------ TD Ameritrade Holding Corp.(b) 173,297 3,134,942 ============================================================================== 6,118,457 ============================================================================== IT CONSULTING & OTHER SERVICES-1.13% Cognizant Technology Solutions Corp.-Class A(b) 94,895 3,085,036 ============================================================================== LIFE SCIENCES TOOLS & SERVICES-2.19% Covance Inc.(b) 34,000 2,924,680 - ------------------------------------------------------------------------------ Waters Corp.(b) 47,111 3,038,660 ============================================================================== 5,963,340 ============================================================================== MANAGED HEALTH CARE-1.44% Aveta, Inc. (Acquired 12/21/05-02/21/06; Cost $2,162,718)(b)(d)(e) 157,251 1,258,008 - ------------------------------------------------------------------------------ Humana Inc.(b) 67,483 2,683,799 ============================================================================== 3,941,807 ============================================================================== METAL & GLASS CONTAINERS-3.61% Crown Holdings, Inc.(b) 148,208 3,851,926 - ------------------------------------------------------------------------------ Owens-Illinois, Inc.(b) 78,751 3,283,129 - ------------------------------------------------------------------------------ Pactiv Corp.(b) 127,590 2,708,736 ============================================================================== 9,843,791 ============================================================================== MORTGAGE REIT'S-1.00% Annaly Capital Management Inc. 176,759 2,741,532 ============================================================================== OIL & GAS DRILLING-5.29% Hercules Offshore, Inc.(b) 96,900 3,684,138 - ------------------------------------------------------------------------------ Nabors Industries Ltd.(b) 55,000 2,707,650 - ------------------------------------------------------------------------------ Noble Corp. 78,000 5,066,880 - ------------------------------------------------------------------------------ Rowan Cos., Inc. 63,898 2,987,231 ============================================================================== 14,445,899 ============================================================================== OIL & GAS EQUIPMENT & SERVICES-1.48% Cameron International Corp.(b) 73,000 4,040,550 ============================================================================== OIL & GAS EXPLORATION & PRODUCTION-3.40% Quicksilver Resources Inc.(b) 91,000 3,516,240 - ------------------------------------------------------------------------------ Range Resources Corp. 21,800 1,428,772 - ------------------------------------------------------------------------------ Southwestern Energy Co.(b) 91,132 4,338,795 ============================================================================== 9,283,807 ==============================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. CAPITAL DEVELOPMENT FUND
SHARES VALUE - ------------------------------------------------------------------------------ OIL & GAS STORAGE & TRANSPORTATION-1.19% Williams Cos., Inc. (The) 80,700 $ 3,253,017 ============================================================================== PERSONAL PRODUCTS-1.10% Estee Lauder Cos. Inc. (The)-Class A 64,579 2,999,695 ============================================================================== PHARMACEUTICALS-1.81% Allergan, Inc. 51,000 2,654,550 - ------------------------------------------------------------------------------ Shire Ltd.-ADR (United Kingdom) 46,500 2,284,545 ============================================================================== 4,939,095 ============================================================================== PUBLISHING-0.97% McGraw-Hill Cos., Inc. (The) 65,910 2,644,309 ============================================================================== REAL ESTATE MANAGEMENT & DEVELOPMENT-0.20% Meruelo Maddux Properties, Inc.(b) 247,889 540,398 ============================================================================== RESTAURANTS-0.97% Burger King Holdings Inc. 98,394 2,635,975 ============================================================================== SEMICONDUCTOR EQUIPMENT-0.24% Lam Research Corp.(b) 18,053 652,616 ============================================================================== SEMICONDUCTORS-3.93% Altera Corp. 135,403 2,802,842 - ------------------------------------------------------------------------------ Intersil Corp.-Class A 107,707 2,619,434 - ------------------------------------------------------------------------------ Maxim Integrated Products, Inc. 155,824 3,295,678 - ------------------------------------------------------------------------------ ON Semiconductor Corp.(b) 217,556 1,994,988 ============================================================================== 10,712,942 ============================================================================== SPECIALIZED FINANCE-3.38% IntercontinentalExchange Inc.(b) 23,645 2,695,530 - ------------------------------------------------------------------------------ Moody's Corp. 107,183 3,691,383 - ------------------------------------------------------------------------------ MSCI Inc.- Class A(b) 78,205 2,838,059 ============================================================================== 9,224,972 ============================================================================== STEEL-1.43% Cleveland-Cliffs Inc. 21,060 2,510,141 - ------------------------------------------------------------------------------ Steel Dynamics, Inc. 35,383 1,382,414 ============================================================================== 3,892,555 ============================================================================== SYSTEMS SOFTWARE-1.20% McAfee Inc.(b) 95,815 3,260,584 ============================================================================== TRUCKING-1.91% Con-way Inc. 62,142 2,936,831 - ------------------------------------------------------------------------------ Heartland Express, Inc. 151,968 2,265,843 ============================================================================== 5,202,674 ============================================================================== WIRELESS TELECOMMUNICATION SERVICES-3.35% American Tower Corp.-Class A(b) 67,482 2,851,115 - ------------------------------------------------------------------------------ Crown Castle International Corp.(b) 81,347 3,150,569 - ------------------------------------------------------------------------------ SBA Communications Corp.-Class A(b) 87,098 3,136,399 ============================================================================== 9,138,083 ============================================================================== Total Common Stocks & Other Equity Interests (Cost $227,981,300) 257,469,116 ============================================================================== MONEY MARKET FUNDS-5.15% Liquid Assets Portfolio-Institutional Class(f) 7,032,839 7,032,839 - ------------------------------------------------------------------------------ Premier Portfolio-Institutional Class(f) 7,032,839 7,032,839 - ------------------------------------------------------------------------------ Total Money Market Funds (Cost $14,065,678) 14,065,678 ============================================================================== TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)-99.51% (Cost $242,046,978) 271,534,794 ============================================================================== INVESTMENTS PURCHASED WITH CASH COLLATERAL FROM SECURITIES ON LOAN MONEY MARKET FUNDS-0.16% Liquid Assets Portfolio-Institutional Class (Cost $449,215)(f)(g) 449,215 449,215 ============================================================================== TOTAL INVESTMENTS-99.67% (Cost $242,496,193) 271,984,009 ============================================================================== OTHER ASSETS LESS LIABILITIES-0.33% 886,619 ============================================================================== NET ASSETS-100.00% $272,870,628 ______________________________________________________________________________ ==============================================================================
Investment Abbreviations: ADR - American Depositary Receipt REIT - Real Estate Investment Trust Wts. - Warrants
Notes to Schedule of Investments: (a) Industry and/or sector 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 MSCI Inc. and Standard & Poor's. (b) Non-income producing security. (c) All or a portion of this security was out on loan at June 30, 2008. (d) Security fair valued in good faith in accordance with the procedures established by the Board of Trustees. The aggregate value of these securities at June 30, 2008 was $4,309,403, which represented 1.58% of the Fund's Net Assets. See Note 1A. (e) Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended. The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at June 30, 2008 was $4,309,403, which represented 1.58% of the Fund's Net Assets. These securities are considered to be illiquid. The Fund is limited to investing 15% of net assets in illiquid securities at the time of purchase. (f) The money market fund and the Fund are affiliated by having the same investment advisor. (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 1I. See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. CAPITAL DEVELOPMENT FUND STATEMENT OF ASSETS AND LIABILITIES June 30, 2008 (Unaudited) ASSETS: Investments, at value (Cost $227,981,300)* $257,469,116 - -------------------------------------------------------------------------------- Investments in affiliated money market funds (Cost $14,514,893) 14,514,893 ================================================================================ Total investments (Cost $242,496,193) 271,984,009 ================================================================================ Foreign currencies, at value (Cost $764) 784 - -------------------------------------------------------------------------------- Receivables for: Investments sold 2,527,939 - -------------------------------------------------------------------------------- Fund shares sold 35,454 - -------------------------------------------------------------------------------- Dividends 193,337 - -------------------------------------------------------------------------------- Investment for trustee deferred compensation and retirement plans 33,814 - -------------------------------------------------------------------------------- Other assets 8,379 ================================================================================ Total assets 274,783,716 ________________________________________________________________________________ ================================================================================ LIABILITIES: Payables for: Investments purchased 662,289 - -------------------------------------------------------------------------------- Fund shares reacquired 419,180 - -------------------------------------------------------------------------------- Collateral upon return of securities loaned 449,215 - -------------------------------------------------------------------------------- Accrued fees to affiliates 284,093 - -------------------------------------------------------------------------------- Accrued operating expenses 48,121 - -------------------------------------------------------------------------------- Trustee deferred compensation and retirement plans 50,190 ================================================================================ Total liabilities 1,913,088 ================================================================================ Net assets applicable to shares outstanding $272,870,628 ________________________________________________________________________________ ================================================================================ NET ASSETS CONSIST OF: Shares of beneficial interest $238,870,292 - -------------------------------------------------------------------------------- Undistributed net investment income (loss) (695,519) - -------------------------------------------------------------------------------- Undistributed net realized gain 5,208,155 - -------------------------------------------------------------------------------- Unrealized appreciation 29,487,700 ================================================================================ $272,870,628 ________________________________________________________________________________ ================================================================================ NET ASSETS: Series I $118,149,874 ________________________________________________________________________________ ================================================================================ Series II $154,720,754 ________________________________________________________________________________ ================================================================================ SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED NUMBER OF SHARES AUTHORIZED: Series I 7,149,160 ________________________________________________________________________________ ================================================================================ Series II 9,535,174 ________________________________________________________________________________ ================================================================================ Series I: Net asset value per share $ 16.53 ________________________________________________________________________________ ================================================================================ Series II: Net asset value per share $ 16.23 ________________________________________________________________________________ ================================================================================
* At June 30, 2008, securities with an aggregate value of $423,060 were on loan to brokers. STATEMENT OF OPERATIONS For the six months ended June 30, 2008 (Unaudited) INVESTMENT INCOME: Dividends (net of foreign withholding taxes of $5,495) $ 896,676 - ------------------------------------------------------ Dividends from affiliated money market funds (includes securities lending income of $97,121) 273,318 ====================================================== Total investment income 1,169,994 ====================================================== EXPENSES: Advisory fees 1,088,147 - ------------------------------------------------------ Administrative services fees 394,054 - ------------------------------------------------------ Custodian fees 15,588 - ------------------------------------------------------ Distribution fees -- Series II 204,409 - ------------------------------------------------------ Transfer agent fees 19,325 - ------------------------------------------------------ Trustees' and officer's fees and benefits 12,314 - ------------------------------------------------------ Other 88,046 ====================================================== Total expenses 1,821,883 ====================================================== Less: Fees waived and expense offset arrangement(s) (19,090) ====================================================== Net expenses 1,802,793 ====================================================== Net investment income (loss) (632,799) ====================================================== REALIZED AND UNREALIZED GAIN (LOSS) FROM: Net realized gain (loss) from: Investment securities (includes net gains (losses) from securities sold to affiliates of $(547,402)) (20,364,528) - ------------------------------------------------------ Foreign currencies 9,958 ====================================================== (20,354,570) ====================================================== Change in net unrealized appreciation (depreciation) of: Investment securities (20,585,605) - ------------------------------------------------------ Foreign currencies 22 ====================================================== (20,585,583) ====================================================== Net realized and unrealized gain (loss) (40,940,153) ====================================================== Net increase (decrease) in net assets resulting from operations $(41,572,952) ______________________________________________________ ======================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. CAPITAL DEVELOPMENT FUND STATEMENT OF CHANGES IN NET ASSETS For the six months ended June 30, 2008 and the year ended December 31, 2007 (Unaudited)
JUNE 30, DECEMBER 31, 2008 2007 - ------------------------------------------------------------------------------------------------------ OPERATIONS: Net investment income (loss) $ (632,799) $ (1,978,295) - ------------------------------------------------------------------------------------------------------ Net realized gain (loss) (20,354,570) 27,808,555 - ------------------------------------------------------------------------------------------------------ Change in net unrealized appreciation (depreciation) (20,585,583) 4,000,926 ====================================================================================================== Net increase (decrease) in net assets resulting from operations (41,572,952) 29,831,186 ====================================================================================================== Distributions to shareholders from net realized gains: Series I -- (12,026,991) - ------------------------------------------------------------------------------------------------------ Series II -- (15,317,782) ====================================================================================================== Total distributions from net realized gains -- (27,344,773) ====================================================================================================== Share transactions-net: Series I (13,553,147) (2,786,456) - ------------------------------------------------------------------------------------------------------ Series II (12,594,066) 63,232,922 ====================================================================================================== Net increase (decrease) in net assets resulting from share transactions (26,147,213) 60,446,466 ====================================================================================================== Net increase (decrease) in net assets (67,720,165) 62,932,879 ______________________________________________________________________________________________________ ====================================================================================================== NET ASSETS: Beginning of period 340,590,793 277,657,914 ====================================================================================================== End of period (including undistributed net investment income (loss) of $(695,519) and $(62,720), respectively) $272,870,628 $340,590,793 ______________________________________________________________________________________________________ ======================================================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. CAPITAL DEVELOPMENT FUND NOTES TO FINANCIAL STATEMENTS June 30, 2008 (Unaudited) NOTE 1--SIGNIFICANT ACCOUNTING POLICIES AIM V.I. Capital Development Fund (the "Fund") is a series portfolio of AIM Variable Insurance Funds (the "Trust"). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of twenty separate portfolios, (each constituting a "Fund"). 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 Fund or class will be voted on exclusively by the shareholders of such Fund 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 Fund 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. 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 prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. 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, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. 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, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. 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. Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer's assets, general economic conditions, interest rates, investor perceptions and market liquidity. 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. The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds as received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. AIM V.I. CAPITAL DEVELOPMENT FUND 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, the investment advisor 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. The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. 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 by a significant amount. 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. SECURITIES LENDING -- 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 by the securities lending provider. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its sponsored agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds and is shown as such on the Schedule of Investments. 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. Dividends received on cash collateral investments for securities lending transactions, which are net of compensation to counterparties, is included in Dividends from affiliates on the Statement of Operations. The aggregate value of securities out on loan is shown as a footnote on the Statement of Assets and Liabilities. 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. AIM V.I. CAPITAL DEVELOPMENT 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. 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. NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES The Trust has entered into a master investment advisory agreement with Invesco Aim Advisors, Inc. (the "Advisor" or "Invesco Aim"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Advisor based on the annual rate of the Fund's average daily net assets as follows:
AVERAGE NET ASSETS RATE - ------------------------------------------------------------------- First $350 million 0.75% - ------------------------------------------------------------------- Over $350 million 0.625% ___________________________________________________________________ ===================================================================
Through at least April 30, 2010, the Advisor has contractually agreed to waive advisory fees to the extent necessary so that the advisory fees payable by the Fund (based on the Fund's average daily net assets) do not exceed the annual rate of:
AVERAGE NET ASSETS RATE - ------------------------------------------------------------------- First $250 million 0.745% - ------------------------------------------------------------------- Next $250 million 0.73% - ------------------------------------------------------------------- Next $500 million 0.715% - ------------------------------------------------------------------- Next $1.5 billion 0.70% - ------------------------------------------------------------------- Next $2.5 billion 0.685% - ------------------------------------------------------------------- Next $2.5 billion 0.67% - ------------------------------------------------------------------- Next $2.5 billion 0.655% - ------------------------------------------------------------------- Over $10 billion 0.64% ___________________________________________________________________ ===================================================================
Under the terms of a master sub-advisory agreement approved by shareholders of the Fund on February 29, 2008, effective May 1, 2008, between the Advisor and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Global Asset Management (N.A.), Inc., Invesco Hong Kong Limited, Invesco Institutional (N.A.), Inc., Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the "Affiliated Sub-Advisors") the Advisor, not the Fund, may pay 40% of the fees paid to the Advisor to any such Affiliated Sub- Advisor(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Advisor(s). The Advisor 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, 2010. 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 Invesco Ltd. ("Invesco") 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. The Advisor did not waive fees and/or reimburse expenses during the period under this expense limitation. Further, the Advisor has contractually agreed, through at least April 30, 2010, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Advisor receives from the affiliated money market funds on investments by the Fund of uninvested cash (but not cash collateral from securities lending) in such affiliated money market funds. For the six months ended June 30, 2008, the Advisor waived advisory fees of $17,010. AIM V.I. CAPITAL DEVELOPMENT FUND At the request of the Trustees of the Trust, Invesco agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the six months ended June 30, 2008, Invesco did not reimburse any expenses. The Trust has entered into a master administrative services agreement with Invesco Aim pursuant to which the Fund has agreed to pay Invesco Aim a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco Aim for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants' accounts. Pursuant to such agreement, for the six months ended June 30, 2008, Invesco Aim was paid $38,342 for accounting and fund administrative services and reimbursed $355,712 for services provided by insurance companies. The Trust has entered into a transfer agency and service agreement with Invesco Aim Investment Services, Inc. ("IAIS") pursuant to which the Fund has agreed to pay IAIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IAIS for certain expenses incurred by IAIS in the course of providing such services. For the six months ended June 30, 2008, 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 Invesco Aim Distributors, Inc. ("IADI") 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 IADI 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 six months ended June 30, 2008, expenses incurred under the Plan are detailed in the Statement of Operations as distribution fees. Certain officers and trustees of the Trust are officers and directors of Invesco Aim, IAIS and/or IADI. NOTE 3--SUPPLEMENTAL INFORMATION The Fund adopted the provisions of Statement of Financial Accounting Standards No. 157, "Fair Value Measurements" (SFAS 157), effective with the beginning of the Fund's fiscal year. SFAS 157 establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (level 1) and the lowest priority to unobservable inputs (level 3) market prices are not readily available or are unreliable. Based on the inputs the securities or other instruments are tiered into three levels of hierarchy under SFAS 157. Changes in valuation methods may result in transfers in or out of an investment's assigned level within the hierarchy, Level 1 -- Quoted prices in an active market for identical assets. Level 2 -- Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk and others. Level 3 -- Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund's own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. Below is a summary of the tiered input levels, as of the end of the reporting period, June 30, 2008. The inputs or methods used for valuing securities may not be an indication of the risk associated with investing in those securities.
INVESTMENTS IN INPUT LEVEL SECURITIES - ------------------------------------ Level 1 $267,674,606 - ------------------------------------ Level 2 4,309,403 - ------------------------------------ Level 3 -- ==================================== $271,984,009 ____________________________________ ====================================
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS The Fund is permitted to purchase or sell securities from or to certain other AIM Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment advisor (or affiliated investment advisors), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the six months ended June 30, 2008, the Fund engaged in securities sales of $1,433,409, which resulted in net realized gains (losses) of $(547,402), and securities purchases of $1,230,341. NOTE 5--EXPENSE OFFSET ARRANGEMENT The expense offset arrangement is comprised of custodian credits which result from periodic overnight cash balances at the custodian. For the six months ended June 30, 2008, the Fund received credits from this arrangement, which resulted in the reduction of the Fund's total expenses of $2,080. AIM V.I. CAPITAL DEVELOPMENT 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 certain Trustees and Officers of the Fund. 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, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund. During the six months ended June 30, 2008, the Fund paid legal fees of $1,896 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--CASH BALANCES The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The State Street Bank and Trust Company ("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 Invesco Aim, not to exceed the contractually agreed upon rate. NOTE 8--TAX INFORMATION The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund's fiscal year-end. The Fund did not have a capital loss carryforward as of December 31, 2007. 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 six months ended June 30, 2008 was $148,016,046 and $182,553,500, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period end.
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS - ------------------------------------------------------------------------------------------------ Aggregate unrealized appreciation of investment securities $ 47,874,997 - ------------------------------------------------------------------------------------------------ Aggregate unrealized (depreciation) of investment securities (18,963,935) ================================================================================================ Net unrealized appreciation of investment securities $ 28,911,062 ________________________________________________________________________________________________ ================================================================================================ Cost of investments for tax purposes is $243,072,947.
NOTE 10--SHARE INFORMATION
CHANGES IN SHARES OUTSTANDING - ------------------------------------------------------------------------------------------------------------------------ SIX MONTHS ENDED YEAR ENDED JUNE 30, 2008(a) DECEMBER 31, 2007 --------------------------- --------------------------- SHARES AMOUNT SHARES AMOUNT - ------------------------------------------------------------------------------------------------------------------------ Sold: Series I 431,720 $ 7,279,958 899,466 $ 18,335,807 - ------------------------------------------------------------------------------------------------------------------------ Series II 1,079,100 17,761,412 5,098,023 102,303,777 ======================================================================================================================== Issued as reinvestment of dividends: Series I -- -- 620,908 12,026,991 - ------------------------------------------------------------------------------------------------------------------------ Series II -- -- 804,506 15,317,782 ======================================================================================================================== Reacquired: Series I (1,227,437) (20,833,105) (1,642,891) (33,149,254) - ------------------------------------------------------------------------------------------------------------------------ Series II (1,840,129) (30,355,478) (2,699,333) (54,388,637) ======================================================================================================================== (1,556,746) $(26,147,213) 3,080,679 $ 60,446,466 ________________________________________________________________________________________________________________________ ========================================================================================================================
(a) There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate 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, Invesco Aim and/or Invesco Aim affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco Aim and or Invesco 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. CAPITAL DEVELOPMENT FUND NOTE 11--FINANCIAL HIGHLIGHTS The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
SERIES I -------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ----------------------------------------------------------- 2008 2007 2006 2005 2004 2003 - ------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $ 18.85 $ 18.43 $ 16.09 $ 14.68 $ 12.71 $ 9.39 - ------------------------------------------------------------------------------------------------------------------------------ Income from investment operations: Net investment income (loss) (0.03) (0.10)(a) (0.07) (0.04) (0.03)(a) (0.01) - ------------------------------------------------------------------------------------------------------------------------------ Net gains (losses) on securities (both realized and unrealized) (2.29) 2.14 2.73 1.45 2.00 3.33 ============================================================================================================================== Total from investment operations (2.32) 2.04 2.66 1.41 1.97 3.32 ============================================================================================================================== Less distributions from net realized gains -- (1.62) (0.32) -- -- -- ============================================================================================================================== Net asset value, end of period $ 16.53 $ 18.85 $ 18.43 $ 16.09 $ 14.68 $ 12.71 ______________________________________________________________________________________________________________________________ ============================================================================================================================== Total return(b) (12.31)% 10.84% 16.52% 9.61% 15.50% 35.36% ______________________________________________________________________________________________________________________________ ============================================================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $118,150 $149,776 $148,668 $117,674 $112,028 $93,813 ______________________________________________________________________________________________________________________________ ============================================================================================================================== Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 1.10%(c) 1.05% 1.08% 1.09% 1.10% 1.13% - ------------------------------------------------------------------------------------------------------------------------------ Without fee waivers and/or expense reimbursements 1.11%(c) 1.06% 1.09% 1.09% 1.10% 1.13% ============================================================================================================================== Ratio of net investment income (loss) to average net assets (0.30)%(c) (0.47)% (0.48)% (0.22)% (0.21)% (0.13)% ______________________________________________________________________________________________________________________________ ============================================================================================================================== Portfolio turnover rate(d) 52% 109% 119% 125% 93% 95% ______________________________________________________________________________________________________________________________ ==============================================================================================================================
(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 and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. (c) Ratios are annualized and based on average daily net assets of $127,341,449. (d) Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year.
SERIES II ------------------------------------------------------------------------------ SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, --------------------------------------------------------- 2008 2007 2006 2005 2004 2003 - ----------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 18.53 $ 18.19 $ 15.92 $ 14.57 $ 12.64 $ 9.36 - ----------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) (0.05) (0.15)(a) (0.10) (0.07) (0.06)(a) (0.03) - ----------------------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) (2.25) 2.11 2.69 1.42 1.99 3.31 ============================================================================================================================= Total from investment operations (2.30) 1.96 2.59 1.35 1.93 3.28 ============================================================================================================================= Less distributions from net realized gains -- (1.62) (0.32) -- -- -- ============================================================================================================================= Net asset value, end of period $ 16.23 $ 18.53 $ 18.19 $ 15.92 $ 14.57 $ 12.64 _____________________________________________________________________________________________________________________________ ============================================================================================================================= Total return(b) (12.41)% 10.55% 16.26% 9.27% 15.27% 35.04% _____________________________________________________________________________________________________________________________ ============================================================================================================================= Ratios/supplemental data: Net assets, end of period (000s omitted) $154,721 $190,815 $128,990 $83,388 $71,339 $33,550 _____________________________________________________________________________________________________________________________ ============================================================================================================================= Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 1.35%(c) 1.30% 1.33% 1.34% 1.35% 1.38% - ----------------------------------------------------------------------------------------------------------------------------- Without fee waivers and/or expense reimbursements 1.36%(c) 1.31% 1.34% 1.34% 1.35% 1.38% ============================================================================================================================= Ratio of net investment income (loss) to average net assets (0.55)%(c) (0.72)% (0.73)% (0.47)% (0.46)% (0.38)% _____________________________________________________________________________________________________________________________ ============================================================================================================================= Portfolio turnover rate(d) 52% 109% 119% 125% 93% 95% _____________________________________________________________________________________________________________________________ =============================================================================================================================
(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 and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. (c) Ratios are annualized and based on average daily net assets of $164,425,504. (d) Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year. AIM V.I. CAPITAL DEVELOPMENT FUND NOTE 12--LEGAL PROCEEDINGS Terms used in the Legal Proceedings Note are defined terms solely for the purpose of this note. 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 Invesco Aim and IADI (Order No. 05- 1318). The WVASC makes findings of fact that Invesco Aim and IADI 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 Invesco Aim and IADI violated the West Virginia securities laws. The WVASC orders Invesco Aim and IADI 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. By agreement with the Commissioner of Securities, Invesco Aim's time to respond to that Order has been indefinitely suspended. Civil lawsuits, including purported class action and shareholder derivative suits, have been filed against certain of the AIM Funds, Invesco Funds Group, Inc. ("IFG"), Invesco Aim, IADI 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; and - that certain AIM Funds inadequately employed fair value pricing. These lawsuits allege as theories of recovery, depending on the lawsuit, violations of various provisions of the Federal and state securities laws Employee Retirement Income Security Act of 1974, as amended ("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. The case pending in Illinois State Court regarding fair value pricing was dismissed with prejudice on May 6, 2008. 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 Invesco 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 ERISA purportedly brought on behalf of participants in the Invesco 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 Invesco defendants' motion to dismiss the Amended Class Action Complaint for Violations of ERISA and dismissed such Complaint. Plaintiff appealed this ruling. On June 16, 2008, the Fourth Court of Appeals reversed the dismissal and remanded this lawsuit back to the MDL Court for further proceedings. IFG, Invesco Aim, IADI 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, Invesco Aim and IADI 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, Invesco Aim and/or related entities and individuals in the future. At the present time, management of Invesco 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 Invesco Aim, IADI or the Fund. AIM V.I. CAPITAL DEVELOPMENT FUND NOTE 12--LEGAL PROCEEDINGS--(CONTINUED) CALCULATING YOUR ONGOING FUND EXPENSES EXAMPLE As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2008, through June 30, 2008. The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower. ACTUAL EXPENSES The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled "Actual Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
- --------------------------------------------------------------------------------------------------- HYPOTHETICAL (5% ANNUAL RETURN BEFORE ACTUAL EXPENSES) ------------------------------------------------------ BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE CLASS (01/01/08) (06/30/08)(1) PERIOD(2) (06/30/08) PERIOD(2) RATIO - --------------------------------------------------------------------------------------------------- Series I $1,000.00 $876.90 $5.13 $1,019.39 $5.52 1.10% - --------------------------------------------------------------------------------------------------- Series II 1,000.00 875.90 6.30 1,018.15 6.77 1.35 - ---------------------------------------------------------------------------------------------------
((1) The actual ending account value is based on the actual total return of the Fund for the period January 1, 2008, through June 30, 2008, 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 182/366 to reflect the most recent fiscal half year. AIM V.I. CAPITAL DEVELOPMENT FUND APPROVAL OF INVESTMENT ADVISORY AGREEMENT The Board of Trustees (the Board) of AIM comparative performance and fee data Trustees recognized that the advisory Variable Insurance Funds is required under regarding the AIM Funds prepared by an arrangements and resulting advisory fees the Investment Company Act of 1940 to independent company, Lipper, Inc. for the Fund and the other AIM Funds are approve annually the renewal of the AIM (Lipper), under the direction and the result of years of review and V.I. Capital Development Fund (the Fund) supervision of the independent Senior negotiation between the Trustees and investment advisory agreement with Invesco Officer who also prepares a separate Invesco Aim, that the Trustees may focus Aim Advisors, Inc. (Invesco Aim). During analysis of this information for the to a greater extent on certain aspects of contract renewal meetings held on June Trustees. Each Sub-Committee then makes these arrangements in some years than in 18-19, 2008, the Board as a whole and the recommendations to the Investments others, and that the Trustees' disinterested or "independent" Trustees, Committee regarding the performance, fees deliberations and conclusions in a voting separately, approved the and expenses of their assigned funds. The particular year may be based in part on continuance of the Fund's investment Investments Committee considers each their deliberations and conclusions of advisory agreement for another year, Sub-Committee's recommendations and makes these same arrangements throughout the effective July 1, 2008. In doing so, the its own recommendations regarding the year and in prior years. Board determined that the Fund's performance, fees and expenses of the AIM investment advisory agreement is in the Funds to the full Board. The Investments FACTORS AND CONCLUSIONS AND SUMMARY OF best interests of the Fund and its Committee also considers each INDEPENDENT WRITTEN FEE EVALUATION shareholders and that the compensation to Sub-Committee's recommendations in making The discussion below serves as a summary Invesco Aim under the Fund's investment its annual recommendation to the Board of the Senior Officer's independent advisory agreement is fair and reasonable. whether to approve the continuance of each written evaluation with respect to the The independent Trustees met separately AIM Fund's investment advisory agreement Fund's investment advisory agreement as during their evaluation of the Fund's and sub-advisory agreements for another well as a discussion of the material investment advisory agreement with year. factors and related conclusions that independent legal counsel from whom they The independent Trustees are assisted formed the basis for the Board's approval received independent legal advice, and the in their annual evaluation of the Fund's of the Fund's investment advisory independent Trustees also received investment advisory agreement by the agreement and sub-advisory agreements. assistance during their deliberations from independent Senior Officer. One Unless otherwise stated, information set the independent Senior Officer, a responsibility of the Senior Officer is to forth below is as of June 19, 2008 and full-time officer of the AIM Funds who manage the process by which the AIM Funds' does not reflect any changes that may have reports directly to the independent proposed management fees are negotiated occurred since that date, including but Trustees. during the annual contract renewal process not limited to changes to the Fund's to ensure that they are negotiated in a performance, advisory fees, expense THE BOARD'S FUND EVALUATION PROCESS manner that is at arms' length and limitations and/or fee waivers. The Board's Investments Committee has reasonable. Accordingly, the Senior established three Sub-Committees that are Officer must either supervise a I. Investment Advisory Agreement responsible for overseeing the management competitive bidding process or prepare an A. Nature, Extent and Quality of of a number of the series portfolios of independent written evaluation. The Senior Services Provided by Invesco Aim the AIM Funds. This Sub-Committee Officer has recommended that an The Board reviewed the advisory services structure permits the Trustees to focus on independent written evaluation be provided provided to the Fund by Invesco Aim under the performance of the AIM Funds that have and, at the direction of the Board, has the Fund's investment advisory agreement, been assigned to them. The Sub-Committees prepared an independent written the performance of Invesco Aim in meet throughout the year to review the evaluation. providing these services, and the performance of their assigned funds, and During the annual contract renewal credentials and experience of the officers the Sub-Committees review monthly and process, the Board considered the factors and employees of Invesco Aim who provide quarterly comparative performance discussed below under the heading "Factors these services. The Board's review of the information and periodic asset flow data and Conclusions and Summary of Independent qualifications of Invesco Aim to provide for their assigned funds. These materials Written Fee Evaluation" in evaluating the these services included the Board's are prepared under the direction and fairness and reasonableness of the Fund's consideration of Invesco Aim's portfolio supervision of the independent Senior investment advisory agreement and and product review process, various back Officer. Over the course of each year, the sub-advisory agreements at the contract office support functions provided by Sub-Committees meet with portfolio renewal meetings and at their meetings Invesco Aim, and Invesco Aim's equity and managers for their assigned funds and throughout the year as part of their fixed income trading operations. The Board other members of management and review ongoing oversight of the Fund. The Fund's concluded that the nature, extent and with these individuals the performance, investment advisory agreement and quality of the advisory services provided investment objective(s), policies, sub-advisory agreements were considered to the Fund by Invesco Aim were strategies and limitations of these funds. separately, although the Board also appropriate and that Invesco Aim currently In addition to their meetings considered the common interests of all of is providing satisfactory advisory throughout the year, the Sub-Committees the AIM Funds in their deliberations. The services in accordance with the terms of meet at designated contract renewal Board considered all of the information the Fund's investment advisory agreement. meetings each year to conduct an in-depth provided to them and did not identify any In addition, based on their ongoing review of the performance, fees and particular factor that was controlling. meetings throughout the year with the expenses of their assigned funds. During Each Trustee may have evaluated the Fund's portfolio manager or managers, the the contract renewal process, the Trustees information provided differently from one Board concluded that these individuals are receive another and attributed different weight to competent and able to continue to carry the various factors. The out their responsibilities under the Fund's investment advisory agreement. continued
AIM V.I. CAPITAL DEVELOPMENT FUND In determining whether to continue the recent Fund performance and this review each class of the Fund. The Board Fund's investment advisory agreement, the did not change their conclusions. considered the contractual nature of this Board considered the prior relationship fee waiver and noted that it remains in between Invesco Aim and the Fund, as well C. Advisory Fees and Fee Waivers effect until at least April 30, 2010. The as the Board's knowledge of Invesco Aim's The Board compared the Fund's contractual Board also considered the effect these fee operations, and concluded that it was advisory fee rate to the contractual waivers/expense limitations would have on beneficial to maintain the current advisory fee rates of funds in the Fund's the Fund's estimated total expenses. relationship, in part, because of such expense group that are not managed by After taking account of the Fund's knowledge. The Board also considered the Invesco Aim, at a common asset level and contractual advisory fee rate, as well as steps that Invesco Aim and its affiliates as of the end of the past calendar year. the comparative advisory fee information have taken over the last several years to The Board noted that the Fund's and the fee waivers/expense limitations improve the quality and efficiency of the contractual advisory fee rate was below discussed above, the Board concluded that services they provide to the AIM Funds in the median contractual advisory fee rate the Fund's advisory fees were fair and the areas of investment performance, of funds in its expense group. The Board reasonable. product line diversification, also reviewed the methodology used by distribution, fund operations, shareholder Lipper in determining contractual fee D. Economies of Scale and Breakpoints services and compliance. The Board rates. The Board considered the extent to which concluded that the quality and efficiency The Board also compared the Fund's there are economies of scale in Invesco of the services Invesco Aim and its effective fee rate (the advisory fee after Aim's provision of advisory services to affiliates provide to the AIM Funds in any advisory fee waivers and before any the Fund. The Board also considered each of these areas have generally expense limitations/waivers) to the whether the Fund benefits from such improved, and support the Board's approval advisory fee rates of other clients of economies of scale through contractual of the continuance of the Fund's Invesco Aim and its affiliates with breakpoints in the Fund's advisory fee investment advisory agreement. investment strategies comparable to those schedule or through advisory fee waivers of the Fund, including three mutual funds or expense limitations. The Board noted B. Fund Performance advised by Invesco Aim and one mutual fund that the Fund's contractual advisory fee The Board compared the Fund's performance sub-advised by an Invesco Aim affiliate. schedule includes one breakpoint and that during the past one, three and five The Board noted that the Fund's rate was: the level of the Fund's advisory fees, as calendar years to the performance of funds (i) above the rates for two of the mutual a percentage of the Fund's net assets, has in the Fund's performance group that are funds and below the rate for the third decreased as net assets increased because not managed by Invesco Aim, and against mutual fund; and (ii) above the of the breakpoint. The Board also noted the performance of all funds in the Lipper sub-advisory fee rate for the sub-advised that Invesco Aim's contractual advisory Variable Annuity Underlying Funds - mutual fund. fee waiver discussed above includes Mid-Cap Growth Index. The Board also Additionally, the Board compared the breakpoints based on net asset levels. reviewed the criteria used by Invesco Aim Fund's effective fee rate to the total Based on this information, the Board to identify the funds in the Fund's advisory fees paid by a separately managed concluded that the Fund's advisory fees performance group for inclusion in the account/wrap account advised by Invesco appropriately reflect economies of scale Lipper reports. The Board noted that the Aim affiliates. The Board noted that the at current asset levels. The Board also Fund's performance was in the fifth Fund's rate was above the rate for the noted that the Fund shares directly in quintile of its performance group for the separately managed account/wrap account. economies of scale through lower fees one year period and the third quintile for The Board considered that management of charged by third party service providers the three and five year periods (the first the separately managed account/wrap based on the combined size of all of the quintile being the best performing funds account by the Invesco Aim affiliate AIM Funds and affiliates. and the fifth quintile being the worst involves different levels of services and performing funds). The Board noted that different operational and regulatory E. Profitability and Financial the Fund's performance was below the requirements than Invesco Aim's management Resources of Invesco Aim performance of the Index for the one and of the Fund. The Board concluded that The Board reviewed information from five year periods and above the these differences are appropriately Invesco Aim concerning the costs of the performance for the three year period. The reflected in the fee structure for the advisory and other services that Invesco Board noted that Invesco Aim acknowledges Fund. Aim and its affiliates provide to the Fund the Fund's underperformance because of The Board noted that Invesco Aim has and the profitability of Invesco Aim and shorter term performance results and contractually agreed to waive advisory its affiliates in providing these continues to monitor the Fund. The Board fees of the Fund through at least April services. The Board also reviewed also considered the steps Invesco Aim has 30, 2010 and that this fee waiver includes information concerning the financial taken over the last several years to breakpoints based on net asset levels. The condition of Invesco Aim and its improve the quality and efficiency of the Board considered the contractual nature of affiliates. The Board also reviewed with services that Invesco Aim provides to the this fee waiver and noted that it remains Invesco Aim the methodology used to AIM Funds. The Board concluded that in effect until at least April 30, 2010. prepare the profitability information. The Invesco Aim continues to be responsive to The Board also noted that Invesco Aim has Board considered the overall profitability the Board's focus on fund performance. contractually agreed to waive fees and/or of Invesco Aim, as well as the Although the independent written limit expenses of the Fund through at profitability of Invesco Aim in connection evaluation of the Fund's Senior Officer least April 30, 2010 in an amount with managing the Fund. The Board noted only considered Fund performance through necessary to limit total annual operating that Invesco Aim continues to operate at a the most recent calendar year, the Board expenses to a specified percentage of net profit, although increased expenses in also reviewed more average daily net assets for recent years have reduced the profitability of Invesco Aim continued
AIM V.I. CAPITAL DEVELOPMENT FUND and its affiliates. The Board concluded Aim are used to pay for research and Board concluded that the nature, extent that the Fund's fees were fair and execution services. The Board noted that and quality of the services to be provided reasonable, and that the level of profits soft dollar arrangements shift the payment by the Affiliated Sub-Advisers were realized by Invesco Aim and its affiliates obligation for the research and execution appropriate. The Board noted that the from providing services to the Fund was services from Invesco Aim to the funds and Affiliated Sub-Advisers, which have not excessive in light of the nature, therefore may reduce Invesco Aim's offices and personnel that are quality and extent of the services expenses. The Board also noted that geographically dispersed in financial provided. The Board considered whether research obtained through soft dollar centers around the world, have been formed Invesco Aim is financially sound and has arrangements may be used by Invesco Aim in in part for the purpose of researching and the resources necessary to perform its making investment decisions for the Fund compiling information and making obligations under the Fund's investment and may therefore benefit Fund recommendations on the markets and advisory agreement, and concluded that shareholders. The Board concluded that economies of various countries and Invesco Aim has the financial resources Invesco Aim's soft dollar arrangements securities of companies located in such necessary to fulfill these obligations. were appropriate. The Board also concluded countries or on various types of that, based on their review and investments and investment techniques, and F. Independent Written Evaluation of representations made by Invesco Aim, these providing investment advisory services. the Fund's Senior Officer arrangements were consistent with The Board concluded that the sub-advisory The Board noted that, at their direction, regulatory requirements. agreements will benefit the Fund and its the Senior Officer of the Fund, who is The Board considered the fact that the shareholders by permitting Invesco Aim to independent of Invesco Aim and Invesco Fund's uninvested cash and cash collateral utilize the additional resources and Aim's affiliates, had prepared an from any securities lending arrangements talent of the Affiliated Sub-Advisers in independent written evaluation to assist may be invested in money market funds managing the Fund. the Board in determining the advised by Invesco Aim pursuant to reasonableness of the proposed management procedures approved by the Board. The B. Fund Performance fees of the AIM Funds, including the Fund. Board noted that Invesco Aim will receive The Board did not view Fund performance as The Board noted that they had relied upon advisory fees from these affiliated money a relevant factor in considering whether the Senior Officer's written evaluation market funds attributable to such to approve the sub-advisory agreements for instead of a competitive bidding process. investments, although Invesco Aim has the Fund, as no Affiliated Sub-Adviser In determining whether to continue the contractually agreed to waive through at currently manages any portion of the Fund's investment advisory agreement, the least April 30, 2010, the advisory fees Fund's assets. Board considered the Senior Officer's payable by the Fund in an amount equal to written evaluation. 100% of the net advisory fees Invesco Aim C. Sub-Advisory Fees receives from the affiliated money market The Board considered the services to be G. Collateral Benefits to Invesco Aim funds with respect to the Fund's provided by the Affiliated Sub-Advisers and its Affiliates investment of uninvested cash, but not pursuant to the sub-advisory agreements The Board considered various other cash collateral. The Board considered the and the services to be provided by Invesco benefits received by Invesco Aim and its contractual nature of this fee waiver and Aim pursuant to the Fund's investment affiliates resulting from Invesco Aim's noted that it remains in effect until at advisory agreement, as well as the relationship with the Fund, including the least April 30, 2010. The Board concluded allocation of fees between Invesco Aim and fees received by Invesco Aim and its that the Fund's investment of uninvested the Affiliated Sub-Advisers pursuant to affiliates for their provision of cash and cash collateral from any the sub-advisory agreements. The Board administrative, transfer agency and securities lending arrangements in the noted that the sub-advisory fees have no distribution services to the Fund. The affiliated money market funds is in the direct effect on the Fund or its Board considered the performance of best interests of the Fund and its shareholders, as they are paid by Invesco Invesco Aim and its affiliates in shareholders. Aim to the Affiliated Sub-Advisers, and providing these services and the that Invesco Aim and the Affiliated organizational structure employed by II. Sub-Advisory Agreements Sub-Advisers are affiliates. After taking Invesco Aim and its affiliates to provide A. Nature, Extent and Quality of account of the Fund's contractual these services. The Board also considered Services Provided by Affiliated sub-advisory fee rate, as well as other that these services are provided to the Sub-Advisers relevant factors, the Board concluded that Fund pursuant to written contracts which The Board reviewed the services to be the Fund's sub-advisory fees were fair and are reviewed and approved on an annual provided by Invesco Trimark Ltd., Invesco reasonable. basis by the Board. The Board concluded Asset Management Deutschland, GmbH, that Invesco Aim and its affiliates were Invesco Asset Management Limited, Invesco D. Financial Resources of the providing these services in a satisfactory Asset Management (Japan) Limited, Invesco Affiliated Sub-Advisers manner and in accordance with the terms of Australia Limited, Invesco Global Asset The Board considered whether each their contracts, and were qualified to Management (N.A.), Inc., Invesco Hong Kong Affiliated Sub-Adviser is financially continue to provide these services to the Limited, Invesco Institutional (N.A.), sound and has the resources necessary to Fund. Inc. and Invesco Senior Secured perform its obligations under its The Board considered the benefits Management, Inc. (collectively, the respective sub-advisory agreement, and realized by Invesco Aim as a result of "Affiliated Sub-Advisers") under the concluded that each Affiliated Sub-Adviser portfolio brokerage transactions executed sub-advisory agreements and the has the financial resources necessary to through "soft dollar" arrangements. Under credentials and experience of the officers fulfill these obligations. these arrangements, portfolio brokerage and employees of the Affiliated commissions paid by the Fund and/or other Sub-Advisers who will provide these funds advised by Invesco services. The
AIM V.I. CAPITAL DEVELOPMENT FUND NOTE 12--LEGAL PROCEEDINGS--(CONTINUED) PROXY RESULTS A Special Meeting ("Meeting") of Shareholders of AIM V.I. Capital Development Fund, an investment portfolio of AIM Variable Insurance Funds, a Delaware statutory trust ("Trust"), was held on February 29, 2008. The Meeting was held for the following purposes: (1) Elect 13 trustees to the Board of Trustees of the Trust, each of whom will serve until his or her successor is elected and qualified. (2) Approve an amendment to the Trust's Agreement and Declaration of Trust that would permit the Board of Trustees of the Trust to terminate the Trust, the Fund, and each other series portfolio of the Trust, or a share class without a shareholder vote. (3) Approve a new sub-advisory agreement between Invesco Aim Advisors, Inc. and each of AIM Funds Management, Inc.; Invesco Asset Management Deutschland, GmbH; Invesco Asset Management Limited; Invesco Asset Management (Japan) Limited; Invesco Australia Limited; Invesco Global Asset Management (N.A.), Inc.; Invesco Hong Kong Limited; Invesco Institutional (N.A.), Inc.; and Invesco Senior Secured Management, Inc. The results of the voting on the above matters were as follows:
WITHHELD/ MATTERS VOTES FOR ABSTENTIONS** - ----------------------------------------------------------------------------------------------------------- (1)* Bob R. Baker...................................................... 474,883,590 19,741,622 Frank S. Bayley................................................... 474,653,109 19,972,103 James T. Bunch.................................................... 475,597,417 19,027,795 Bruce L. Crockett................................................. 474,900,579 19,724,633 Albert R. Dowden.................................................. 474,749,929 19,875,283 Jack M. Fields.................................................... 475,205,840 19,419,372 Martin L. Flanagan................................................ 475,248,336 19,376,876 Carl Frischling................................................... 474,453,674 20,171,538 Prema Mathai-Davis................................................ 473,569,192 21,056,020 Lewis F. Pennock.................................................. 475,072,501 19,552,711 Larry Soll, Ph.D. ................................................ 475,170,544 19,454,668 Raymond Stickel, Jr. ............................................. 475,420,825 19,204,387 Philip A. Taylor.................................................. 475,640,570 18,984,642
VOTES WITHHELD/ VOTES FOR AGAINST ABSTENTIONS - ------------------------------------------------------------------------------------------------------------------- (2)* Approve an amendment to the Trust's Agreement and Declaration of Trust that would permit the Board of Trustees of the Trust to terminate the Trust, the Fund, and each other series portfolio of the Trust, or a share class without a shareholder vote.......................... 438,131,484 35,586,925 20,906,803 (3) Approve a new sub-advisory agreement between Invesco Aim Advisors, Inc. and each of AIM Funds Management, Inc.; Invesco Asset Management Deutschland, GmbH; Invesco Asset Management Limited; Invesco Asset Management (Japan) Limited; Invesco Australia Limited; Invesco Global Asset Management (N.A.), Inc.; Invesco Hong Kong Limited; Invesco Institutional (N.A.), Inc.; and Invesco Senior Secured Management, Inc. ................................. 15,527,694 539,176 557,054
* Proposals 1 and 2 required approval by a combined vote of all of the portfolios of AIM Variable Insurance Funds. ** Includes Broker Non-Votes. AIM V.I. CAPITAL DEVELOPMENT FUND [INVESCO AIM LOGO] AIM V.I. CORE EQUITY FUND - SERVICE MARK - Semiannual Report to Shareholders - June 30, 2008 AIM Investments [MOUNTAIN GRAPHIC] became INVESCO AIM on March 31, 2008. For more details, go to invescoaim.com 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 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 Invesco Aim Web site, invescoaim.com. On the home page, scroll down and click on 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, 2008, is available at our Web site. Go to invescoaim.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 noted, all data provided by Invesco Aim. THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND PROSPECTUS AND VARIABLE PRODUCT PROSPECTUS, WHICH CONTAIN MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ EACH CAREFULLY BEFORE INVESTING. Invesco Aim Distributors, Inc. NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE FUND PERFORMANCE ========================================================================================= PERFORMANCE SUMMARY FUND VS. INDEXES Cumulative total returns, 12/31/07 to 6/30/08, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower. Series I Shares -6.67% Series II Shares -6.79 S&P 500 Index + (Broad Market Index) -11.90 Russell 1000 Index + (Style-Specific Index) -11.20 Lipper VUF Large-Cap Core Funds Index +(Peer Group Index) -10.56 + Lipper Inc. The S&P 500-REGISTERED TRADEMARK-- INDEX is a market capitalization-weighted index covering all major areas of the U.S. economy. It is not the 500 largest companies, but rather the most widely held 500 companies chosen with respect to market size, liquidity, and their industry. The RUSSELL 1000-REGISTERED TRADEMARK-- INDEX is comprised of 1000 of the largest capitalized U.S. domiciled companies whose common stock is traded in the United States. The Russell 1000 Index is a trademark/service mark of the Frank Russell Company. Russell--REGISTERED TRADEMARK- is a trademark of the Frank Russell Company. The LIPPER VUF LARGE-CAP CORE FUNDS INDEX is an equally weighted representation of the largest variable insurance underlying funds in the Lipper Large-Cap Core Funds category. These funds typically have an average price-to-earnings ratio, price-to-book ratio, and three-year sales-per-share growth value, compared to the S&P 500 Index. The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes. A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of an index of funds reflects fund expenses; performance of a market index does not. ========================================================================================= =========================================== AVERAGE ANNUAL TOTAL RETURNS THE PERFORMANCE DATA QUOTED REPRESENT CANNOT PURCHASE SHARES OF THE FUND As of 6/30/08 PAST PERFORMANCE AND CANNOT GUARANTEE DIRECTLY. PERFORMANCE FIGURES GIVEN COMPARABLE FUTURE RESULTS; CURRENT REPRESENT THE FUND AND ARE NOT INTENDED SERIES I SHARES PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE TO REFLECT ACTUAL VARIABLE PRODUCT Inception (5/2/94) 8.65% CONTACT YOUR VARIABLE PRODUCT ISSUER OR VALUES. THEY DO NOT REFLECT SALES 10 Years 3.44 FINANCIAL ADVISOR FOR THE MOST RECENT CHARGES, EXPENSES AND FEES ASSESSED IN 5 Years 8.93 MONTH-END VARIABLE PRODUCT PERFORMANCE. CONNECTION WITH A VARIABLE PRODUCT. SALES l Year -7.49 PERFORMANCE FIGURES REFLECT FUND EXPENSES, CHARGES, EXPENSES AND FEES, WHICH ARE REINVESTED DISTRIBUTIONS AND CHANGES IN NET DETERMINED BY THE VARIABLE PRODUCT SERIES II SHARES ASSET VALUE. INVESTMENT RETURN AND ISSUERS, WILL VARY AND WILL LOWER THE 10 Years 3.19% PRINCIPAL VALUE WILL FLUCTUATE SO THAT YOU TOTAL RETURN. 5 Years 8.67 MAY HAVE A GAIN OR LOSS WHEN YOU SELL THE MOST RECENT MONTH-END PERFORMANCE l Year -7.71 SHARES. DATA AT THE FUND LEVEL, EXCLUDING =========================================== THE NET ANNUAL FUND OPERATING EXPENSE VARIABLE PRODUCT CHARGES, IS AVAILABLE ON RATIO SET FORTH IN THE MOST RECENT FUND THIS INVESCO AIM AUTOMATED INFORMATION SERIES II SHARES' INCEPTION DATE IS OCTOBER PROSPECTUS AS OF THE DATE OF THIS REPORT FOR LINE, 866 702 4402. AS MENTIONED ABOVE, 24, 2001. RETURNS SINCE THAT DATE ARE SERIES I AND SERIES II SHARES WAS 0.89% AND FOR THE MOST RECENT MONTH-END PERFORMANCE HISTORICAL. ALL OTHER RETURNS ARE THE 1.14%, RESPECTIVELY.(1) THE TOTAL ANNUAL INCLUDING VARIABLE PRODUCT CHARGES, BLENDED RETURNS OF THE HISTORICAL FUND OPERATING EXPENSE RATIO SET FORTH IN PLEASE CONTACT YOUR VARIABLE PRODUCT PERFORMANCE OF THE FUND'S SERIES II SHARES THE MOST RECENT FUND PROSPECTUS AS OF THE ISSUER OR FINANCIAL ADVISOR. SINCE THEIR INCEPTION AND THE RESTATED DATE OF THIS REPORT FOR SERIES I AND SERIES HISTORICAL PERFORMANCE OF SERIES I SHARES II SHARES WAS 0.90% AND 1.15%, RESPECTIVELY. (1) Total annual operating expenses less (FOR PERIODS PRIOR TO INCEPTION OF THE THE EXPENSE RATIOS PRESENTED ABOVE MAY VARY any contractual fee waivers and/or SERIES II SHARES) ADJUSTED TO REFLECT THE FROM THE EXPENSE RATIOS PRESENTED IN OTHER expense reimbursements by the advisor RULE 12B-1 FEES APPLICABLE TO THE SERIES II SECTIONS OF THIS REPORT THAT ARE BASED ON in effect through at least april 30, SHARES. THE INCEPTION DATE OF SERIES I EXPENSES INCURRED DURING THE PERIOD COVERED 2010. see current prospectus for more SHARES IS MAY 2, 1994. THE PERFORMANCE OF BY THIS REPORT. information. THE FUND'S SERIES I AND SERIES II SHARE AIM V.I. CORE EQUITY FUND, A SERIES CLASSES WILL DIFFER PRIMARILY DUE TO PORTFOLIO OF AIM VARIABLE INSURANCE FUNDS, DIFFERENT CLASS EXPENSES. IS CURRENTLY OFFERED THROUGH INSURANCE COMPANIES ISSUING VARIABLE PRODUCTS. YOU
AIM V.I. CORE EQUITY FUND PORTFOLIO COMPOSITION By sector, based on Net Assets as of June 30, 2008 - ------------------------------------------------------------------------- Information Technology 21.6% - ------------------------------------------------------------------------- Financials 14.8 - ------------------------------------------------------------------------- Health Care 13.4 - ------------------------------------------------------------------------- Industrials 11.8 - ------------------------------------------------------------------------- Consumer Staples 11.4 - ------------------------------------------------------------------------- Energy 10.0 - ------------------------------------------------------------------------- Consumer Discretionary 6.9 - ------------------------------------------------------------------------- Money Market Funds Plus Other Assets Less Liabilities 10.1 _________________________________________________________________________ =========================================================================
SCHEDULE OF INVESTMENTS(a) June 30, 2008 (Unaudited)
SHARES VALUE - ---------------------------------------------------------------------------------- COMMON STOCKS & OTHER EQUITY INTERESTS-89.36% AEROSPACE & DEFENSE-3.12% Boeing Co. (The) 230,829 $ 15,170,082 - ---------------------------------------------------------------------------------- Northrop Grumman Corp. 273,326 18,285,509 - ---------------------------------------------------------------------------------- United Technologies Corp. 450,000 27,765,000 ================================================================================== 61,220,591 ================================================================================== AIR FREIGHT & LOGISTICS-1.66% United Parcel Service, Inc.-Class B 529,928 32,574,674 ================================================================================== APPAREL, ACCESSORIES & LUXURY GOODS-0.95% Polo Ralph Lauren Corp. 297,069 18,649,992 ================================================================================== ASSET MANAGEMENT & CUSTODY BANKS-1.57% Legg Mason, Inc. 707,755 30,836,885 ================================================================================== AUTOMOBILE MANUFACTURERS-0.49% Renault S.A. (France)(b) 116,359 9,519,816 ================================================================================== BIOTECHNOLOGY-2.14% Amgen Inc.(c) 887,000 41,830,920 ================================================================================== BROADCASTING & CABLE TV-2.05% Comcast Corp.-Class A 2,121,000 40,235,370 ================================================================================== COMMUNICATIONS EQUIPMENT-3.74% Cisco Systems, Inc.(c) 1,145,338 26,640,562 - ---------------------------------------------------------------------------------- Motorola, Inc. 4,245,000 31,158,300 - ---------------------------------------------------------------------------------- Nokia Oyj-ADR (Finland) 631,565 15,473,342 ================================================================================== 73,272,204 ================================================================================== COMPUTER HARDWARE-2.49% Fujitsu Ltd. (Japan)(b) 3,447,000 25,491,480 - ---------------------------------------------------------------------------------- International Business Machines Corp. 196,925 23,341,520 ================================================================================== 48,833,000 ================================================================================== COMPUTER STORAGE & PERIPHERALS-2.00% EMC Corp.(c) 1,325,936 19,478,000 - ---------------------------------------------------------------------------------- Seagate Technology 1,028,255 19,670,518 ================================================================================== 39,148,518 ================================================================================== CONSUMER FINANCE-1.59% American Express Co. 828,998 31,228,355 ================================================================================== DATA PROCESSING & OUTSOURCED SERVICES-1.97% Automatic Data Processing, Inc. 920,191 38,556,003 ================================================================================== DEPARTMENT STORES-0.53% Kohl's Corp.(c) 261,393 10,466,176 ================================================================================== DIVERSIFIED BANKS-2.78% Lloyds TSB Group PLC (United Kingdom)(b) 2,385,248 14,618,525 - ---------------------------------------------------------------------------------- U.S. Bancorp 514,438 14,347,676 - ---------------------------------------------------------------------------------- Wells Fargo & Co. 1,075,000 25,531,250 ================================================================================== 54,497,451 ================================================================================== DIVERSIFIED CAPITAL MARKETS-0.19% UBS AG (Switzerland)(b)(c) 175,451 3,627,976 ================================================================================== DRUG RETAIL-1.33% Walgreen Co. 802,878 26,101,564 ================================================================================== ELECTRONIC EQUIPMENT MANUFACTURERS-2.23% Agilent Technologies, Inc.(c) 1,228,496 43,660,748 ==================================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. CORE EQUITY FUND
SHARES VALUE - ---------------------------------------------------------------------------------- ELECTRONIC MANUFACTURING SERVICES-1.71% Tyco Electronics Ltd. 934,677 $ 33,480,130 ================================================================================== ENVIRONMENTAL & FACILITIES SERVICES-2.02% Waste Management, Inc. 1,048,373 39,534,146 ================================================================================== HEALTH CARE EQUIPMENT-4.36% Covidien Ltd. 660,440 31,628,472 - ---------------------------------------------------------------------------------- Medtronic, Inc. 1,039,239 53,780,618 ================================================================================== 85,409,090 ================================================================================== HOUSEHOLD PRODUCTS-0.08% Henkel AG & Co. KGaA (Germany)(b) 42,939 1,607,447 ================================================================================== HYPERMARKETS & SUPER CENTERS-2.10% Wal-Mart Stores, Inc. 732,029 41,140,030 ================================================================================== INDUSTRIAL CONGLOMERATES-5.01% 3M Co. 726,752 50,574,672 - ---------------------------------------------------------------------------------- General Electric Co. 646,452 17,253,804 - ---------------------------------------------------------------------------------- Koninklijke (Royal) Phillips Electronics N.V. (Netherlands)(b) 615,230 20,775,215 - ---------------------------------------------------------------------------------- Tyco International Ltd. 236,830 9,482,673 ================================================================================== 98,086,364 ================================================================================== INSURANCE BROKERS-1.14% Marsh & McLennan Cos., Inc. 838,646 22,266,051 ================================================================================== INTEGRATED OIL & GAS-0.88% Total S.A. (France) 203,074 17,329,358 ================================================================================== MANAGED HEALTH CARE-0.91% UnitedHealth Group Inc. 680,300 17,857,875 ================================================================================== MOVIES & ENTERTAINMENT-0.88% News Corp.-Class A 1,145,752 17,232,110 ================================================================================== OFFICE ELECTRONICS-1.02% Xerox Corp. 1,475,605 20,009,204 ================================================================================== OIL & GAS EQUIPMENT & SERVICES-4.91% BJ Services Co. 1,491,655 47,643,461 - ---------------------------------------------------------------------------------- Tenaris S.A.-ADR (Argentina)(d) 325,621 24,258,764 - ---------------------------------------------------------------------------------- Weatherford International Ltd.(c) 490,318 24,314,870 ================================================================================== 96,217,095 ================================================================================== OIL & GAS EXPLORATION & PRODUCTION-4.20% Apache Corp. 114,138 15,865,182 - ---------------------------------------------------------------------------------- Chesapeake Energy Corp. 748,267 49,355,691 - ---------------------------------------------------------------------------------- XTO Energy, Inc. 248,889 17,051,386 ================================================================================== 82,272,259 ================================================================================== OTHER DIVERSIFIED FINANCIAL SERVICES-0.37% Citigroup Inc. 429,868 7,204,588 ================================================================================== PACKAGED FOODS & MEATS-4.24% Cadbury PLC (United Kingdom)(b) 4,381,547 54,981,449 - ---------------------------------------------------------------------------------- Unilever N.V. (Netherlands) 992,203 28,165,998 ================================================================================== 83,147,447 ================================================================================== PERSONAL PRODUCTS-2.30% Avon Products, Inc. 584,219 21,043,569 - ---------------------------------------------------------------------------------- Estee Lauder Cos. Inc. (The)-Class A 518,825 24,099,421 ================================================================================== 45,142,990 ================================================================================== PHARMACEUTICALS-5.98% GlaxoSmithKline PLC-ADR (United Kingdom) 359,806 15,910,621 - ---------------------------------------------------------------------------------- Merck & Co. Inc. 296,701 11,182,661 - ---------------------------------------------------------------------------------- Pfizer Inc. 1,550,000 27,078,500 - ---------------------------------------------------------------------------------- Schering-Plough Corp. 849,147 16,719,705 - ---------------------------------------------------------------------------------- Teva Pharmaceutical Industries Ltd.-ADR (Israel) 500,705 22,932,289 - ---------------------------------------------------------------------------------- Wyeth 486,044 23,310,670 ================================================================================== 117,134,446 ================================================================================== PROPERTY & CASUALTY INSURANCE-5.85% Berkshire Hathaway Inc.-Class A(c) 412 49,749,000 - ---------------------------------------------------------------------------------- Progressive Corp. (The) 3,467,839 64,917,946 ================================================================================== 114,666,946 ================================================================================== PUBLISHING-0.97% Washington Post Co. (The)-Class B 32,464 19,053,121 ================================================================================== RAILROADS-1.04% Union Pacific Corp. 270,748 20,441,474 ================================================================================== REGIONAL BANKS-1.34% BB&T Corp.(d) 510,367 11,621,056 - ---------------------------------------------------------------------------------- PNC Financial Services Group, Inc. 254,530 14,533,663 ================================================================================== 26,154,719 ================================================================================== SEMICONDUCTORS-0.67% Intel Corp. 608,170 13,063,491 ================================================================================== SOFT DRINKS-0.73% Coca-Cola Co. (The) 276,986 14,397,732 - ---------------------------------------------------------------------------------- Dr. Pepper Snapple Group, Inc.(c) 1 19 ================================================================================== 14,397,751 ================================================================================== SYSTEMS SOFTWARE-5.82% Microsoft Corp. 1,680,670 46,235,232 - ---------------------------------------------------------------------------------- Symantec Corp.(c) 3,500,000 67,725,000 ================================================================================== 113,960,232 ================================================================================== Total Common Stocks & Other Equity Interests (Cost $1,682,749,319) 1,751,068,607 ==================================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. CORE EQUITY FUND
SHARES VALUE - ---------------------------------------------------------------------------------- PREFERRED STOCK-0.60% HOUSEHOLD PRODUCTS-0.60% Henkel AG & Co. KGaA(Germany)-Pfd. (Cost $16,007,623)(b) 297,000 $ 11,794,313 ================================================================================== MONEY MARKET FUNDS-10.43% Liquid Assets Portfolio-Institutional Class(e) 102,160,381 102,160,381 - ---------------------------------------------------------------------------------- Premier Portfolio-Institutional Class(e) 102,160,381 102,160,381 - ---------------------------------------------------------------------------------- Total Money Market Funds (Cost $204,320,762) 204,320,762 ================================================================================== TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)-100.39%. (Cost $1,903,077,704) 1,967,183,682 ================================================================================== INVESTMENTS PURCHASED WITH CASH COLLATERAL FROM SECURITIES ON LOAN MONEY MARKET FUNDS-0.47% Liquid Assets Portfolio-Institutional Class (Cost $9,259,196)(e)(f) 9,259,196 9,259,196 ================================================================================== TOTAL INVESTMENTS-100.86% (Cost $1,912,336,900) 1,976,442,878 ================================================================================== OTHER ASSETS LESS LIABILITIES-(0.86)% (16,855,917) ================================================================================== NET ASSETS-100.00% $1,959,586,961 __________________________________________________________________________________ ==================================================================================
Investment Abbreviations: ADR - American Depositary Receipt Pfd. - Preferred
Notes to Schedule of Investments: (a) Industry and/or sector 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 MSCI Inc. and Standard & Poor's. (b) In accordance with the procedures established by the Board of Trustees, the foreign security is fair valued using adjusted closing market prices. The aggregate value of these securities at June 30, 2008 was $142,416,221, which represented 7.27% of the Fund's Net Assets. See Note 1A. (c) Non-income producing security. (d) All or a portion of this security was out on loan at June 30, 2008. (e) The money market fund and the Fund are affiliated by having the same investment advisor. (f) 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 1I. See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. CORE EQUITY FUND STATEMENT OF ASSETS AND LIABILITIES June 30, 2008 (Unaudited) ASSETS: Investments, at value (Cost $1,698,756,942)* $1,762,862,920 - ------------------------------------------------------- Investments in affiliated money market funds (Cost $213,579,958) 213,579,958 ======================================================= Total investments (Cost $1,912,336,900) 1,976,442,878 ======================================================= Foreign currencies, at value (Cost $656,561) 664,302 - ------------------------------------------------------- Receivables for: Fund shares sold 3,169,079 - ------------------------------------------------------- Dividends 2,539,183 - ------------------------------------------------------- Investment for trustee deferred compensation and retirement plans 160,500 - ------------------------------------------------------- Other assets 50,394 ======================================================= Total assets 1,983,026,336 _______________________________________________________ ======================================================= LIABILITIES: Payables for: Investments purchased 9,450,536 - ------------------------------------------------------- Fund shares reacquired 2,412,798 - ------------------------------------------------------- Amount due custodian 161,260 - ------------------------------------------------------- Foreign currency contracts 361,497 - ------------------------------------------------------- Collateral upon return of securities loaned 9,259,196 - ------------------------------------------------------- Accrued fees to affiliates 1,261,896 - ------------------------------------------------------- Accrued other operating expenses 111,570 - ------------------------------------------------------- Trustee deferred compensation and retirement plans 420,622 ======================================================= Total liabilities 23,439,375 ======================================================= Net assets applicable to shares outstanding $1,959,586,961 _______________________________________________________ ======================================================= NET ASSETS CONSIST OF: Shares of beneficial interest $2,060,678,563 - ------------------------------------------------------- Undistributed net investment income 51,696,291 - ------------------------------------------------------- Undistributed net realized gain (loss) (216,552,633) - ------------------------------------------------------- Unrealized appreciation 63,764,740 ======================================================= $1,959,586,961 _______________________________________________________ ======================================================= NET ASSETS: Series I $1,928,631,431 _______________________________________________________ ======================================================= Series II $ 30,955,530 _______________________________________________________ ======================================================= SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED NUMBER OF SHARES AUTHORIZED: Series I 70,980,894 _______________________________________________________ ======================================================= Series II 1,149,949 _______________________________________________________ ======================================================= Series I: Net asset value per share $ 27.17 _______________________________________________________ ======================================================= Series II: Net asset value per share $ 26.92 _______________________________________________________ =======================================================
* At June 30, 2008, securities with an aggregate value of $8,714,079 were on loan to brokers. STATEMENT OF OPERATIONS For the six months ended June 30, 2008 (Unaudited) INVESTMENT INCOME: Dividends (net of foreign withholding taxes of $650,148) $ 18,830,783 - ------------------------------------------------------- Dividends from affiliated money market funds (includes securities lending income of $187,450) 4,152,353 ======================================================= Total investment income 22,983,136 ======================================================= EXPENSES: Advisory fees 6,389,386 - ------------------------------------------------------- Administrative services fees 2,721,649 - ------------------------------------------------------- Custodian fees 33,141 - ------------------------------------------------------- Distribution fees -- Series II 40,357 - ------------------------------------------------------- Transfer agent fees 17,511 - ------------------------------------------------------- Trustees' and officer's fees and benefits 39,118 - ------------------------------------------------------- Other 331,707 ======================================================= Total expenses 9,572,869 ======================================================= Less: Fees waived and expense offset arrangement(s) (156,699) - ------------------------------------------------------- Net expenses 9,416,170 ======================================================= Net investment income 13,566,966 ======================================================= REALIZED AND UNREALIZED GAIN (LOSS) FROM: Net realized gain (loss) from: Investment securities 56,202,340 - ------------------------------------------------------- Foreign currencies 32,641 - ------------------------------------------------------- Foreign currency contracts (1,608,950) ======================================================= 54,626,031 ======================================================= Change in net unrealized appreciation (depreciation) of: Investment securities (217,733,372) - ------------------------------------------------------- Foreign currencies 28,827 - ------------------------------------------------------- Foreign currency contracts (356,835) ======================================================= (218,061,380) ======================================================= Net realized and unrealized gain (loss) (163,435,349) ======================================================= Net increase (decrease) in net assets resulting from operations $(149,868,383) _______________________________________________________ =======================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. CORE EQUITY FUND STATEMENT OF CHANGES IN NET ASSETS For the six months ended June 30, 2008 and the year ended December 31, 2007 (Unaudited)
JUNE 30, DECEMBER 31, 2008 2007 - ---------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income $ 13,566,966 $ 37,033,376 - ---------------------------------------------------------------------------------------------------------- Net realized gain 54,626,031 387,454,941 - ---------------------------------------------------------------------------------------------------------- Change in net unrealized appreciation (depreciation) (218,061,380) (212,013,364) ========================================================================================================== Net increase (decrease) in net assets resulting from operations (149,868,383) 212,474,953 ========================================================================================================== Distributions to shareholders from net investment income: Series I -- (26,080,139) - ---------------------------------------------------------------------------------------------------------- Series II -- (332,527) ========================================================================================================== Decrease in net assets resulting from distributions -- (26,412,666) ========================================================================================================== Share transactions-net: Series I (221,842,996) (584,578,394) - ---------------------------------------------------------------------------------------------------------- Series II (1,480,559) (7,686,109) ========================================================================================================== Net increase (decrease) in net assets resulting from share transactions (223,323,555) (592,264,503) ========================================================================================================== Net increase (decrease) in net assets (373,191,938) (406,202,216) __________________________________________________________________________________________________________ ========================================================================================================== NET ASSETS: Beginning of period 2,332,778,899 2,738,981,115 ========================================================================================================== End of period (including undistributed net investment income of $51,696,291 and $38,129,325, respectively) $1,959,586,961 $2,332,778,899 __________________________________________________________________________________________________________ ==========================================================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. CORE EQUITY FUND NOTES TO FINANCIAL STATEMENTS June 30, 2008 (Unaudited) NOTE 1--SIGNIFICANT ACCOUNTING POLICIES AIM V.I. Core Equity Fund (the "Fund") is a series portfolio of AIM Variable Insurance Funds (the "Trust"). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of twenty separate portfolios, (each constituting a "Fund"). 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 Fund or class will be voted on exclusively by the shareholders of such Fund 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 Fund 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. 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 prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. 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, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. 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, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. 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. Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer's assets, general economic conditions, interest rates, investor perceptions and market liquidity. 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. The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds as received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. AIM V.I. CORE EQUITY FUND 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, the investment advisor 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. The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. 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 by a significant amount. 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. SECURITIES LENDING -- 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 by the securities lending provider. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its sponsored agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds and is shown as such on the Schedule of Investments. 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. Dividends received on cash collateral investments for securities lending transactions, which are net of compensation to counterparties, is included in Dividends from affiliates on the Statement of Operations. The aggregate value of securities out on loan is shown as a footnote on the Statement of Assets and Liabilities. 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. AIM V.I. CORE EQUITY 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. NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES The Trust has entered into a master investment advisory agreement with Invesco Aim Advisors, Inc. (the "Advisor" or "Invesco Aim"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Advisor based on the annual rate of the Fund's average daily net assets as follows:
AVERAGE NET ASSETS RATE - ------------------------------------------------------------------- First $250 million 0.65% - ------------------------------------------------------------------- Over $250 million 0.60% ___________________________________________________________________ ===================================================================
Under the terms of a master sub-advisory agreement approved by shareholders of the Fund on February 29, 2008, effective May 1, 2008, between the Advisor and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Global Asset Management (N.A.), Inc., Invesco Hong Kong Limited, Invesco Institutional (N.A.), Inc., Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the "Affiliated Sub-Advisors") the Advisor, not the Fund, may pay 40% of the fees paid to the Advisor to any such Affiliated Sub- Advisor(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Advisor(s). The Advisor 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, 2010. 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 Invesco Ltd. ("Invesco") 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. The Advisor did not waive fees and/or reimburse expenses during the period under this expense limitation. Further, the Advisor has contractually agreed, through at least April 30, 2010, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Advisor receives from the affiliated money market funds on investments by the Fund of uninvested cash (but not cash collateral from securities lending) in such affiliated money market funds. For the six months ended June 30, 2008, the Advisor waived advisory fees of $155,512. At the request of the Trustees of the Trust, Invesco agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the six months ended June 30, 2008, Invesco did not reimburse any expenses. The Trust has entered into a master administrative services agreement with Invesco Aim pursuant to which the Fund has agreed to pay Invesco Aim a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco Aim for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants' accounts. Pursuant to such agreement, for the six months ended June 30, 2008, Invesco Aim was paid $216,653 for accounting and fund administrative services and reimbursed $2,504,996 for services provided by insurance companies. The Trust has entered into a transfer agency and service agreement with Invesco Aim Investment Services, Inc. ("IAIS") pursuant to which the Fund has agreed to pay IAIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IAIS for certain expenses incurred by IAIS in the course of providing such services. For the six months ended June 30, 2008, 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 Invesco Aim Distributors, Inc. ("IADI") 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 IADI 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 six months ended June 30, 2008, expenses incurred under the Plan are detailed in the Statement of Operations as distribution fees. Certain officers and trustees of the Trust are officers and directors of Invesco Aim, IAIS and/or IADI. AIM V.I. CORE EQUITY FUND NOTE 3--SUPPLEMENTAL INFORMATION The Fund adopted the provisions of Statement of Financial Accounting Standards No. 157, "Fair Value Measurements" (SFAS 157), effective with the beginning of the Fund's fiscal year. SFAS 157 establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (level 1) and the lowest priority to unobservable inputs (level 3) market prices are not readily available or are unreliable. Based on the inputs the securities or other instruments are tiered into three levels of hierarchy under SFAS 157. Changes in valuation methods may result in transfers in or out of an investment's assigned level within the hierarchy, Level 1-- Quoted prices in an active market for identical assets. Level 2-- Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk and others. Level 3-- Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund's own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. Below is a summary of the tiered input levels, as of the end of the reporting period, June 30, 2008. The inputs or methods used for valuing securities may not be an indication of the risk associated with investing in those securities.
INVESTMENTS IN INPUT LEVEL SECURITIES - -------------------------------------- Level 1 $1,834,026,657 - -------------------------------------- Level 2 142,416,221 - -------------------------------------- Level 3 -- ====================================== $1,976,442,878 ______________________________________ ======================================
NOTE 4-- SECURITY TRANSACTIONS WITH AFFILIATED FUNDS The Fund is permitted to purchase or sell securities from or to certain other AIM Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment advisor (or affiliated investment advisors), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the six months ended June 30, 2008, the Fund engaged in securities purchases of $1,825,217. NOTE 5--EXPENSE OFFSET ARRANGEMENT The expense offset arrangement is comprised of custodian credits which result from periodic overnight cash balances at the custodian. For the six months ended June 30, 2008, the Fund received credits from this arrangement, which resulted in the reduction of the Fund's total expenses of $1,187. 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 certain Trustees and Officers of the Fund. 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, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund. During the six months ended June 30, 2008, the Fund paid legal fees of $4,327 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--CASH BALANCES The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The State Street Bank and Trust Company ("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 Invesco Aim, not to exceed the contractually agreed upon rate. AIM V.I. CORE EQUITY FUND NOTE 8--FOREIGN CURRENCY CONTRACTS
OPEN FOREIGN CURRENCY CONTRACTS AT PERIOD END - ---------------------------------------------------------------------------------------------------------------- CONTRACT TO SETTLEMENT ---------------------------------------- VALUE UNREALIZED DATE DELIVER RECEIVE 06/30/08 APPRECIATION - ---------------------------------------------------------------------------------------------------------------- 09/10/08 EUR 33,125,000 USD 51,970,831 $51,953,480 $ 17,351 ________________________________________________________________________________________________________________ ================================================================================================================
CONTRACT TO SETTLEMENT ---------------------------------------- VALUE UNREALIZED DATE DELIVER RECEIVE 06/30/08 (DEPRECIATION) - ------------------------------------------------------------------------------------------------------------------ 09/10/08 GBP 23,825,000 USD 46,816,363 $47,190,549 $(374,186) ================================================================================================================== Total open foreign currency contracts $(356,835) __________________________________________________________________________________________________________________ ==================================================================================================================
CLOSED FOREIGN CURRENCY CONTRACTS AT PERIOD END - ------------------------------------------------------------------------------------------------------------ CONTRACT TO CLOSED -------------------------------------- VALUE REALIZED DATE DELIVER RECEIVE 06/30/08 GAIN (LOSS) - ------------------------------------------------------------------------------------------------------------ 09/10/08 EUR 3,700,000 USD 5,805,781 $5,810,443 $ (4,662) - ------------------------------------------------------------------------------------------------------------ Total closed foreign currency contracts $ (4,662) ============================================================================================================ Total foreign currency contracts $(361,497) ____________________________________________________________________________________________________________ ============================================================================================================
Currency Abbreviations: EUR--Euro GBP--British Pound Sterling USD--U.S. Dollar
NOTE 9--TAX INFORMATION The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund's fiscal year-end. Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions. The Fund had a capital loss carryforward as of December 31, 2007 which expires as follows:
CAPITAL LOSS EXPIRATION CARRYFORWARD* - --------------------------------------------------------------------------------- December 31, 2009 $ 89,586,793 - --------------------------------------------------------------------------------- December 31, 2010 157,184,467 - --------------------------------------------------------------------------------- December 31, 2011 21,217,854 ================================================================================= Total capital loss carryforward $267,989,114 _________________________________________________________________________________ =================================================================================
* 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 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 six months ended June 30, 2008 was $306,443,634 and $360,561,359, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period end.
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS - ------------------------------------------------------------------------------------------------ Aggregate unrealized appreciation of investment securities $ 250,030,435 - ------------------------------------------------------------------------------------------------ Aggregate unrealized (depreciation) of investment securities (189,114,007) ================================================================================================ Net unrealized appreciation of investment securities $ 60,916,428 ________________________________________________________________________________________________ ================================================================================================ Cost of investments for tax purposes is $1,915,526,450.
AIM V.I. CORE EQUITY FUND NOTE 11--SHARE INFORMATION
CHANGES IN SHARES OUTSTANDING - -------------------------------------------------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED JUNE 30, 2008(a) DECEMBER 31, 2007 ---------------------------- ----------------------------- SHARES AMOUNT SHARES AMOUNT - -------------------------------------------------------------------------------------------------------------------------- Sold: Series I 1,014,678 $ 28,488,689 1,426,134 $ 41,447,869 - -------------------------------------------------------------------------------------------------------------------------- Series II 73,392 2,046,795 162,780 4,629,698 ========================================================================================================================== Issued as reinvestment of dividends: Series I -- -- 869,048 26,080,138 - -------------------------------------------------------------------------------------------------------------------------- Series II -- -- 11,166 332,527 ========================================================================================================================== Reacquired: Series I (8,976,728) (250,331,685) (22,533,393) (652,106,401) - -------------------------------------------------------------------------------------------------------------------------- Series II (127,657) (3,527,354) (440,110) (12,648,334) ========================================================================================================================== (8,016,315) $(223,323,555) (20,504,375) $(592,264,503) __________________________________________________________________________________________________________________________ ==========================================================================================================================
(a) There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 61% 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, Invesco Aim and/or Invesco Aim affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco Aim and or Invesco 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. CORE EQUITY FUND NOTE 12--FINANCIAL HIGHLIGHTS The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
SERIES I --------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, -------------------------------------------------------------- 2008 2007 2006 2005 2004 2003 - --------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 29.11 $ 27.22 $ 23.45 $ 22.60 $ 20.94 $ 16.99 - --------------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income 0.18(a) 0.42(a) 0.34(a) 0.24(a) 0.30(b) 0.17(a) - --------------------------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) (2.12) 1.80 3.58 0.96 1.58 3.97 ================================================================================================================================= Total from investment operations (1.94) 2.22 3.92 1.20 1.88 4.14 ================================================================================================================================= Less Dividends from net investment income -- (0.33) (0.15) (0.35) (0.22) (0.19) ================================================================================================================================= Net asset value, end of period $ 27.17 $ 29.11 $ 27.22 $ 23.45 $ 22.60 $ 20.94 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Total return(c) (6.67)% 8.12% 16.70% 5.31% 8.97% 24.42% _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratios/supplemental data: Net assets, end of period (000s omitted) $1,928,631 $2,298,007 $2,699,252 $1,246,529 $1,487,462 $1,555,475 _________________________________________________________________________________________________________________________________ ================================================================================================================================= Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 0.89%(d) 0.87% 0.89% 0.89% 0.91% 0.81% - --------------------------------------------------------------------------------------------------------------------------------- Without fee waivers and/or expense reimbursements 0.90%(d) 0.88% 0.89% 0.89% 0.91% 0.82% ================================================================================================================================= Ratio of net investment income to average net assets 1.29%(d) 1.44% 1.35% 1.08% 1.25%(b) 0.91% _________________________________________________________________________________________________________________________________ ================================================================================================================================= Portfolio turnover rate(e) 16% 45% 45% 52% 52% 31% _________________________________________________________________________________________________________________________________ =================================================================================================================================
(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 are not annualized for periods less than one year and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. (d) Ratios are annualized and based on average daily net assets of $2,088,201,073. (e) Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year.
SERIES II ------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ---------------------------------------------------- 2008 2007 2006 2005 2004 2003 - --------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 28.88 $ 27.02 $ 23.33 $22.48 $20.85 $16.94 - --------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income 0.14(a) 0.34(a) 0.28(a) 0.18(a) 0.21(b) 0.12(a) - --------------------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) (2.10) 1.80 3.55 0.96 1.60 3.96 =========================================================================================================================== Total from investment operations (1.96) 2.14 3.83 1.14 1.81 4.08 =========================================================================================================================== Less dividends from net investment income -- (0.28) (0.14) (0.29) (0.18) (0.17) =========================================================================================================================== Net asset value, end of period $ 26.92 $ 28.88 $ 27.02 $23.33 $22.48 $20.85 ___________________________________________________________________________________________________________________________ =========================================================================================================================== Total return(c) (6.79)% 7.88% 16.42% 5.08% 8.67% 24.15% ___________________________________________________________________________________________________________________________ =========================================================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $30,956 $34,772 $39,729 $3,858 $4,173 $3,808 ___________________________________________________________________________________________________________________________ =========================================================================================================================== Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 1.14%(d) 1.12% 1.14% 1.14% 1.16% 1.06% - --------------------------------------------------------------------------------------------------------------------------- Without fee waivers and/or expense reimbursements 1.15%(d) 1.13% 1.14% 1.14% 1.16% 1.07% =========================================================================================================================== Ratio of net investment income to average net assets 1.04%(d) 1.19% 1.10% 0.83% 1.00%(b) 0.66% ___________________________________________________________________________________________________________________________ =========================================================================================================================== Portfolio turnover rate(e) 16% 45% 45% 52% 52% 31% ___________________________________________________________________________________________________________________________ ===========================================================================================================================
(a) Calculated using average shares outstanding. (b) Net investment income per share and the ratio of net investment income to average net assets include a special cash dividend received of $3.00 per share owned of Microsoft Corp. on December 2, 2004. Net investment income per share and the ratio of net investment income to average net assets excluding the special dividend are $0.14 and 0.67%, respectively. (c) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. (d) Ratios are annualized and based on average daily net assets of $32,463,058. (e) Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year. AIM V.I. CORE EQUITY FUND NOTE 13--LEGAL PROCEEDINGS Terms used in the Legal Proceedings Note are defined terms solely for the purpose of this note. 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 Invesco Aim and IADI (Order No. 05-1318). The WVASC makes findings of fact that Invesco Aim and IADI 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 Invesco Aim and IADI violated the West Virginia securities laws. The WVASC orders Invesco Aim and IADI 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. By agreement with the Commissioner of Securities, Invesco Aim's time to respond to that Order has been indefinitely suspended. Civil lawsuits, including purported class action and shareholder derivative suits, have been filed against certain of the AIM Funds, Invesco Funds Group, Inc. ("IFG"), Invesco Aim, IADI 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; and - that certain AIM Funds inadequately employed fair value pricing. These lawsuits allege as theories of recovery, depending on the lawsuit, violations of various provisions of the Federal and state securities laws Employee Retirement Income Security Act of 1974, as amended ("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. The case pending in Illinois State Court regarding fair value pricing was dismissed with prejudice on May 6, 2008. 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 Invesco 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 ERISA purportedly brought on behalf of participants in the Invesco 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 Invesco defendants' motion to dismiss the Amended Class Action Complaint for Violations of ERISA and dismissed such Complaint. Plaintiff appealed this ruling. On June 16, 2008, the Fourth Court of Appeals reversed the dismissal and remanded this lawsuit back to the MDL Court for further proceedings. IFG, Invesco Aim, IADI 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, Invesco Aim and IADI 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, Invesco Aim and/or related entities and individuals in the future. At the present time, management of Invesco 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 Invesco Aim, IADI or the Fund. AIM V.I. CORE EQUITY FUND NOTE 12--LEGAL PROCEEDINGS--(CONTINUED) CALCULATING YOUR ONGOING FUND EXPENSES EXAMPLE As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2008, through June 30, 2008. The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower. ACTUAL EXPENSES The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled "Actual Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
- --------------------------------------------------------------------------------------------------- HYPOTHETICAL (5% ANNUAL RETURN BEFORE ACTUAL EXPENSES) ------------------------------------------------------ BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE CLASS (01/01/08) (06/30/08)(1) PERIOD(2) (06/30/08) PERIOD(2) RATIO - --------------------------------------------------------------------------------------------------- Series I $1,000.00 $933.30 $4.28 $1,020.44 $4.47 0.89% - --------------------------------------------------------------------------------------------------- Series II 1,000.00 932.10 5.48 1,019.19 5.72 1.14 - ---------------------------------------------------------------------------------------------------
(1) The actual ending account value is based on the actual total return of the Fund for the period January 1, 2008, through June 30, 2008, 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 182/366 to reflect the most recent fiscal half year. AIM V.I. CORE EQUITY FUND APPROVAL OF INVESTMENT ADVISORY AGREEMENT The Board of Trustees (the Board) of AIM comparative performance and fee data Trustees recognized that the advisory Variable Insurance Funds is required regarding the AIM Funds prepared by an arrangements and resulting advisory fees under the Investment Company Act of 1940 independent company, Lipper, Inc. (Lipper), for the Fund and the other AIM Funds are to approve annually the renewal of the under the direction and supervision of the the result of years of review and AIM V.I. Core Equity Fund (the Fund) independent Senior Officer who also prepares negotiation between the Trustees and investment advisory agreement with a separate analysis of this information for Invesco Aim, that the Trustees may focus Invesco Aim Advisors, Inc. (Invesco the Trustees. Each Sub-Committee then makes to a greater extent on certain aspects Aim). During contract renewal meetings recommendations to the Investments Committee of these arrangements in some years than held on June 18-19, 2008, the Board as a regarding the performance, fees and expenses in others, and that the Trustees' whole and the disinterested or of their assigned funds. The Investments deliberations and conclusions in a "independent" Trustees, voting Committee considers each Sub-Committee's particular year may be based in part on separately, approved the continuance of recommendations and makes its own their deliberations and conclusions of the Fund's investment advisory agreement recommendations regarding the performance, these same arrangements throughout the for another year, effective July 1, fees and expenses of the AIM Funds to the year and in prior years. 2008. In doing so, the Board determined full Board. The Investments Committee also that the Fund's investment advisory considers each Sub-Committee's FACTORS AND CONCLUSIONS AND SUMMARY OF agreement is in the best interests of recommendations in making its annual INDEPENDENT WRITTEN FEE EVALUATION the Fund and its shareholders and that recommendation to the Board whether to The discussion below serves as a summary the compensation to Invesco Aim under approve the continuance of each Invesco Aim of the Senior Officer's independent the Fund's investment advisory agreement Fund's investment advisory agreement and written evaluation with respect to the is fair and reasonable. sub-advisory agreements for another year. Fund's investment advisory agreement as The independent Trustees met separately The independent Trustees are assisted in well as a discussion of the material during their evaluation of the Fund's their annual evaluation of the Fund's factors and related conclusions that investment advisory agreement with investment advisory agreement by the formed the basis for the Board's independent legal counsel from whom they independent Senior Officer. One approval of the Fund's investment received independent legal advice, and the responsibility of the Senior Officer is to advisory agreement and sub-advisory independent Trustees also received manage the process by which the AIM Funds' agreements. Unless otherwise stated, assistance during their deliberations from proposed management fees are negotiated information set forth below is as of the independent Senior Officer, a full-time during the annual contract renewal process June 19, 2008 and does not reflect any officer of the AIM Funds who reports to ensure that they are negotiated in a changes that may have occurred since directly to the independent Trustees. manner that is at arms' length and that date, including but not limited to reasonable. Accordingly, the Senior Officer changes to the Fund's performance, THE BOARD'S FUND EVALUATION PROCESS must either supervise a competitive bidding advisory fees, expense limitations The Board's Investments Committee has process or prepare an independent written and/or fee waivers. established three Sub-Committees that are evaluation. The Senior Officer has responsible for overseeing the management of recommended that an independent written I. Investment Advisory Agreement a number of the series portfolios of the AIM evaluation be provided and, at the direction A. Nature, Extent and Quality of Funds. This Sub-Committee structure permits of the Board, has prepared an independent Services Provided by Invesco Aim the Trustees to focus on the performance of written evaluation. The Board reviewed the advisory services the AIM Funds that have been assigned to During the annual contract renewal provided to the Fund by Invesco Aim them. The Sub-Committees meet throughout the process, the Board considered the factors under the Fund's investment advisory year to review the performance of their discussed below under the heading "Factors agreement, the performance of Invesco assigned funds, and the Sub-Committees and Conclusions and Summary of Independent Aim in providing these services, and the review monthly and quarterly comparative Written Fee Evaluation" in evaluating the credentials and experience of the performance information and periodic asset fairness and reasonableness of the Fund's officers and employees of Invesco Aim flow data for their assigned funds. These investment advisory agreement and who provide these services. The Board's materials are prepared under the direction sub-advisory agreements at the contract review of the qualifications of Invesco and supervision of the independent Senior renewal meetings and at their meetings Aim to provide these services included Officer. Over the course of each year, the throughout the year as part of their ongoing the Board's consideration of Invesco Sub-Committees meet with portfolio managers oversight of the Fund. The Fund's investment Aim's portfolio and product review for their assigned funds and other members advisory agreement and sub-advisory process, various back office support of management and review with these agreements were considered separately, functions provided by Invesco Aim and individuals the performance, investment although the Board also considered the its affiliates, and Invesco Aim's equity objective(s), policies, strategies and common interests of all of the AIM Funds in and fixed income trading operations. The limitations of these funds. their deliberations. The Board considered Board concluded that the nature, extent In addition to their meetings throughout all of the information provided to them and and quality of the advisory services the year, the Sub-Committees meet at did not identify any particular factor that provided to the Fund by Invesco Aim were designated contract renewal meetings each was controlling. Each Trustee may have appropriate and that Invesco Aim year to conduct an in-depth review of the evaluated the information provided currently is providing satisfactory performance, fees and expenses of their differently from one another and attributed advisory services in accordance with the assigned funds. During the contract renewal different weight to the various factors. The terms of the Fund's investment advisory process, the Trustees receive agreement. In addition, based on their ongoing meetings throughout the year with the Fund's portfolio manager or managers, the Board concluded that these individuals are competent and able to continue to carry out their responsibili- continued
AIM V.I. CORE EQUITY FUND ties under the Fund's investment advisory review did not change their conclusions. each class of the Fund. The Board agreement. considered the contractual nature of In determining whether to continue C. Advisory Fees and Fee Waivers this fee waiver and noted that it the Fund's investment advisory The Board compared the Fund's remains in effect until at least April agreement, the Board considered the contractual advisory fee rate to the 30, 2010. The Board also considered the prior relationship between Invesco Aim contractual advisory fee rates of funds effect this fee waiver would have on the and the Fund, as well as the Board's in the Fund's Lipper expense group that Fund's total estimated expenses. knowledge of Invesco Aim's operations, are not managed by Invesco Aim, at a After taking account of the Fund's and concluded that it was beneficial to common asset level and as of the end of contractual advisory fee rate, as well maintain the current relationship, in the past calendar year. The Board noted as the comparative advisory fee part, because of such knowledge. The that the Fund's contractual advisory fee information and the fee waivers/expense Board also considered the steps that rate was at the median contractual limitations discussed above, the Board Invesco Aim and its affiliates have advisory fee rate of funds in its concluded that the Fund's advisory fees taken over the last several years to expense group. The Board also reviewed were fair and reasonable. improve the quality and efficiency of the methodology used by Lipper in the services they provide to the AIM determining contractual fee rates. D. Economies of Scale and Breakpoints Funds in the areas of investment The Board also compared the Fund's The Board considered the extent to which performance, product line effective fee rate (the advisory fee there are economies of scale in Invesco diversification, distribution, fund after any advisory fee waivers and Aim's provision of advisory services to operations, shareholder services and before any expense limitations/waivers) the Fund. The Board also considered compliance. The Board concluded that the to the advisory fee rates of other whether the Fund benefits from such quality and efficiency of the services clients of Invesco Aim and its economies of scale through contractual Invesco Aim and its affiliates provide affiliates with investment strategies breakpoints in the Fund's advisory fee to the AIM Funds in each of these areas comparable to those of the Fund, schedule or through advisory fee waivers generally have improved, and support the including three mutual funds advised by or expense limitations. The Board noted Board's approval of the continuance of Invesco Aim and one mutual fund that the Fund's contractual advisory fee the Fund's investment advisory sub-advised by an Invesco Aim affiliate. schedule includes one breakpoint and agreement. The Board noted that the Fund's rate that the level of the Fund's advisory was: (i) above the rate for two of the fees, as a percentage of the Fund's net B. Fund Performance mutual funds and the same as the rate assets, has decreased as net assets The Board compared the Fund's for the other mutual fund; and (ii) increased because of the breakpoint. The performance during the past one, three above the sub-advisory fee rate for the Board also noted that Invesco Aim's and five calendar years to the sub-advised mutual fund. contractual advisory fee waiver performance of funds in the Fund's Additionally, the Board compared the discussed above includes breakpoints performance group that are not managed Fund's effective fee rate to the total based on net asset levels. Based on this by Invesco Aim, and against the advisory fees paid by numerous information, the Board concluded that performance of all funds in the Lipper separately managed accounts/wrap the Fund's advisory fees appropriately Variable Annuity Underlying Funds - accounts advised by Invesco Aim reflect economies of scale at current Large-Cap Core Index. The Board also affiliates. The Board noted that the asset levels. The Board also noted that reviewed the criteria used by Invesco Fund's rate was generally above the the Fund shares directly in economies of Aim to identify the funds in the Fund's rates for the separately managed scale through lower fees charged by performance group for inclusion in the accounts/wrap accounts. The Board third party service providers based on Lipper reports. The Board noted that the considered that management of the the combined size of all of the AIM Fund's performance was in the third separately managed accounts/ wrap Funds and affiliates. quintile of its performance group for accounts by the Invesco Aim affiliates the one and five year periods and the involves different levels of services E. Profitability and Financial second quintile for the three year and different operational and regulatory Resources of Invesco Aim period (the first quintile being the requirements than Invesco Aim's The Board reviewed information from best performing funds and the fifth management of the Fund. The Board Invesco Aim concerning the costs of the quintile being the worst performing concluded that these differences are advisory and other services that Invesco funds). The Board noted that the Fund's appropriately reflected in the fee Aim and its affiliates provide to the performance was above the performance of structure for the Fund. Fund and the profitability of Invesco the Index for the one and three year The Board noted that Invesco Aim has Aim and its affiliates in providing periods, and below the performance of contractually agreed to waive advisory these services. The Board also reviewed the Index for the five year period. The fees of the Fund through December 31, information concerning the financial Board also considered the steps Invesco 2009 and that this fee waiver includes condition of Invesco Aim and its Aim has taken over the last several breakpoints based on net asset levels. affiliates. The Board also reviewed with years to improve the quality and The Board considered the contractual Invesco Aim the methodology used to efficiency of the services that Invesco nature of this fee waiver and noted that prepare the profitability information. Aim provides to the AIM Funds. The Board it remains in effect until December 31, The Board considered the overall concluded that Invesco Aim continues to 2009. The Board also noted that Invesco profitability of Invesco Aim, as well as be responsive to the Board's focus on Aim has contractually agreed to waive the profitability of Invesco Aim in fund performance. Although the fees and/or limit expenses of the Fund connection with managing the Fund. The independent written evaluation of the through at least April 30, 2010 in an Board noted that Invesco Aim continues Fund's Senior Officer only considered amount necessary to limit total annual to operate at a net profit, although Fund performance through the most recent operating expenses to a specified increased expenses in recent years have calendar year, the Board also reviewed percentage of average daily net assets reduced the profitability of Invesco Aim more recent Fund performance and this for continued
AIM V.I. CORE EQUITY FUND and its affiliates. The Board concluded Aim are used to pay for research and and quality of the services to be that the Fund's fees were fair and execution services. The Board noted that provided by the Affiliated Sub-Advisers reasonable, and that the level of soft dollar arrangements shift the were appropriate. The Board noted that profits realized by Invesco Aim and its payment obligation for the research and the Affiliated Sub-Advisers, which have affiliates from providing services to execution services from Invesco Aim to offices and personnel that are the Fund was not excessive in light of the funds and therefore may reduce geographically dispersed in financial the nature, quality and extent of the Invesco Aim's expenses. The Board also centers around the world, have been services provided. The Board considered noted that research obtained through formed in part for the purpose of whether Invesco Aim is financially sound soft dollar arrangements may be used by researching and compiling information and has the resources necessary to Invesco Aim in making investment and making recommendations on the perform its obligations under the Fund's decisions for the Fund and may therefore markets and economies of various investment advisory agreement, and benefit Fund shareholders. The Board countries and securities of companies concluded that Invesco Aim has the concluded that Invesco Aim's soft dollar located in such countries or on various financial resources necessary to fulfill arrangements were appropriate. The Board types of investments and investment these obligations. also concluded that, based on their techniques, and providing investment review and representations made by advisory services. The Board concluded F. Independent Written Evaluation of Invesco Aim, these arrangements were that the sub-advisory agreements will the Fund's Senior Officer consistent with regulatory requirements. benefit the Fund and its shareholders by The Board noted that, at their The Board considered the fact that permitting Invesco Aim to utilize the direction, the Senior Officer of the the Fund's uninvested cash and cash additional resources and talent of the Fund, who is independent of Invesco Aim collateral from any securities lending Affiliated Sub-Advisers in managing the and Invesco Aim's affiliates, had arrangements may be invested in money Fund. prepared an independent written market funds advised by Invesco Aim evaluation to assist the Board in pursuant to procedures approved by the B. Fund Performance determining the reasonableness of the Board. The Board noted that Invesco Aim The Board did not view Fund performance proposed management fees of the AIM will receive advisory fees from these as a relevant factor in considering Funds, including the Fund. The Board affiliated money market funds whether to approve the sub-advisory noted that they had relied upon the attributable to such investments, agreements for the Fund, as no Senior Officer's written evaluation although Invesco Aim has contractually Affiliated Sub-Adviser currently manages instead of a competitive bidding agreed to waive through at least April any portion of the Fund's assets. process. In determining whether to 30, 2010, the advisory fees payable by continue the Fund's investment advisory the Fund in an amount equal to 100% of C. Sub-Advisory Fees agreement, the Board considered the the net advisory fees Invesco Aim The Board considered the services to be Senior Officer's written evaluation. receives from the affiliated money provided by the Affiliated Sub-Advisers market funds with respect to the Fund's pursuant to the sub-advisory agreements G. Collateral Benefits to Invesco Aim investment of uninvested cash, but not and the services to be provided by and its Affiliates cash collateral. The Board considered Invesco Aim pursuant to the Fund's The Board considered various other the contractual nature of this fee investment advisory agreement, as well benefits received by Invesco Aim and its waiver and noted that it remains in as the allocation of fees between affiliates resulting from Invesco Aim's effect until at least April 30, 2010. Invesco Aim and the Affiliated relationship with the Fund, including The Board concluded that the Fund's Sub-Advisers pursuant to the the fees received by Invesco Aim and its investment of uninvested cash and cash sub-advisory agreements. The Board noted affiliates for their provision of collateral from any securities lending that the sub-advisory fees have no administrative, transfer agency and arrangements in the affiliated money direct effect on the Fund or its distribution services to the Fund. The market funds is in the best interests of shareholders, as they are paid by Board considered the performance of the Fund and its shareholders. Invesco Aim to the Affiliated Invesco Aim and its affiliates in Sub-Advisers, and that Invesco Aim and providing these services and the II. Sub-Advisory Agreements the Affiliated Sub-Advisers are organizational structure employed by A. Nature, Extent and Quality of affiliates. After taking account of the Invesco Aim and its affiliates to Services Provided by Affiliated Fund's contractual sub-advisory fee provide these services. The Board also Sub-Advisers rate, as well as other relevant factors, considered that these services are The Board reviewed the services to be the Board concluded that the Fund's provided to the Fund pursuant to written provided by Invesco Trimark Ltd., sub-advisory fees were fair and contracts which are reviewed and Invesco Asset Management Deutschland, reasonable. approved on an annual basis by the GmbH, Invesco Asset Management Limited, Board. The Board concluded that Invesco Invesco Asset Management (Japan) D. Financial Resources of the Aim and its affiliates were providing Limited, Invesco Australia Limited, Affiliated Sub-Advisers these services in a satisfactory manner Invesco Global Asset Management (N.A.), The Board considered whether each and in accordance with the terms of Inc., Invesco Hong Kong Limited, Invesco Affiliated Sub-Adviser is financially their contracts, and were qualified to Institutional (N.A.), Inc. and Invesco sound and has the resources necessary to continue to provide these services to Senior Secured Management, Inc. perform its obligations under its the Fund. (collectively, the "Affiliated respective sub-advisory agreement, and The Board considered the benefits Sub-Advisers") under the sub-advisory concluded that each Affiliated realized by Invesco Aim as a result of agreements and the credentials and Sub-Adviser has the financial resources portfolio brokerage transactions experience of the officers and employees necessary to fulfill these obligations. executed through "soft dollar" of the Affiliated Sub-Advisers who will arrangements. Under these arrangements, provide these services. The Board portfolio brokerage commissions paid by concluded that the nature, extent the Fund and/or other funds advised by Invesco
AIM V.I. CORE EQUITY FUND PROXY RESULTS A Special Meeting ("Meeting") of Shareholders of AIM V.I. Core Equity Fund, an investment portfolio of AIM Variable Insurance Funds, a Delaware statutory trust ("Trust"), was held on February 29, 2008. The Meeting was held for the following purposes: (1) Elect 13 trustees to the Board of Trustees of the Trust, each of whom will serve until his or her successor is elected and qualified. (2) Approve an amendment to the Trust's Agreement and Declaration of Trust that would permit the Board of Trustees of the Trust to terminate the Trust, the Fund, and each other series portfolio of the Trust, or a share class without a shareholder vote. (3) Approve a new sub-advisory agreement between Invesco Aim Advisors, Inc. and each of AIM Funds Management, Inc.; Invesco Asset Management Deutschland, GmbH; Invesco Asset Management Limited; Invesco Asset Management (Japan) Limited; Invesco Australia Limited; Invesco Global Asset Management (N.A.), Inc.; Invesco Hong Kong Limited; Invesco Institutional (N.A.), Inc.; and Invesco Senior Secured Management, Inc. The results of the voting on the above matters were as follows:
WITHHELD/ MATTERS VOTES FOR ABSTENTIONS** - ----------------------------------------------------------------------------------------------------------- (1)* Bob R. Baker...................................................... 474,883,590 19,741,622 Frank S. Bayley................................................... 474,653,109 19,972,103 James T. Bunch.................................................... 475,597,417 19,027,795 Bruce L. Crockett................................................. 474,900,579 19,724,633 Albert R. Dowden.................................................. 474,749,929 19,875,283 Jack M. Fields.................................................... 475,205,840 19,419,372 Martin L. Flanagan................................................ 475,248,336 19,376,876 Carl Frischling................................................... 474,453,674 20,171,538 Prema Mathai-Davis................................................ 473,569,192 21,056,020 Lewis F. Pennock.................................................. 475,072,501 19,552,711 Larry Soll, Ph.D. ................................................ 475,170,544 19,454,668 Raymond Stickel, Jr. ............................................. 475,420,825 19,204,387 Philip A. Taylor.................................................. 475,640,570 18,984,642
VOTES WITHHELD/ VOTES FOR AGAINST ABSTENTIONS - ------------------------------------------------------------------------------------------------------------------- (2)* Approve an amendment to the Trust's Agreement and Declaration of Trust that would permit the Board of Trustees of the Trust to terminate the Trust, the Fund, and each other series portfolio of the Trust, or a share class without a shareholder vote.......................... 438,131,484 35,586,925 20,906,803 (3) Approve a new sub-advisory agreement between Invesco Aim Advisors, Inc. and each of AIM Funds Management, Inc.; Invesco Asset Management Deutschland, GmbH; Invesco Asset Management Limited; Invesco Asset Management (Japan) Limited; Invesco Australia Limited; Invesco Global Asset Management (N.A.), Inc.; Invesco Hong Kong Limited; Invesco Institutional (N.A.), Inc.; and Invesco Senior Secured Management, Inc. ................................. 67,375,880 2,746,844 3,323,663
* Proposals 1 and 2 required approval by a combined vote of all of the portfolios of AIM Variable Insurance Funds. ** Includes Broker Non-Votes. AIM V.I. CORE EQUITY FUND [INVESCO AIM LOGO] AIM V.I. DIVERSIFIED INCOME FUND - SERVICE MARK - Semiannual Report to Shareholders - June 30, 2008 AIM Investments [MOUNTAIN GRAPHIC] became INVESCO AIM on March 31, 2008. For more details, go to invescoaim.com 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 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 Invesco Aim Web site, invescoaim.com. On the home page, scroll down and click on 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, 2008, is available at our Web site. Go to invescoaim.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 noted, all data provided by Invesco Aim. THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND PROSPECTUS AND VARIABLE PRODUCT PROSPECTUS, WHICH CONTAIN MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ EACH CAREFULLY BEFORE INVESTING. Invesco Aim Distributors, Inc. NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE FUND PERFORMANCE ======================================================================================= PERFORMANCE SUMMARY FUND VS. INDEXES Cumulative total returns, 12/31/07 to 6/30/08, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower. Series I Shares -2.31% Series II Shares -2.45 Lehman Brothers U.S. Aggregate Bond Index(TRIANGLE) (Broad Market Index) 1.13 Lehman Brothers U.S. Credit Index(TRIANGLE) (Style-Specific Index) -0.48 Lipper VUF Corporate Debt BBB-Rated Funds Index(TRIANGLE) (Peer Group Index) 0.05 (TRIANGLE)Lipper Inc. The LEHMAN BROTHERS U.S. AGGREGATE BOND INDEX covers U.S. investment-grade fixed-rate bonds with components for government and corporate securities, mortgage pass-throughs, and asset-backed securities. The LEHMAN BROTHERS U.S. CREDIT INDEX is an unmanaged index that consists of publicly issued, SEC-registered U.S. corporate and specified foreign debentures and secured notes that meet the specified maturity, liquidity, and quality requirements. The LIPPER VUF CORPORATE DEBT BBB-RATED FUNDS INDEX is an equally weighted representation of the largest variable insurance underlying funds in the Lipper Corporate Debt BBB-Rated Funds category. These funds invest at least 65% of assets in corporate and government debt issues rated in the top four grades. The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes. A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of an index of funds reflects fund expenses; performance of a market index does not. ======================================================================================= ========================================== AVERAGE ANNUAL TOTAL RETURNS HIGHER. PLEASE CONTACT YOUR VARIABLE SHARES OF THE FUND DIRECTLY. PERFORMANCE As of 6/30/08 PRODUCT ISSUER OR FINANCIAL ADVISOR FOR FIGURES GIVEN REPRESENT THE FUND AND ARE THE MOST RECENT MONTH-END VARIABLE PRODUCT NOT INTENDED TO REFLECT ACTUAL VARIABLE SERIES I SHARES PERFORMANCE. PERFORMANCE FIGURES REFLECT PRODUCT VALUES. THEY DO NOT REFLECT SALES Inception (5/5/93) 4.40% FUND EXPENSES, REINVESTED DISTRIBUTIONS CHARGES, EXPENSES AND FEES ASSESSED IN 10 Years 2.47 AND CHANGES IN NET ASSET VALUE. INVESTMENT CONNECTION WITH A VARIABLE PRODUCT. SALES 5 Years 2.52 RETURN AND PRINCIPAL VALUE WILL FLUCTUATE CHARGES, EXPENSES AND FEES, WHICH ARE 1 Year -1.93 SO THAT YOU MAY HAVE A GAIN OR LOSS WHEN DETERMINED BY THE VARIABLE PRODUCT YOU SELL SHARES. ISSUERS, WILL VARY AND WILL LOWER THE SERIES II SHARES THE NET ANNUAL FUND OPERATING EXPENSE TOTAL RETURN. 10 Years 2.21% RATIO SET FORTH IN THE MOST RECENT FUND THE MOST RECENT MONTH-END PERFORMANCE 5 Years 2.25 PROSPECTUS AS OF THE DATE OF THIS REPORT DATA AT THE FUND LEVEL, EXCLUDING VARIABLE 1 Year -2.17 FOR SERIES I AND SERIES II SHARES WAS PRODUCT CHARGES, IS AVAILABLE ON THE ========================================== 0.75% AND 1.00%, RESPECTIVELY.(1) THE INVESCO AIM AUTOMATED INFORMATION LINE, TOTAL ANNUAL FUND OPERATING EXPENSE RATIO 866 702 4402. AS MENTIONED ABOVE, FOR THE SERIES II SHARES' INCEPTION DATE IS MARCH SET FORTH IN THE MOST RECENT FUND MOST RECENT MONTH-END PERFORMANCE 14, 2002. RETURNS SINCE THAT DATE ARE PROSPECTUS AS OF THE DATE OF THIS REPORT INCLUDING VARIABLE PRODUCT CHARGES, PLEASE HISTORICAL. ALL OTHER RETURNS ARE THE FOR SERIES I AND SERIES II SHARES WAS CONTACT YOUR VARIABLE PRODUCT ISSUER OR BLENDED RETURNS OF THE HISTORICAL 1.17% AND 1.42%, RESPECTIVELY. THE EXPENSE FINANCIAL ADVISOR. PERFORMANCE OF SERIES II SHARES SINCE RATIOS PRESENTED ABOVE MAY VARY FROM THE HAD THE ADVISOR NOT WAIVED FEES AND/OR THEIR INCEPTION AND THE RESTATED EXPENSE RATIOS PRESENTED IN OTHER SECTIONS REIMBURSED EXPENSES, PERFORMANCE WOULD HISTORICAL PERFORMANCE OF SERIES I SHARES OF THIS REPORT THAT ARE BASED ON EXPENSES HAVE BEEN LOWER. (FOR PERIODS PRIOR TO INCEPTION OF SERIES INCURRED DURING THE PERIOD COVERED BY THIS II SHARES) ADJUSTED TO REFLECT THE RULE REPORT. (1) Total annual operating expenses less 12B-1 FEES APPLICABLE TO SERIES II SHARES. AIM V.I. DIVERSIFIED INCOME FUND, A any contractual fee waivers and/or THE INCEPTION DATE OF SERIES I SHARES IS SERIES PORTFOLIO OF AIM VARIABLE INSURANCE expense reimbursements by the advisor MAY 5, 1993. THE PERFORMANCE OF THE FUND'S FUNDS, IS CURRENTLY OFFERED THROUGH in effect through at least April 30, SERIES I AND SERIES II SHARE CLASSES WILL INSURANCE COMPANIES ISSUING VARIABLE 2010. See current prospectus for more DIFFER PRIMARILY DUE TO DIFFERENT CLASS PRODUCTS. YOU CANNOT PURCHASE information. EXPENSES. THE PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE AND CANNOT GUARANTEE COMPARABLE FUTURE RESULTS; CURRENT PERFORMANCE MAY BE LOWER OR
AIM V.I. DIVERSIFIED INCOME FUND PORTFOLIO COMPOSITION By industry, based on Total Investments as of June 30, 2008 - ------------------------------------------------------------------------- Other Diversified Financial Services 17.9% - ------------------------------------------------------------------------- Diversified Banks 9.9 - ------------------------------------------------------------------------- Property & Casualty Insurance 7.8 - ------------------------------------------------------------------------- U.S. Government Sponsored Mortgage-Backed Securities 6.6 - ------------------------------------------------------------------------- Broadcasting & Cable TV 4.6 - ------------------------------------------------------------------------- Integrated Telecommunication Services 3.9 - ------------------------------------------------------------------------- Regional Banks 3.8 - ------------------------------------------------------------------------- Wireless Telecommunication Services 3.8 - ------------------------------------------------------------------------- U.S. Treasury Notes 3.4 - ------------------------------------------------------------------------- Investment Banking & Brokerage 3.3 - ------------------------------------------------------------------------- Industries each less than 3% of Total Net Assets 42.2 - ------------------------------------------------------------------------- Other Assets Less Liabilities (7.2) _________________________________________________________________________ =========================================================================
SCHEDULE OF INVESTMENTS(a) June 30, 2008 (Unaudited)
PRINCIPAL AMOUNT VALUE - ------------------------------------------------------------------------------ BONDS & NOTES-79.88% AEROSPACE & DEFENSE-0.88% Systems 2001 Asset Trust LLC (United Kingdom)-Series 2001, Class G, Jr. Sec. Pass Through Ctfs., (INS-MBIA Insurance Corp.) 6.66%, 09/15/13(b)(c)(d) $ 281,031 $ 288,746 ============================================================================== AIRLINES-0.51% Southwest Airlines Co., Sr. Unsec. Bonds, 7.38%, 03/01/27(c) 190,000 167,806 ============================================================================== ALTERNATIVE CARRIERS-0.17% Level 3 Financing Inc., Sr. Unsec. Gtd. Unsub. Global Notes, 9.25%, 11/01/14(c) 60,000 54,900 ============================================================================== ALUMINUM-0.59% Novelis Inc. (Canada), Sr. Unsec. Gtd. Global Notes, 7.25%, 02/15/15(c) 205,000 193,725 ============================================================================== ASSET MANAGEMENT & CUSTODY BANKS-0.79% Bank of New York Institutional Capital Trust- Series A, Jr. Sub. Trust Pfd. Capital Securities, 7.78%, 12/01/26(c)(d) 250,000 260,283 ============================================================================== BROADCASTING & CABLE TV-4.48% Comcast Cable Communications Holdings Inc., Sr. Unsec. Gtd. Global Notes, 9.46%, 11/15/22(c) 440,000 535,603 - ------------------------------------------------------------------------------ Comcast Corp., Unsec. Gtd. Unsub. Global Notes, 6.40%, 05/15/38(c) 80,000 74,417 - ------------------------------------------------------------------------------ Unsec. Gtd. Unsub. Notes, 5.70%, 05/15/18(c) 120,000 114,481 - ------------------------------------------------------------------------------ Comcast Holdings Corp., Sr. Gtd. Sub. Notes, 10.63%, 07/15/12(c) 485,000 563,274 - ------------------------------------------------------------------------------ Cox Enterprises, Inc., Sr. Unsec. Notes, 7.88%, 09/15/10(c)(d) 120,000 126,731 - ------------------------------------------------------------------------------ CSC Holdings, Inc.- Series B, Sr. Unsec. Notes, 7.63%, 04/01/11(c) 55,000 54,175 ============================================================================== 1,468,681 ============================================================================== CONSUMER FINANCE-2.87% American Express Credit Corp., Series C, Sr. Unsec. Floating Rate Medium-Term Notes, 3.88%, 05/27/10(c)(e) 70,000 70,036 - ------------------------------------------------------------------------------ Sr. Unsec. Medium-Term Notes, 5.88%, 05/02/13(c) 105,000 104,649 - ------------------------------------------------------------------------------ Capital One Capital III, Jr. Gtd. Sub. Notes, 7.69%, 08/15/36(c) 260,000 216,240 - ------------------------------------------------------------------------------
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. DIVERSIFIED INCOME FUND
PRINCIPAL AMOUNT VALUE - ------------------------------------------------------------------------------ CONSUMER FINANCE-(CONTINUED) Ford Motor Credit Co. LLC, Sr. Unsec. Notes, 8.00%, 12/15/16(c) $ 230,000 $ 170,057 - ------------------------------------------------------------------------------ SLM Corp., Sr. Unsec. Floating Rate Medium-Term Notes, 2.88%, 03/16/09(c)(d)(e) 400,000 380,629 ============================================================================== 941,611 ============================================================================== DEPARTMENT STORES-1.19% Macys Retail Holdings Inc., Sr. Unsec. Gtd. Notes, 6.30%, 04/01/09(c) 390,000 390,179 ============================================================================== DISTILLERS & VINTNERS-0.12% Constellation Brands Inc., Sr. Unsec. Gtd. Global Notes, 7.25%, 05/15/17(c) 40,000 37,900 ============================================================================== DIVERSIFIED BANKS-9.92% Bangkok Bank PCL (Hong Kong), Unsec. Sub. Notes, 9.03%, 03/15/29(c)(d) 400,000 438,680 - ------------------------------------------------------------------------------ BankAmerica Institutional-Series A, Jr. Unsec. Gtd. Sub. Trust Pfd. Capital Securities, 8.07%, 12/31/26(c)(d) 200,000 206,178 - ------------------------------------------------------------------------------ BBVA International Preferred S.A. Unipersonal (Spain), Jr. Unsec. Gtd. Sub. Notes, 5.92%(c)(f) 250,000 205,123 - ------------------------------------------------------------------------------ Centura Capital Trust I, Gtd. Trust Pfd. Capital Securities, 8.85%, 06/01/27(c)(d) 500,000 516,060 - ------------------------------------------------------------------------------ First Empire Capital Trust I, Jr. Unsec. Gtd. Sub. Trust Pfd. Capital Securities, 8.23%, 02/01/27(c) 260,000 262,064 - ------------------------------------------------------------------------------ Lloyds TSB Bank PLC (United Kingdom)- Series 1, Unsec. Sub. Floating Rate Euro Notes, 3.50%(c)(e)(f) 180,000 118,058 - ------------------------------------------------------------------------------ Mizuho Financial Group Cayman Ltd. (Cayman Islands), Jr. Unsec. Gtd. Sub. Second Tier Euro Bonds, 8.38%(c)(f) 100,000 100,217 - ------------------------------------------------------------------------------ National Bank of Canada (Canada), Unsec. Sub. Floating Rate Euro Deb., 5.56%, 08/29/87 (Acquired 02/24/04; Cost $171,200)(e)(g) 200,000 129,000 - ------------------------------------------------------------------------------ National Westminster Bank PLC (United Kingdom)- Series B, Unsec. Sub. Floating Rate Euro Notes, 3.25%(c)(e)(f) 280,000 183,400 - ------------------------------------------------------------------------------ RBD Capital S.A. (Luxembourg), Euro Notes, 6.50%, 08/11/08(c) 110,000 109,969 - ------------------------------------------------------------------------------ RBS Capital Trust III, Jr. Unsec. Gtd. Sub. Trust Pfd. Global Notes, 5.51%(c)(f) 120,000 103,074 - ------------------------------------------------------------------------------ Sovereign Bancorp Inc., Sr. Unsec. Floating Rate Global Notes, 2.96%, 03/01/09(c)(e) 110,000 105,791 - ------------------------------------------------------------------------------ Sumitomo Mitsui Banking Corp. (Japan), Sub. Second Tier Euro Notes, 8.15%(c)(f) 280,000 281,809 - ------------------------------------------------------------------------------ U.S. Bank N.A., Sr. Unsec. Medium-Term Notes, 5.92%, 05/25/12(c) 219,953 230,341 - ------------------------------------------------------------------------------ Wachovia Capital Trust V, Jr. Unsec. Gtd. Sub. Trust Pfd. Capital Securities, 7.97%, 06/01/27(c)(d) 260,000 262,889 ============================================================================== 3,252,653 ============================================================================== DIVERSIFIED CAPITAL MARKETS-0.87% Credit Suisse New York (Switzerland), Sr. Unsec. Medium Term Notes, 5.00%, 05/15/13(c) 190,000 187,439 - ------------------------------------------------------------------------------ UBS A.G. (Switzerland), Sr. Unsec. Medium-Term Notes, 5.75%, 04/25/18(c) 100,000 97,773 ============================================================================== 285,212 ============================================================================== DIVERSIFIED COMMERCIAL & PROFESSIONAL SERVICES-1.16% Erac USA Finance Co., Sr. Unsec. Gtd. Notes, 7.00%, 10/15/37(c)(d) 400,000 337,804 - ------------------------------------------------------------------------------ GEO Group, Inc. (The), Sr. Unsec. Global Notes, 8.25%, 07/15/13(c) 40,000 41,000 ============================================================================== 378,804 ============================================================================== DIVERSIFIED METALS & MINING-0.15% Reynolds Metals Co., Sr. Unsec. Unsub. Medium-Term Notes, 7.00%, 05/15/09(c) 47,000 48,138 ============================================================================== ELECTRIC UTILITIES-0.92% Edison Mission Energy, Sr. Unsec. Global Notes, 7.00%, 05/15/17(c) 80,000 75,400 - ------------------------------------------------------------------------------ Tenaska Alabama Partners L.P., Sr. Sec. Mortgage Notes, 7.00%, 06/30/21(c)(d) 122,340 117,140 - ------------------------------------------------------------------------------ Westar Energy, Inc., Sr. Sec. First Mortgage Notes, 7.13%, 08/01/09(c) 105,000 107,874 ============================================================================== 300,414 ============================================================================== GENERAL MERCHANDISE STORES-0.17% Pantry, Inc. (The), Sr. Gtd. Sub. Global Notes, 7.75%, 02/15/14(c) 75,000 57,000 ==============================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. DIVERSIFIED INCOME FUND
PRINCIPAL AMOUNT VALUE - ------------------------------------------------------------------------------ HEALTH CARE SERVICES-0.58% Orlando Lutheran Towers Inc., Bonds, 7.75%, 07/01/11(c) $ 70,000 $ 69,843 - ------------------------------------------------------------------------------ 8.00%, 07/01/17 (Acquired 06/13/07; Cost $125,000)(g) 125,000 121,438 ============================================================================== 191,281 ============================================================================== HOMEBUILDING-1.20% D.R. Horton, Inc., Sr. Unsec. Gtd. Unsub. Notes, 8.00%, 02/01/09(c) 200,000 200,750 - ------------------------------------------------------------------------------ 7.88%, 08/15/11(c) 200,000 193,000 ============================================================================== 393,750 ============================================================================== INDUSTRIAL CONGLOMERATES-0.22% General Electric Capital Corp., Sr. Unsec. Medium-Term Global Notes, 5.88%, 01/14/38(c) 80,000 72,719 ============================================================================== INTEGRATED OIL & GAS-1.65% Husky Oil Ltd. (Canada), Unsec. Sub. Yankee Capital Securities, 8.90%, 08/15/28(c) 540,000 542,490 ============================================================================== INTEGRATED TELECOMMUNICATION SERVICES-3.89% AT&T Inc., Sr. Unsec. Unsub. Global Notes, 6.40%, 05/15/38(c) 130,000 125,004 - ------------------------------------------------------------------------------ Embarq Corp., Sr. Unsec. Unsub. Notes, 7.08%, 06/01/16(c) 150,000 143,278 - ------------------------------------------------------------------------------ Pacific Bell Telephone Co., Sr. Unsec. Gtd. Bonds, 7.38%, 07/15/43(c) 380,000 390,925 - ------------------------------------------------------------------------------ Southwestern Bell Telephone L.P., Sr. Unsec. Gtd. Unsub. Deb., 7.20%, 10/15/26(c) 180,000 182,297 - ------------------------------------------------------------------------------ Verizon Florida Inc.- Series F, Sr. Unsec. Deb., 6.13%, 01/15/13(c) 150,000 151,531 - ------------------------------------------------------------------------------ Verizon New York Inc., Sr. Unsec. Bonds, 7.00%, 12/01/33(c) 180,000 178,483 - ------------------------------------------------------------------------------ Verizon Virginia Inc.- Series A, Sr. Unsec. Global Bonds, 4.63%, 03/15/13(c) 108,000 105,147 ============================================================================== 1,276,665 ============================================================================== INTERNET RETAIL-1.17% Expedia, Inc., Sr. Unsec. Gtd. Putable Global Notes, 7.46%, 08/15/13(c) 400,000 382,000 ============================================================================== INVESTMENT BANKING & BROKERAGE-3.34% Bear Stearns Cos. Inc., (The), Floating Rate Notes, 3.22%, 07/19/10(c)(e) 260,000 255,798 - ------------------------------------------------------------------------------ Dryden Investor Trust, Bonds, 7.16%, 07/23/08(c)(d) 25,680 25,702 - ------------------------------------------------------------------------------ Goldman Sachs Group, Inc. (The), Sr. Unsec. Global Notes, 6.15%, 04/01/18(c) 55,000 53,573 - ------------------------------------------------------------------------------ Unsec. Sub. Global Notes, 6.75%, 10/01/37(c) 140,000 130,133 - ------------------------------------------------------------------------------ Jefferies Group, Inc., Sr. Unsec. Notes, 6.45%, 06/08/27(c) 400,000 314,252 - ------------------------------------------------------------------------------ Lehman Brothers Holdings Inc., Sr. Floating Rate Medium-Term Notes, 2.53%, 11/24/08(c)(e) 50,000 49,276 - ------------------------------------------------------------------------------ Merrill Lynch & Co Inc., Sr. Unsec. Medium-Term Notes, 6.88%, 04/25/18(c) 155,000 147,606 - ------------------------------------------------------------------------------ Morgan Stanley- Series F, Sr. Unsec. Medium-Term Global Notes, 5.95%, 12/28/17(c) 130,000 118,971 ============================================================================== 1,095,311 ============================================================================== LIFE & HEALTH INSURANCE-1.54% Americo Life Inc., Notes, 7.88%, 05/01/13(c)(d) 95,000 96,655 - ------------------------------------------------------------------------------ Prudential Financial, Inc., Jr. Unsec. Sub. Global Notes, 8.88%, 06/15/38(c) 130,000 129,168 - ------------------------------------------------------------------------------ Prudential Holdings, LLC- Series B, Sr. Sec. Bonds, (INS-Financial Security Assurance Inc.) 7.25%, 12/18/23(b)(c)(d) 260,000 278,197 ============================================================================== 504,020 ============================================================================== MOVIES & ENTERTAINMENT-2.08% News America Holdings Inc., Sr. Unsec. Gtd. Deb., 7.75%, 12/01/45(c) 380,000 412,103 - ------------------------------------------------------------------------------ Time Warner Cable, Inc., Sr. Unsec. Gtd. Global Notes, 6.75%, 07/01/18(c) 55,000 55,386 - ------------------------------------------------------------------------------ Time Warner Inc., Sr. Unsec. Gtd. Deb., 6.50%, 11/15/36(c) 240,000 215,930 ============================================================================== 683,419 ==============================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. DIVERSIFIED INCOME FUND
PRINCIPAL AMOUNT VALUE - ------------------------------------------------------------------------------ MULTI-LINE INSURANCE-0.48% American International Group, Inc., Jr. Sub. Deb., 8.18%, 05/15/58(c)(d) $ 80,000 $ 78,513 - ------------------------------------------------------------------------------ Liberty Mutual Group, Jr. Gtd. Sub. Notes, 10.75%, 06/15/58(c)(d) 80,000 78,332 ============================================================================== 156,845 ============================================================================== MULTI-SECTOR HOLDINGS-0.92% Capmark Financial Group, Inc., Sr. Unsec. Gtd. Floating Rate Global Notes, 3.37%, 05/10/10(c)(e) 390,000 300,495 ============================================================================== MULTI-UTILITIES-1.26% Dominion Capital Trust I, Jr. Unsec. Gtd. Sub. Trust Pfd. Capital Securities, 7.83%, 12/01/27(c) 400,000 413,316 ============================================================================== OFFICE ELECTRONICS-0.27% Xerox Corp., Sr. Unsec. Notes, 5.65%, 05/15/13(c) 90,000 89,326 ============================================================================== OTHER DIVERSIFIED FINANCIAL SERVICES-10.37% Allstate Life Global Funding Trusts, Medium Term Global Notes, 5.38%, 04/30/13(c) 140,000 139,840 - ------------------------------------------------------------------------------ BankAmerica Capital II- Series 2, Jr. Unsec. Gtd. Sub. Trust Pfd. Capital Securities, 8.00%, 12/15/26(c) 130,000 131,877 - ------------------------------------------------------------------------------ BankAmerica Capital III, Jr. Unsec. Gtd. Sub. Floating Rate Trust Pfd. Capital Securities, 3.28%, 01/15/27(c)(e) 410,000 325,570 - ------------------------------------------------------------------------------ Citigroup Inc., Jr. Sub. Notes, 8.40%(c)(f) 135,000 125,425 - ------------------------------------------------------------------------------ JPMorgan Chase & Co., Sr. Unsec. Notes, 4.75%, 05/01/13(c) 115,000 110,834 - ------------------------------------------------------------------------------ 6.40%, 05/15/38(c) 270,000 254,626 - ------------------------------------------------------------------------------ Lazard Group, Sr. Unsec. Global Notes, 6.85%, 06/15/17(c) 210,000 184,525 - ------------------------------------------------------------------------------ Mantis Reef Ltd. (Cayman Islands), Notes, 4.69%, 11/14/08(c)(d) 320,000 321,216 - ------------------------------------------------------------------------------ NB Capital Trust IV, Jr. Unsec. Gtd. Sub. Trust Pfd. Capital Securities, 8.25%, 04/15/27(c) 470,000 473,069 - ------------------------------------------------------------------------------ Pemex Finance Ltd. (Mexico)- Series 1999-2, Class A1, Global Bonds, 9.69%, 08/15/09(c) 167,500 171,002 - ------------------------------------------------------------------------------ Regional Diversified Funding (Cayman Islands), Sr. Notes, 9.25%, 03/15/30(c)(d) 453,889 510,194 - ------------------------------------------------------------------------------ Regional Diversified Funding (Cayman Islands)- Class A-1a, Sr. Sec. Floating Rate Notes, 3.25%, 01/25/36 (Acquired 03/21/05; Cost $401,447)(c)(d)(e)(g) 401,447 301,737 - ------------------------------------------------------------------------------ Twin Reefs Pass-Through Trust (Bermuda), Floating Rate Pass Through Ctfs., 3.45% (Acquired 12/07/04-04/03/06; Cost $130,332)(c)(d)(e)(f)(g) 130,000 4,778 - ------------------------------------------------------------------------------ Two-Rock Pass-Through Trust (Bermuda), Floating Rate Pass Through Ctfs., 3.66% (Acquired 11/10/06; Cost $220,260)(c)(d)(e)(f)(g) 220,000 8,085 - ------------------------------------------------------------------------------ UFJ Finance Aruba AEC (Japan), Unsec. Gtd. Sub. Euro Bonds, 8.75%(c)(f) 250,000 250,307 - ------------------------------------------------------------------------------ Windsor Financing LLC, Sr. Sec. Gtd. Notes, 5.88%, 07/15/17(c)(d) 88,421 85,470 ============================================================================== 3,398,555 ============================================================================== PACKAGED FOODS & MEATS-0.80% Kraft Foods Inc., Notes, 6.13%, 08/23/18(c) 135,000 130,820 - ------------------------------------------------------------------------------ Sr. Unsec. Notes, 6.88%, 01/26/39(c) 135,000 132,530 ============================================================================== 263,350 ============================================================================== PAPER PRODUCTS-0.63% International Paper Co., Sr. Unsec. Unsub. Notes, 5.13%, 11/15/12(c) 80,000 73,734 - ------------------------------------------------------------------------------ Mercer International Inc., Sr. Unsec. Global Notes, 9.25%, 02/15/13(c) 140,000 132,300 ============================================================================== 206,034 ============================================================================== PROPERTY & CASUALTY INSURANCE-7.85% Chubb Corp., Sr. Notes, 5.75%, 05/15/18(c) 50,000 48,521 - ------------------------------------------------------------------------------ Series 1, Sr. Notes, 6.50%, 05/15/38(c) 50,000 48,717 - ------------------------------------------------------------------------------ First American Capital Trust I, Gtd. Trust Pfd. Capital Securities, 8.50%, 04/15/12(c) 790,000 764,388 - ------------------------------------------------------------------------------ North Front Pass-Through Trust, Sec. Pass Through Ctfs., 5.81%, 12/15/24(c)(d) 350,000 325,262 - ------------------------------------------------------------------------------ Oil Casualty Insurance Ltd. (Bermuda), Unsec. Gtd. Bonds, 8.00%, 09/15/34(c)(d) 330,000 289,833 - ------------------------------------------------------------------------------
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. DIVERSIFIED INCOME FUND
PRINCIPAL AMOUNT VALUE - ------------------------------------------------------------------------------ PROPERTY & CASUALTY INSURANCE-(CONTINUED) Oil Insurance Ltd., Notes, 7.56%(c)(d)(f) $ 870,000 $ 755,499 - ------------------------------------------------------------------------------ QBE Capital Funding II L.P. (Australia), Gtd. Sub. Bonds, 6.80%(c)(d)(f) 400,000 342,060 ============================================================================== 2,574,280 ============================================================================== REGIONAL BANKS-3.78% Cullen/Frost Capital Trust I, Jr. Unsec. Gtd. Sub. Floating Rate Deb., 4.23%, 03/01/34(c)(e) 600,000 559,308 - ------------------------------------------------------------------------------ PNC Capital Trust C, Unsec. Gtd. Sub. Floating Rate Trust Pfd. Capital Securities, 3.25%, 06/01/28(c)(e) 100,000 83,538 - ------------------------------------------------------------------------------ Silicon Valley Bank, Unsec. Sub. Notes, 6.05%, 06/01/17(c) 480,000 422,241 - ------------------------------------------------------------------------------ TCF National Bank, Sub. Notes, 5.00%, 06/15/14(c) 175,000 175,030 ============================================================================== 1,240,117 ============================================================================== REINSURANCE-0.27% Stingray Pass-Through Trust, Pass Through Ctfs., 5.90%, 01/12/15 (Acquired 01/07/05-11/03/05; Cost $493,840)(c)(d)(g) 500,000 87,500 ============================================================================== SEMICONDUCTORS-0.24% Viasystems Inc., Sr. Unsec. Gtd. Sub. Global Notes, 10.50%, 01/15/11(c) 80,000 79,800 ============================================================================== SPECIALIZED REIT'S-1.38% HCP, Inc., Sr. Unsec. Floating Rate Medium-Term Notes, 3.23%, 09/15/08(c)(e) 165,000 164,424 - ------------------------------------------------------------------------------ Sr. Unsec. Medium-Term Notes, 6.70%, 01/30/18(c) 140,000 126,088 - ------------------------------------------------------------------------------ Health Care REIT Inc., Sr. Unsec. Notes, 5.88%, 05/15/15(c) 175,000 160,358 ============================================================================== 450,870 ============================================================================== SPECIALTY CHEMICALS-0.59% Valspar Corp., Sr. Unsec. Unsub. Notes, 5.63%, 05/01/12(c) 100,000 98,471 - ------------------------------------------------------------------------------ 6.05%, 05/01/17(c) 100,000 94,299 ============================================================================== 192,770 ============================================================================== STEEL-0.65% United States Steel Corp., Sr. Unsec. Unsub. Notes, 6.05%, 06/01/17(c) 150,000 140,545 - ------------------------------------------------------------------------------ 6.65%, 06/01/37(c) 80,000 72,137 ============================================================================== 212,682 ============================================================================== THRIFTS & MORTGAGE FINANCE-1.99% Countrywide Financial Corp., Unsec. Gtd. Unsub. Floating Rate Medium-Term Notes, 2.87%, 01/05/09(c)(e) 260,000 255,125 - ------------------------------------------------------------------------------ Unsec. Gtd. Unsub. Medium-Term Global Notes, 5.80%, 06/07/12(c) 160,000 151,200 - ------------------------------------------------------------------------------ Series B, Sr. Unsec. Gtd. Floating Rate Putable Global Notes, 0.43%, 05/15/09(c) 260,000 245,388 ============================================================================== 651,713 ============================================================================== TOBACCO-0.57% Philip Morris International Inc., Sr. Unsec. Unsub. Global Notes, 5.65%, 05/16/18(c) 190,000 185,457 ============================================================================== TRADING COMPANIES & DISTRIBUTORS-1.52% United Rentals North America, Inc., Sr. Unsec. Gtd. Global Notes, 6.50%, 02/15/12(c) 80,000 72,500 - ------------------------------------------------------------------------------ Western Power Distribution Holdings Ltd. (United Kingdom), Sr. Unsec. Unsub. Notes, 7.38%, 12/15/28(c)(d) 375,000 425,888 ============================================================================== 498,388 ============================================================================== TRUCKING-2.78% Roadway Corp., Sr. Sec. Gtd. Global Notes, 8.25%, 12/01/08(c) 910,000 912,757 ============================================================================== WIRELESS TELECOMMUNICATION SERVICES-3.07% Alamosa Delaware Inc., Sr. Unsec. Gtd. Global Notes, 8.50%, 01/31/12(c) 190,000 188,795 - ------------------------------------------------------------------------------ Nextel Communications, Inc.- Series D, Sr. Unsec. Gtd. Notes, 7.38%, 08/01/15(c) 710,000 591,913 - ------------------------------------------------------------------------------ Sprint Nextel Corp., Sr. Unsec. Bonds, 9.25%, 04/15/22(c) 235,000 226,157 ============================================================================== 1,006,865 ============================================================================== Total Bonds & Notes (Cost $29,031,488) 26,188,827 ==============================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. DIVERSIFIED INCOME FUND
PRINCIPAL AMOUNT VALUE - ------------------------------------------------------------------------------ U.S. GOVERNMENT SPONSORED MORTGAGE-BACKED SECURITIES-6.60% FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC)-1.33% 8.50%, 03/01/10(c) $ 84 $ 87 - ------------------------------------------------------------------------------ 6.50%, 05/01/16 to 08/01/32(c) 21,616 22,486 - ------------------------------------------------------------------------------ 6.00%, 05/01/17 to 11/01/33(c) 212,032 215,837 - ------------------------------------------------------------------------------ 5.50%, 09/01/17(c) 73,798 74,802 - ------------------------------------------------------------------------------ 7.00%, 08/01/21(c) 115,969 122,466 ============================================================================== 435,678 ============================================================================== FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)-4.66% Pass Through Ctfs., 7.00%, 02/01/16 to 09/01/32(c) 42,580 44,938 - ------------------------------------------------------------------------------ 6.50%, 05/01/16 to 10/01/35(c)(h) 138,567 144,043 - ------------------------------------------------------------------------------ 5.00%, 11/01/18(c) 69,524 69,447 - ------------------------------------------------------------------------------ 7.50%, 04/01/29 to 10/01/29(c) 99,556 107,548 - ------------------------------------------------------------------------------ 8.00%, 04/01/32(c) 6,177 6,683 - ------------------------------------------------------------------------------ Pass Through Ctfs., TBA, 5.50%, 07/01/23(c)(i) 270,000 271,814 - ------------------------------------------------------------------------------ 6.00%, 07/01/23(c)(i) 360,000 369,056 - ------------------------------------------------------------------------------ 6.50%, 07/01/38(c)(i) 499,000 513,736 ============================================================================== 1,527,265 ============================================================================== GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA)-0.61% Pass Through Ctfs., 7.50%, 06/15/23(c) 15,444 16,625 - ------------------------------------------------------------------------------ 8.50%, 11/15/24(c) 12,625 13,955 - ------------------------------------------------------------------------------ 7.00%, 07/15/31 to 08/15/31(c) 4,233 4,508 - ------------------------------------------------------------------------------ 6.50%, 11/15/31 to 09/15/32(c) 30,826 32,013 - ------------------------------------------------------------------------------ 6.00%, 12/15/31 to 11/15/32(c) 46,967 47,890 - ------------------------------------------------------------------------------ 5.50%, 02/15/34(c)(h) 85,996 85,873 ============================================================================== 200,864 ============================================================================== Total U.S. Government Sponsored Mortgage- Backed Securities (Cost $2,160,657) 2,163,807 ============================================================================== SHARES PREFERRED STOCKS-6.12% OFFICE SERVICES & SUPPLIES-2.38% Pitney Bowes International Holdings Inc.-Series D, 4.85% Pfd.(c)(d) 8 781,010 ============================================================================== OTHER DIVERSIFIED FINANCIAL SERVICES-2.97% Auction Pass Through Trust-Series 2007-T2, Class A, 7.78% Pfd. (Acquired 12/14/07; Cost $975,000)(d)(g) 13 975,006 ============================================================================== WIRELESS TELECOMMUNICATION SERVICES-0.77% Telephone & Data Systems, Inc.-Series A 7.60% Pfd.(j) 12,000 250,560 ============================================================================== Total Preferred Stocks (Cost $2,053,774) 2,006,576 ============================================================================== PRINCIPAL AMOUNT VALUE - ------------------------------------------------------------------------------ ASSET-BACKED SECURITIES-4.89% COLLATERALIZED MORTGAGE OBLIGATIONS-0.33% Federal Home Loan Bank- Series TQ-2015, Class A, Pass Through Ctfs., 5.07%, 10/20/15(c) $ 106,745 $ 106,966 ============================================================================== OTHER DIVERSIFIED FINANCIAL SERVICES-4.56% Citicorp Lease Pass-Through Trust- Series 1999-1, Class A2, Pass Through Ctfs., 8.04%, 12/15/19(c)(d) 675,000 701,428 - ------------------------------------------------------------------------------ Patron's Legacy 2004-1-LILACS-1-Series A, Ctfs., 6.67%, 05/04/18 (Acquired 04/30/04; Cost $944,341)(d)(g) 944,341 794,191 ============================================================================== 1,495,619 ============================================================================== Total Asset-Backed Securities (Cost $1,815,236) 1,602,585 ============================================================================== U.S. TREASURY SECURITIES-3.61% U.S. TREASURY BILLS-0.23% 1.60%, 10/23/08(c)(h) 75,000 74,569 ============================================================================== U.S. TREASURY NOTES-3.38% 4.88%, 10/31/08(c) 1,100,000 1,110,230 ============================================================================== Total U.S. Treasury Securities (Cost $1,185,074) 1,184,799 ============================================================================== MUNICIPAL OBLIGATIONS-3.47% Blount (County of), Tennessee Health & Educational Facilities Board (Asbury Inc.); Series 2007 B, Ref. Taxable RB, 7.50%, 04/01/09(c) 30,000 29,996 - ------------------------------------------------------------------------------ Denver (City & County of) Colorado; Series 2000 C, Ref. Airport VRD RB, (INS-MBIA Insurance Corp.) 10.00%, 11/15/25(b)(k)(l)(m) 300,000 300,000 - ------------------------------------------------------------------------------ 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) 130,000 115,392 - ------------------------------------------------------------------------------ Florida (State of) Development Finance Corp. (Palm Bay Academy Inc.); Series 2006 B, Taxable RB, 7.50%, 05/15/17(c) 65,000 63,832 - ------------------------------------------------------------------------------ Industry (City of), California Urban Development Agency (Project No. 3); Series 2003, Taxable Allocation RB, (INS-MBIA Insurance Corp.) 6.10%, 05/01/24(b)(c) 650,000 630,077 ============================================================================== Total Municipal Obligations (Cost $1,189,020) 1,139,297 ============================================================================== U.S. GOVERNMENT SPONSORED AGENCY SECURITIES-2.47% FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)-0.93% Sr. Unsec. Floating Rate Global Notes, 5.12%, 02/17/09(c)(e) 300,000 303,648 ==============================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. DIVERSIFIED INCOME FUND
PRINCIPAL AMOUNT VALUE - ------------------------------------------------------------------------------ STUDENT LOAN MARKETING ASSOCIATION-1.54% SLM Corp., Sr. Unsec. Unsub. Floating Rate Medium Term Notes, 2.34%, 03/15/10(c)(e) $ 200,000 $ 175,288 - ------------------------------------------------------------------------------ Sr. Unsec. Unsub. Medium Term Notes, 5.05%, 11/14/14(c) 400,000 330,116 ============================================================================== 505,404 ============================================================================== Total U.S. Government Sponsored Agency Securities (Cost $853,745) 809,052 ============================================================================== SHARES VALUE - ------------------------------------------------------------------------------ COMMON STOCKS & OTHER EQUITY INTERESTS-0.14% BROADCASTING & CABLE TV-0.14% Adelphia Communications Corp., Sr. Notes 10.88%, 10/01/10(j) 900 $ 7,987 - ------------------------------------------------------------------------------ Adelphia Recovery Trust-Series ACC-1(j) 87,412 4,589 - ------------------------------------------------------------------------------ Time Warner Cable, Inc.-Class A(j) 1,279 33,868 ============================================================================== Total Common Stocks & Other Equity Interests (Cost $86,128) 46,444 ============================================================================== TOTAL INVESTMENTS-107.18% (Cost $38,375,122) 35,141,387 ============================================================================== OTHER ASSETS LESS LIABILITIES-(7.18)% (2,355,219) ============================================================================== NET ASSETS-100.00% $32,786,168 ______________________________________________________________________________ ==============================================================================
Investment Abbreviations: Ctfs. - Certificates Deb. - Debentures GO - General Obligation Bonds Gtd. - Guaranteed INS - Insurer Jr. - Junior LILACS - Life Insurance and Life Annuities Based Charitable Securities Pfd. - Preferred RB - Revenue Bonds Ref. - Refunding REIT - Real Estate Investment Trust Sec. - Secured Sr. - Senior TBA - To Be Announced Unsec. - Unsecured Unsub. - Unsubordinated VRD - Variable Rate Demand
Notes to Schedule of Investments: (a) Industry and/or sector 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 MSCI Inc. and Standard & Poor's. (b) Principal and/or interest payments are secured by the bond insurance company listed. (c) In accordance with the procedures established by the Board of Trustees, security fair valued based on an evaluated quote provided by an independent pricing service. The aggregate value of these securities at June 30, 2008 was $32,524,748, which represented 99.20% of the Fund's Net Assets. See Note 1A. (d) Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended. The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at June 30, 2008 was $10,201,696, which represented 31.12% of the Fund's Net Assets. Unless otherwise indicated, these securities are not considered to be illiquid. (e) Interest or dividend rate is redetermined periodically. Rate shown is the rate in effect on June 30, 2008. (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 June 30, 2008 was $2,421,735, which represented 7.39% of the Fund's Net Assets. (h) All or a portion of the value was pledged as collateral to cover margin requirements for open futures contracts. See Note 1M and Note 8. (i) Security purchased on forward commitment basis. This security is subject to dollar roll transactions. See Note 1J. (j) Non-income producing security acquired as part of the Adelphia Communications bankruptcy reorganization. (k) Demand security payable upon demand by the Fund at specified time intervals no greater than thirteen months. Interest rate is redetermined periodically. Rate shown is the rate in effect on June 30, 2008. (l) Security is considered a cash equivalent. (m) Security subject to the alternative minimum tax. See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. DIVERSIFIED INCOME FUND STATEMENT OF ASSETS AND LIABILITIES June 30, 2008 (Unaudited) ASSETS: Investments, at value (Cost $38,375,122) $ 35,141,387 - ------------------------------------------------------ Receivables for: Investments sold 25,000 - ------------------------------------------------------ Dividends and Interest 421,899 - ------------------------------------------------------ Principal paydowns 17,655 - ------------------------------------------------------ Investment for trustee deferred compensation and retirement plans 42,262 - ------------------------------------------------------ Other assets 2,355 ====================================================== Total assets 35,650,558 ______________________________________________________ ====================================================== LIABILITIES: Payables for: Investments purchased 1,399,211 - ------------------------------------------------------ Fund shares reacquired 58,959 - ------------------------------------------------------ Amount due custodian 78,392 - ------------------------------------------------------ Accrued fees to affiliates 16,367 - ------------------------------------------------------ Accrued other operating expenses 44,042 - ------------------------------------------------------ Trustee deferred compensation and retirement plans 49,476 - ------------------------------------------------------ Unrealized depreciation on swap agreements 1,079,585 - ------------------------------------------------------ Premiums received on swap agreements 138,358 ====================================================== Total liabilities 2,864,390 ====================================================== Net assets applicable to shares outstanding $ 32,786,168 ______________________________________________________ ====================================================== NET ASSETS CONSIST OF: Shares of beneficial interest $ 51,448,851 - ------------------------------------------------------ Undistributed net investment income 3,751,892 - ------------------------------------------------------ Undistributed net realized gain (loss) (18,208,363) - ------------------------------------------------------ Unrealized appreciation (depreciation) (4,206,212) ====================================================== $ 32,786,168 ______________________________________________________ ====================================================== NET ASSETS: Series I $ 32,288,621 ______________________________________________________ ====================================================== Series II $ 497,547 ______________________________________________________ ====================================================== SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED NUMBER OF SHARES AUTHORIZED: Series I 4,240,101 ______________________________________________________ ====================================================== Series II 65,932 ______________________________________________________ ====================================================== Series I: Net asset value per share $ 7.62 ______________________________________________________ ====================================================== Series II: Net asset value per share $ 7.55 ______________________________________________________ ======================================================
STATEMENT OF OPERATIONS For the six months ended June 30, 2008 (Unaudited) INVESTMENT INCOME: Interest $ 1,249,025 - ------------------------------------------------------ Dividends 73,642 - ------------------------------------------------------ Dividends from affiliated money market funds 2,553 ====================================================== Total investment income 1,325,220 ====================================================== EXPENSES: Advisory fees 107,754 - ------------------------------------------------------ Administrative services fees 56,522 - ------------------------------------------------------ Custodian fees 14,829 - ------------------------------------------------------ Distribution fees -- Series II 645 - ------------------------------------------------------ Transfer agent fees 4,255 - ------------------------------------------------------ Trustees' and officer's fees and benefits 9,010 - ------------------------------------------------------ Professional services fees 23,847 - ------------------------------------------------------ Other 10,239 ====================================================== Total expenses 227,101 ====================================================== Less: Fees waived and expense offset arrangement(s) (91,877) ====================================================== Net expenses 135,224 ====================================================== Net investment income 1,189,996 ______________________________________________________ ====================================================== REALIZED AND UNREALIZED GAIN (LOSS) FROM: Net realized gain (loss) from: Investment securities (includes net gains from securities sold to affiliates of $25,683) (315,928) - ------------------------------------------------------ Foreign currencies 62 - ------------------------------------------------------ Futures contracts 165,404 - ------------------------------------------------------ Swap agreements (56,135) ====================================================== (206,597) ====================================================== Change in net unrealized appreciation (depreciation) of: Investment securities (1,607,713) - ------------------------------------------------------ Foreign currencies (9) - ------------------------------------------------------ Futures contracts 89,353 - ------------------------------------------------------ Swap agreements (376,995) ====================================================== (1,895,364) ====================================================== Net realized and unrealized gain (loss) (2,101,961) ====================================================== Net increase (decrease) in net assets resulting from operations $ (911,965) ______________________________________________________ ======================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. DIVERSIFIED INCOME FUND STATEMENT OF CHANGES IN NET ASSETS For the six months ended June 30, 2008 and the year ended December 31, 2007 (Unaudited)
JUNE 30, DECEMBER 31, 2008 2007 - ------------------------------------------------------------------------------------------------------ OPERATIONS: Net investment income $ 1,189,996 $ 2,624,188 - ------------------------------------------------------------------------------------------------------ Net realized gain (loss) (206,597) (278,106) - ------------------------------------------------------------------------------------------------------ Change in net unrealized appreciation (depreciation) (1,895,364) (1,542,510) ====================================================================================================== Net increase (decrease) in net assets resulting from operations (911,965) 803,572 ====================================================================================================== Distributions to shareholders from net investment income: Series I -- (2,880,489) - ------------------------------------------------------------------------------------------------------ Series II -- (43,745) ====================================================================================================== Total distributions from net investment income -- (2,924,234) ====================================================================================================== Share transactions-net: Series I (5,148,908) (6,318,959) - ------------------------------------------------------------------------------------------------------ Series II (95,090) (74,221) ====================================================================================================== Net increase (decrease) in net assets resulting from share transactions (5,243,998) (6,393,180) ====================================================================================================== Net increase (decrease) in net assets (6,155,963) (8,513,842) ====================================================================================================== NET ASSETS: Beginning of period 38,942,131 47,455,973 ====================================================================================================== End of period (including undistributed net investment income of $3,751,892 and $2,561,896, respectively) $32,786,168 $38,942,131 ______________________________________________________________________________________________________ ======================================================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. DIVERSIFIED INCOME FUND NOTES TO FINANCIAL STATEMENTS June 30, 2008 (Unaudited) NOTE 1--SIGNIFICANT ACCOUNTING POLICIES AIM V.I. Diversified Income Fund (the "Fund") is a series portfolio of AIM Variable Insurance Funds (the "Trust"). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of twenty separate portfolios, (each constituting a "Fund"). 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 Fund or class will be voted on exclusively by the shareholders of such Fund 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 Fund 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. 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, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. 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 prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. 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, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. 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. Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer's assets, general economic conditions, interest rates, investor perceptions and market liquidity. AIM V.I. DIVERSIFIED INCOME FUND B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes. The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds as received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. 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, the investment advisor 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. The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. 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 by a significant amount. 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. 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. J. DOLLAR ROLL AND FORWARD COMMITMENT TRANSACTIONS -- The Fund may engage in dollar roll and forward commitment transactions with respect to mortgage- backed securities issued by GNMA, FNMA and FHLMC. These transactions are often conducted on a to be announced ("TBA") basis. In a TBA mortgage- backed transaction, the seller does not specify the particular securities to be delivered. Rather, a Fund agrees to accept any security that meets specified terms, such as an agreed upon issuer, coupon rate and terms of the underlying mortgages. TBA mortgage-backed transactions generally settle once a month on a specific date. 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 coupon 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. AIM V.I. DIVERSIFIED INCOME FUND Forward commitment transactions involve commitments by the Fund to acquire or sell TBA mortgage-backed securities from/to a financial institution, such as a bank or broker-dealer at a specified future date and amount. The TBA mortgage-backed security is marked to market until settlement and the unrealized appreciation or depreciation is recorded in the statement of operations. At the time the Fund enters into the dollar roll or forward commitment transaction, mortgage-backed securities or other liquid assets held by the Fund having a dollar value equal to the purchase price or in an amount sufficient to honor the forward commitment will be segregated. 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. Forward commitment transactions involve the risk that a counter-party to the transaction may fail to complete the transaction. If this occurs, the Fund may lose the opportunity to purchase or sell the security at the agreed upon price. Settlement dates of forward commitment transactions may be a month or more after entering into these transactions and as a result the market values of the securities may vary from the purchase or sale prices. Therefore, forward commitment transactions may increase the Fund's overall interest rate exposure. 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. 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. L. 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. M. 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 recalculating the value of the contracts on a daily basis. 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. N. 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 an upfront payment and/or 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 an upfront payment and/or a fixed payment over the life of the agreement. 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. Payments received or paid at the beginning of the agreement are reflected as such on the Statement of Assets and Liabilities and may be referred to as upfront payments. The Fund amortizes upfront payments and/or accrues for the fixed payment stream 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. O. 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 Invesco Aim Advisors, Inc. (the "Advisor" or "Invesco Aim"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Advisor based on the annual rate of the Fund's average daily net assets as follows:
AVERAGE NET ASSETS RATE - ------------------------------------------------------------------- First $250 million 0.60% - ------------------------------------------------------------------- Over $250 million 0.55% ___________________________________________________________________ ===================================================================
Under the terms of a master sub-advisory agreement approved by shareholders of the Fund on February 29, 2008, effective May 1, 2008, between the Advisor and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Global Asset Management (N.A.), Inc., Invesco Hong Kong Limited, Invesco Institutional (N.A.), Inc., Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the "Affiliated Sub-Advisors") the Advisor, not the Fund, may pay 40% of the fees paid to the Advisor to any such Affiliated Sub- Advisor(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Advisor(s). The Advisor 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, 2010. 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 Invesco Ltd. ("Invesco") 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. To the extent that the annualized expense ratio does not exceed the expense limitation, the Advisor will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year. Further, the Advisor has contractually agreed, through at least April 30, 2010, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Advisor receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds. For the six months ended June 30, 2008, the Advisor waived advisory fees of $90,680. At the request of the Trustees of the Trust, Invesco agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the six months ended June 30, 2008, Invesco did not reimburse any expenses. The Trust has entered into a master administrative services agreement with Invesco Aim pursuant to which the Fund has agreed to pay Invesco Aim a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco Aim for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants' accounts. Pursuant to such agreement, for the six months ended June 30, 2008, Invesco Aim was paid $24,863 for accounting and fund administrative services and reimbursed $31,659 for services provided by insurance companies. The Trust has entered into a transfer agency and service agreement with Invesco Aim Investment Services, Inc. ("IAIS") pursuant to which the Fund has agreed to pay IAIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IAIS for certain expenses incurred by IAIS in the course of providing such services. For the six months ended June 30, 2008, 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 Invesco Aim Distributors, Inc. ("IADI") 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 IADI 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 six months ended June 30, 2008, expenses incurred under the Plan are detailed in the Statement of Operations as distribution fees. Certain officers and trustees of the Trust are officers and directors of Invesco Aim, IAIS and/or IADI. AIM V.I. DIVERSIFIED INCOME FUND NOTE 3--SUPPLEMENTAL INFORMATION The Fund adopted the provisions of Statement of Financial Accounting Standards No. 157, "Fair Value Measurements" (SFAS 157), effective with the beginning of the Fund's fiscal year. SFAS 157 establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (level 1) and the lowest priority to unobservable inputs (level 3) market prices are not readily available or are unreliable. Based on the inputs the securities or other instruments are tiered into three levels of hierarchy under SFAS 157. Changes in valuation methods may result in transfers in or out of an investment's assigned level within the hierarchy, Level 1--Quoted prices in an active market for identical assets. Level 2--Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk and others. Level 3--Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund's own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. Below is a summary of the tiered input levels, as of the end of the reporting period, June 30, 2008. The inputs or methods used for valuing securities may not be an indication of the risk associated with investing in those securities.
INVESTMENTS IN OTHER INPUT LEVEL SECURITIES INVESTMENTS* - ----------------------------------------------------- Level 1 $ 284,428 $ 107,108 - ----------------------------------------------------- Level 2 34,856,959 (1,079,585) - ----------------------------------------------------- Level 3 -- -- ===================================================== $35,141,387 $ (972,477) _____________________________________________________ =====================================================
* Other investments include futures contracts and swap agreements, which are included at unrealized appreciation/(depreciation). NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS The Fund is permitted to purchase or sell securities from or to certain other AIM Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment advisor (or affiliated investment advisors), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the six months ended June 30, 2008, the Fund engaged in securities sales of $698,150, which resulted in net realized gains of $25,683. NOTE 5--EXPENSE OFFSET ARRANGEMENT The expense offset arrangement is comprised of custodian credits which result from periodic overnight cash balances at the custodian. For the six months ended June 30, 2008, the Fund received credits from this arrangement, which resulted in the reduction of the Fund's total expenses of $1,197. 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 certain Trustees and Officers of the Fund. 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, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund. During the six months ended June 30, 2008, the Fund paid legal fees of $1,545 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--CASH BALANCES The Fund may borrow for leveraging in an amount up to 5% of the Fund's total assets (excluding the amount borrowed) at the time the borrowing is made. In doing so, the Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The State Street Bank and Trust Company ("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 Invesco Aim, not to exceed the contractually agreed upon rate. A Fund may not purchase additional securities when any borrowings from banks exceeds 5% of the Fund's total assets. AIM V.I. DIVERSIFIED INCOME FUND NOTE 8--FUTURES CONTRACTS
OPEN FUTURES CONTRACTS AT PERIOD END - ------------------------------------------------------------------------------------------------------------------- NUMBER OF MONTH/ VALUE UNREALIZED CONTRACT CONTRACTS COMMITMENT 06/30/08 APPRECIATION - ------------------------------------------------------------------------------------------------------------------- U.S. Treasury 10 Year Notes 28 Sept-08/Long $3,189,812 $ 54,546 - ------------------------------------------------------------------------------------------------------------------- U.S. Treasury 30 Year Bonds 42 Sept-08/Long 4,854,938 52,562 =================================================================================================================== $107,108 ___________________________________________________________________________________________________________________ ===================================================================================================================
NOTE 9--CREDIT DEFAULT SWAP AGREEMENTS
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 CDX North America Sell 0.75%(a) 06/20/12 $7,000 $(480,724) Special Financing Investment Grade Inc. High Volatility Index - ----------------------------------------------------------------------------------------------------------------------- Lehman Brothers MBIA Inc. Sell 1.90% 09/20/08 1,200 (81,688) Special Financing Inc. - ----------------------------------------------------------------------------------------------------------------------- Lehman Brothers Residential Capital, Sell 2.75% 09/20/08 125 (5,762) Special Financing LLC Inc. - ----------------------------------------------------------------------------------------------------------------------- Lehman Brothers Residential Capital, Sell 6.80% 09/20/08 200 (7,391) Special Financing LLC Inc. - ----------------------------------------------------------------------------------------------------------------------- Merrill Lynch AMBAC Financial Sell 2.30% 12/20/08 470 (66,748) International Group, Inc. - ----------------------------------------------------------------------------------------------------------------------- Merrill Lynch AMBAC Financial Sell 6.75% 12/20/08 230 (28,282) International Group, Inc - ----------------------------------------------------------------------------------------------------------------------- Merrill Lynch Assured Guaranty Sell 5.00% 03/20/09 235 (12,027) International Corp. - ----------------------------------------------------------------------------------------------------------------------- Merrill Lynch CIT Group Inc. Sell 2.40% 09/20/08 230 (3,954) International - ----------------------------------------------------------------------------------------------------------------------- Merrill Lynch CIT Group Inc. Sell 2.50% 09/20/08 100 (1,696) International - ----------------------------------------------------------------------------------------------------------------------- Merrill Lynch Lehman Brothers Sell 0.90% 09/20/08 430 (3,492) International Holdings Inc. - ----------------------------------------------------------------------------------------------------------------------- Morgan Stanley & Co. CDX North America Sell 1.40%(b) 12/20/12 4,000 (316,247) International PLC Investment Grade High Volatility Index - ----------------------------------------------------------------------------------------------------------------------- UBS AG AMBAC Financial Sell 5.10% 12/20/08 230 (29,907) Group, Inc. - ----------------------------------------------------------------------------------------------------------------------- UBS AG AMBAC Financial Sell 11.00% 12/20/08 410 (42,957) Group, Inc. - ----------------------------------------------------------------------------------------------------------------------- UBS AG Pulte Homes, Inc. Sell 4.20% 12/20/08 470 1,290 ======================================================================================================================= Total Credit Default Swap Agreements $15,330 $(1,079,585) _______________________________________________________________________________________________________________________ =======================================================================================================================
(a) Unamortized premium at period-end of $148,214. (b) Unamortized discount at period-end of $9,856. NOTE 10--TAX INFORMATION The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund's fiscal year-end. Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions. AIM V.I. DIVERSIFIED INCOME FUND The Fund had a capital loss carryforward as of December 31, 2007 which expires as follows:
CAPITAL LOSS EXPIRATION CARRYFORWARD* - ----------------------------------------------------------------------------------------------- December 31, 2008 $ 4,437,761 - ----------------------------------------------------------------------------------------------- December 31, 2009 6,105,069 - ----------------------------------------------------------------------------------------------- December 31, 2010 6,879,053 - ----------------------------------------------------------------------------------------------- December 31, 2014 341,884 - ----------------------------------------------------------------------------------------------- December 31, 2015 214,781 =============================================================================================== Total capital loss carryforward $17,978,548 _______________________________________________________________________________________________ ===============================================================================================
* Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. NOTE 11--INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2008 was $7,228,485 and $12,455,313, respectively. During the same period, purchases and sales of U.S. Treasury obligations were $2,182,255 and $1,060,000. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period end.
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS - ------------------------------------------------------------------------------------------------ Aggregate unrealized appreciation of investment securities $ 94,346 - ------------------------------------------------------------------------------------------------ Aggregate unrealized (depreciation) of investment securities (3,330,800) ================================================================================================ Net unrealized appreciation (depreciation) of investment securities $(3,236,454) ________________________________________________________________________________________________ ================================================================================================ Cost of investments for tax purposes is $38,377,841.
NOTE 12--SHARE INFORMATION
CHANGES IN SHARES OUTSTANDING - ----------------------------------------------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 2008(a) 2007 ------------------------ --------------------------- SHARES AMOUNT SHARES AMOUNT - ----------------------------------------------------------------------------------------------------------------------- Sold: Series I 144,616 $ 1,118,131 731,982 $ 6,147,850 - ----------------------------------------------------------------------------------------------------------------------- Series II 74 563 6,451 53,596 ======================================================================================================================= Issued as reinvestment of dividends: Series I -- -- 370,719 2,880,489 - ----------------------------------------------------------------------------------------------------------------------- Series II -- -- 5,674 43,745 ======================================================================================================================= Reacquired: Series I (819,606) (6,267,039) (1,834,796) (15,347,298) - ----------------------------------------------------------------------------------------------------------------------- Series II (12,409) (95,653) (20,652) (171,562) ======================================================================================================================= (687,325) $(5,243,998) (740,622) $ (6,393,180) _______________________________________________________________________________________________________________________ =======================================================================================================================
(a) There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate 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, Invesco Aim and/or Invesco Aim affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco Aim and or Invesco 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 March 2008, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities. The standard is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity's financial position and financial performance. It is effective for financial statements issued for fiscal years beginning after November 15, 2008. Management is currently in the process of determining the impact of the standard on the Fund's disclosures in the financial statements. AIM V.I. DIVERSIFIED INCOME FUND NOTE 14--FINANCIAL HIGHLIGHTS The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
SERIES I ---------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ------------------------------------------------------- 2008 2007 2006 2005 2004 2003 - ---------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 7.80 $ 8.28 $ 8.43 $ 8.74 $ 8.82 $ 8.60 - ---------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income(a) 0.25 0.51 0.46 0.40 0.36 0.42 - ---------------------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) (0.43) (0.37) (0.08) (0.15) 0.08 0.37 ============================================================================================================================ Total from investment operations (0.18) 0.14 0.38 0.25 0.44 0.79 ============================================================================================================================ Less dividends from net investment income -- (0.62) (0.53) (0.56) (0.52) (0.57) ============================================================================================================================ Net asset value, end of period $ 7.62 $ 7.80 $ 8.28 $ 8.43 $ 8.74 $ 8.82 ____________________________________________________________________________________________________________________________ ============================================================================================================================ Total return(b) (2.31)% 1.72% 4.48% 2.90% 5.03% 9.24% ____________________________________________________________________________________________________________________________ ============================================================================================================================ Ratios/supplemental data: Net assets, end of period (000s omitted) $32,289 $38,336 $46,743 $55,065 $65,069 $71,860 ____________________________________________________________________________________________________________________________ ============================================================================================================================ Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 0.76%(c) 0.75% 0.75% 0.89% 1.01% 0.95% - ---------------------------------------------------------------------------------------------------------------------------- Without fee waivers and/or expense reimbursements 1.26%(c) 1.17% 1.10% 1.08% 1.01% 0.95% ============================================================================================================================ Ratio of net investment income to average net assets 6.62%(c) 6.04% 5.47% 4.54% 4.01% 4.71% ____________________________________________________________________________________________________________________________ ============================================================================================================================ Portfolio turnover rate(d) 25% 67% 78% 92% 113% 153% ____________________________________________________________________________________________________________________________ ============================================================================================================================
(a) Calculated using average shares outstanding. (b) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. (c) Ratios are annualized and based on average daily net assets of $35,596,538. (d) Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year.
SERIES II ----------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, -------------------------------------------------- 2008 2007 2006 2005 2004 2003 - -------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 7.74 $ 8.21 $ 8.36 $ 8.67 $ 8.78 $ 8.58 - -------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income(a) 0.24 0.48 0.44 0.38 0.33 0.40 - -------------------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) (0.43) (0.36) (0.09) (0.15) 0.08 0.37 ========================================================================================================================== Total from investment operations (0.19) 0.12 0.35 0.23 0.41 0.77 ========================================================================================================================== Less dividends from net investment income -- (0.59) (0.50) (0.54) (0.52) (0.57) ========================================================================================================================== Net asset value, end of period $ 7.55 $ 7.74 $ 8.21 $ 8.36 $ 8.67 $ 8.78 __________________________________________________________________________________________________________________________ ========================================================================================================================== Total return(b) (2.45)% 1.51% 4.17% 2.67% 4.69% 9.02% __________________________________________________________________________________________________________________________ ========================================================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $ 498 $ 606 $ 713 $ 902 $ 980 $ 762 __________________________________________________________________________________________________________________________ ========================================================================================================================== Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 1.01%(c) 1.00% 1.00% 1.14% 1.26% 1.20% - -------------------------------------------------------------------------------------------------------------------------- Without fee waivers and/or expense reimbursements 1.51%(c) 1.42% 1.35% 1.33% 1.26% 1.20% ========================================================================================================================== Ratio of net investment income to average net assets 6.37%(c) 5.79% 5.22% 4.29% 3.76% 4.46% __________________________________________________________________________________________________________________________ ========================================================================================================================== Portfolio turnover rate(d) 25% 67% 78% 92% 113% 153% __________________________________________________________________________________________________________________________ ==========================================================================================================================
(a) Calculated using average shares outstanding. (b) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. (c) Ratios are annualized and based on average daily net assets of $518,696. (d) Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year. AIM V.I. DIVERSIFIED INCOME FUND NOTE 15--LEGAL PROCEEDINGS Terms used in the Legal Proceedings Note are defined terms solely for the purpose of this note. 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 Invesco Aim and IADI (Order No. 05- 1318). The WVASC makes findings of fact that Invesco Aim and IADI 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 Invesco Aim and IADI violated the West Virginia securities laws. The WVASC orders Invesco Aim and IADI 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. By agreement with the Commissioner of Securities, Invesco Aim's time to respond to that Order has been indefinitely suspended. Civil lawsuits, including purported class action and shareholder derivative suits, have been filed against certain of the AIM Funds, Invesco Funds Group, Inc. ("IFG"), Invesco Aim, IADI 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; and - that certain AIM Funds inadequately employed fair value pricing. These lawsuits allege as theories of recovery, depending on the lawsuit, violations of various provisions of the Federal and state securities laws Employee Retirement Income Security Act of 1974, as amended ("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. The case pending in Illinois State Court regarding fair value pricing was dismissed with prejudice on May 6, 2008. 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 Invesco 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 ERISA purportedly brought on behalf of participants in the Invesco 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 Invesco defendants' motion to dismiss the Amended Class Action Complaint for Violations of ERISA and dismissed such Complaint. Plaintiff appealed this ruling. On June 16, 2008, the Fourth Court of Appeals reversed the dismissal and remanded this lawsuit back to the MDL Court for further proceedings. IFG, Invesco Aim, IADI 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, Invesco Aim and IADI 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, Invesco Aim and/or related entities and individuals in the future. At the present time, management of Invesco 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 Invesco Aim, IADI or the Fund. AIM V.I. DIVERSIFIED INCOME FUND NOTE 15--LEGAL PROCEEDINGS--(CONTINUED) CALCULATING YOUR ONGOING FUND EXPENSES EXAMPLE As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2008, through June 30, 2008. The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower. ACTUAL EXPENSES The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled "Actual Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
- --------------------------------------------------------------------------------------------------- HYPOTHETICAL (5% ANNUAL RETURN BEFORE ACTUAL EXPENSES) ------------------------------------------------------ BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE CLASS (01/01/08) (06/30/08)(1) PERIOD(2) (06/30/08) PERIOD(2) RATIO - --------------------------------------------------------------------------------------------------- Series I $1,000.00 $976.90 $3.74 $1,021.08 $3.82 0.76% - --------------------------------------------------------------------------------------------------- Series II 1,000.00 975.50 4.96 1,019.84 5.07 1.01 - ---------------------------------------------------------------------------------------------------
(1) The actual ending account value is based on the actual total return of the Fund for the period January 1, 2008, through June 30, 2008, 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 182/366 to reflect the most recent fiscal half year. AIM V.I. DIVERSIFIED INCOME FUND APPROVAL OF INVESTMENT ADVISORY AGREEMENT The Board of Trustees (the Board) of AIM renewal process, the Trustees receive from one another and attributed different Variable Insurance Funds is required under comparative performance and fee data weight to the various factors. The the Investment Company Act of 1940 to regarding the AIM Funds prepared by an Trustees recognized that the advisory approve annually the renewal of the AIM independent company, Lipper, Inc. arrangements and resulting advisory fees V.I. Diversified Income Fund (the Fund) (Lipper), under the direction and for the Fund and the other AIM Funds are investment advisory agreement with Invesco supervision of the independent Senior the result of years of review and Aim Advisors, Inc. (Invesco Aim). During Officer who also prepares a separate negotiation between the Trustees and contract renewal meetings held on June analysis of this information for the Invesco Aim, that the Trustees may focus 18-19, 2008, the Board as a whole and the Trustees. Each Sub-Committee then makes to a greater extent on certain aspects of disinterested or "independent" Trustees, recommendations to the Investments these arrangements in some years than in voting separately, approved the Committee regarding the performance, fees others, and that the Trustees' continuance of the Fund's investment and expenses of their assigned funds. The deliberations and conclusions in a advisory agreement for another year, Investments Committee considers each particular year may be based in part on effective July 1, 2008. In doing so, the Sub-Committee's recommendations and makes their deliberations and conclusions of Board determined that the Fund's its own recommendations regarding the these same arrangements throughout the investment advisory agreement is in the performance, fees and expenses of the AIM year and in prior years. best interests of the Fund and its Funds to the full Board. The Investments shareholders and that the compensation to Committee also considers each FACTORS AND CONCLUSIONS AND SUMMARY OF Invesco Aim under the Fund's investment Sub-Committee's recommendations in making INDEPENDENT WRITTEN FEE EVALUATION advisory agreement is fair and reasonable. its annual recommendation to the Board The discussion below serves as a summary The independent Trustees met separately whether to approve the continuance of each of the Senior Officer's independent during their evaluation of the Fund's AIM Fund's investment advisory agreement written evaluation with respect to the investment advisory agreement with and sub-advisory agreements for another Fund's investment advisory agreement as independent legal counsel from whom they year. well as a discussion of the material received independent legal advice, and the The independent Trustees are assisted factors and related conclusions that independent Trustees also received in their annual evaluation of the Fund's formed the basis for the Board's approval assistance during their deliberations from investment advisory agreement by the of the Fund's investment advisory the independent Senior Officer, a independent Senior Officer. One agreement and sub-advisory agreements. full-time officer of the AIM Funds who responsibility of the Senior Officer is to Unless otherwise stated, information set reports directly to the independent manage the process by which the AIM Funds' forth below is as of June 19, 2008 and Trustees. proposed management fees are negotiated does not reflect any changes that may have during the annual contract renewal process occurred since that date, including but THE BOARD'S FUND EVALUATION PROCESS to ensure that they are negotiated in a not limited to changes to the Fund's The Board's Investments Committee has manner that is at arms' length and performance, advisory fees, expense established three Sub-Committees that are reasonable. Accordingly, the Senior limitations and/or fee waivers. responsible for overseeing the management Officer must either supervise a of a number of the series portfolios of competitive bidding process or prepare an I. Investment Advisory Agreement the AIM Funds. This Sub-Committee independent written evaluation. The Senior A. Nature, Extent and Quality of structure permits the Trustees to focus on Officer has recommended that an Services Provided by Invesco Aim the performance of the AIM Funds that have independent written evaluation be provided The Board reviewed the advisory services been assigned to them. The Sub-Committees and, at the direction of the Board, has provided to the Fund by Invesco Aim under meet throughout the year to review the prepared an independent written the Fund's investment advisory agreement, performance of their assigned funds, and evaluation. the performance of Invesco Aim in the Sub-Committees review monthly and During the annual contract renewal providing these services, and the quarterly comparative performance process, the Board considered the factors credentials and experience of the officers information and periodic asset flow data discussed below under the heading "Factors and employees of Invesco Aim who provide for their assigned funds. These materials and Conclusions and Summary of Independent these services. The Board's review of the are prepared under the direction and Written Fee Evaluation" in evaluating the qualifications of Invesco Aim to provide supervision of the independent Senior fairness and reasonableness of the Fund's these services included the Board's Officer. Over the course of each year, the investment advisory agreement and consideration of Invesco Aim's portfolio Sub-Committees meet with portfolio sub-advisory agreements at the contract and product review process, various back managers for their assigned funds and renewal meetings and at their meetings office support functions provided by other members of management and review throughout the year as part of their Invesco Aim and its affiliates, and with these individuals the performance, ongoing oversight of the Fund. The Fund's Invesco Aim's equity and fixed income investment objective(s), policies, investment advisory agreement and trading operations. The Board concluded strategies and limitations of these funds. sub-advisory agreements were considered that the nature, extent and quality of the In addition to their meetings separately, although the Board also advisory services provided to the Fund by throughout the year, the Sub-Committees considered the common interests of all of Invesco Aim were appropriate and that meet at designated contract renewal the AIM Funds in their deliberations. The Invesco Aim currently is providing meetings each year to conduct an in-depth Board considered all of the information satisfactory advisory services in review of the performance, fees and provided to them and did not identify any accordance with the terms of the Fund's expenses of their assigned funds. During particular factor that was controlling. investment advisory agreement. In the contract Each Trustee may have evaluated the addition, based on their ongoing meetings information provided differently throughout the year with the Fund's portfolio manager or continued
AIM V.I. DIVERSIFIED INCOME FUND managers, the Board concluded that these Board also concluded that it would be of the Fund. The Board considered the individuals are competent and able to appropriate for the Board to continue to contractual nature of this fee waiver and continue to carry out their monitor more closely the performance of noted that it remains in effect until at responsibilities under the Fund's the Fund. Although the independent written least April 30, 2010. The Board also investment advisory agreement. evaluation of the Fund's Senior Officer considered the effect this expense In determining whether to continue the only considered Fund performance through limitation would have on the Fund's Fund's investment advisory agreement, the the most recent calendar year, the Board estimated total expenses. Board considered the prior relationship also reviewed more recent Fund performance After taking account of the Fund's between Invesco Aim and the Fund, as well and this review did not change their contractual advisory fee rate, as well as as the Board's knowledge of Invesco Aim's conclusions. the comparative advisory fee information operations, and concluded that it was and the expense limitation discussed beneficial to maintain the current C. Advisory Fees and Fee Waivers above, the Board concluded that the Fund's relationship, in part, because of such The Board compared the Fund's contractual advisory fees were fair and reasonable. knowledge. The Board also considered the advisory fee rate to the contractual steps that Invesco Aim and its affiliates advisory fee rates of funds in the Fund's D. Economies of Scale and Breakpoints have taken over the last several years to Lipper expense group that are not managed The Board considered the extent to improve the quality and efficiency of the by Invesco Aim, at a common asset level which there are economies of scale in services they provide to the AIM Funds in and as of the end of the past calendar Invesco Aim's provision of advisory the areas of investment performance, year. The Board noted that the Fund's services to the Fund. The Board also product line diversification, contractual advisory fee rate was above considered whether the Fund benefits from distribution, fund operations, shareholder the median contractual advisory fee rate such economies of scale through services and compliance. The Board of funds in its expense group. The Board contractual breakpoints in the Fund's concluded that the quality and efficiency also reviewed the methodology used by advisory fee schedule or through advisory of the services Invesco Aim and its Lipper in determining contractual fee fee waivers or expense limitations. The affiliates provide to the AIM Funds in rates. Board noted that the Fund's contractual each of these areas have generally The Board also compared the Fund's advisory fee schedule includes one improved, and support the Board's approval effective fee rate (the advisory fee after breakpoint but that, due to the Fund's of the continuance of the Fund's any advisory fee waivers and before any asset level at the end of the past investment advisory agreement. expense limitations/waivers) to the calendar year and the way in which the advisory fee rates of other clients of breakpoint has been structured, the Fund B. Fund Performance Invesco Aim and its affiliates with has yet to benefit from the breakpoint. The Board compared the Fund's performance investment strategies comparable to those Based on this information, the Board during the past one, three and five of the Fund, including two mutual funds concluded that the Fund's advisory fees calendar years to the performance of funds advised by Invesco Aim. The Board noted would reflect economies of scale at higher in the Fund's performance group that are that the Fund's rate was above the rates asset levels. The Board also noted that not managed by Invesco Aim, and against for the two mutual funds, one of which is the Fund shares directly in economies of the performance of all funds in the Lipper used in wrap fee and other similar scale through lower fees charged by third Variable Annuity Underlying Funds - programs and for which Invesco Aim has party service providers based on the Corporate Debt BBB-Rated Index. The Board irrevocably waived its advisory fee. combined size of all of the AIM Funds and also reviewed the criteria used by Invesco Additionally, the Board compared the affiliates. Aim to identify the funds in the Fund's Fund's effective fee rate to the total performance group. The Board noted that advisory fees paid by numerous separately E. Profitability and Financial the Fund's performance was in the fifth managed accounts/wrap accounts advised by Resources of Invesco Aim quintile of its performance group for the an Invesco Aim affiliate. The Board noted The Board reviewed information from one, three and five year periods (the that the Fund's rate was generally above Invesco Aim concerning the costs of the first quintile being the best performing the rates for the separately managed advisory and other services that Invesco funds and the fifth quintile being the accounts/wrap accounts. The Board Aim and its affiliates provide to the Fund worst performing funds). The Board noted considered that management of the and the profitability of Invesco Aim and that the Fund's performance was below the separately managed accounts/wrap accounts its affiliates in providing these performance of the Index for the one, by the Invesco Aim affiliate involves services. The Board also reviewed three and five year periods. The Board different levels of services and different information concerning the financial noted that Invesco Aim acknowledges the operational and regulatory requirements condition of Invesco Aim and its Fund's underperformance because of shorter than Invesco Aim's management of the Fund. affiliates. The Board also reviewed with term performance results and continues to The Board concluded that these differences Invesco Aim the methodology used to monitor the Fund. The Board also are appropriately reflected in the fee prepare the profitability information. The considered the steps Invesco Aim has taken structure for the Fund. Board considered the overall profitability over the last several years to improve the The Board noted that Invesco Aim has of Invesco Aim, as well as the quality and efficiency of the services contractually agreed to waive fees and/or profitability of Invesco Aim in connection that Invesco Aim provides to the AIM limit expenses of the Fund through at with managing the Fund. The Board noted Funds. The Board concluded that Invesco least April 30, 2010 in an amount that Invesco Aim continues to operate at a Aim continues to be responsive to the necessary to limit total annual operating net profit, although increased expenses in Board's focus on fund performance. expenses to a specified percentage of recent years have reduced the However, due to the Fund's average daily net assets for each class profitability of Invesco Aim and its underperformance, the affiliates. The Board concluded that the Fund's fees were fair and reason- continued
AIM V.I. DIVERSIFIED INCOME FUND able, and that the level of profits execution services. The Board noted that services. The Board concluded that the realized by Invesco Aim and its affiliates soft dollar arrangements shift the payment nature, extent and quality of the services from providing services to the Fund was obligation for the research and execution to be provided by the Affiliated not excessive in light of the nature, services from Invesco Aim to the funds and Sub-Advisers were appropriate. The Board quality and extent of the services therefore may reduce Invesco Aim's noted that the Affiliated Sub-Advisers, provided. The Board considered whether expenses. The Board also noted that which have offices and personnel that are Invesco Aim is financially sound and has research obtained through soft dollar geographically dispersed in financial the resources necessary to perform its arrangements may be used by Invesco Aim in centers around the world, have been formed obligations under the Fund's investment making investment decisions for the Fund in part for the purpose of researching and advisory agreement, and concluded that and may therefore benefit Fund compiling information and making Invesco Aim has the financial resources shareholders. The Board concluded that recommendations on the markets and necessary to fulfill these obligations. Invesco Aim's soft dollar arrangements economies of various countries and were appropriate. The Board also concluded securities of companies located in such F. Independent Written Evaluation of that, based on their review and countries or on various types of the Fund's Senior Officer representations made by Invesco Aim, these investments and investment techniques, and The Board noted that, at their direction, arrangements were consistent with providing investment advisory services. the Senior Officer of the Fund, who is regulatory requirements. The Board concluded that the sub-advisory independent of Invesco Aim and Invesco The Board considered the fact that the agreements will benefit the Fund and its Aim's affiliates, had prepared an Fund's uninvested cash and cash collateral shareholders by permitting Invesco Aim to independent written evaluation to assist from any securities lending arrangements utilize the additional resources and the Board in determining the may be invested in money market funds talent of the Affiliated Sub-Advisers in reasonableness of the proposed management advised by Invesco Aim pursuant to managing the Fund. fees of the AIM Funds, including the Fund. procedures approved by the Board. The The Board noted that they had relied upon Board noted that Invesco Aim will receive B. Fund Performance the Senior Officer's written evaluation advisory fees from these affiliated money The Board did not view Fund performance as instead of a competitive bidding process. market funds attributable to such a relevant factor in considering whether In determining whether to continue the investments, although Invesco Aim has to approve the sub-advisory agreements for Fund's investment advisory agreement, the contractually agreed to waive through at the Fund, as no Affiliated Sub-Adviser Board considered the Senior Officer's least April 30, 2010, the advisory fees served as a sub-adviser to the Fund prior written evaluation. payable by the Fund in an amount equal to to May 1, 2008. 100% of the net advisory fees Invesco Aim G. Collateral Benefits to Invesco Aim receives from the affiliated money market C. Sub-Advisory Fees and its Affiliates funds with respect to the Fund's The Board considered the services to be The Board considered various other investment of uninvested cash, but not provided by the Affiliated Sub-Advisers benefits received by Invesco Aim and its cash collateral. The Board considered the pursuant to the sub-advisory agreements affiliates resulting from Invesco Aim's contractual nature of this fee waiver and and the services to be provided by Invesco relationship with the Fund, including the noted that it remains in effect until at Aim pursuant to the Fund's investment fees received by Invesco Aim and its least April 30, 2010. The Board concluded advisory agreement, as well as the affiliates for their provision of that the Fund's investment of uninvested allocation of fees between Invesco Aim and administrative, transfer agency and cash and cash collateral from any the Affiliated Sub-Advisers pursuant to distribution services to the Fund. The securities lending arrangements in the the sub-advisory agreements. The Board Board considered the performance of affiliated money market funds is in the noted that the sub-advisory fees have no Invesco Aim and its affiliates in best interests of the Fund and its direct effect on the Fund or its providing these services and the shareholders. shareholders, as they are paid by Invesco organizational structure employed by Aim to the Affiliated Sub-Advisers, and Invesco Aim and its affiliates to provide II. Sub-Advisory Agreements that Invesco Aim and the Affiliated these services. The Board also considered A. Nature, Extent and Quality of Sub-Advisers are affiliates. After taking that these services are provided to the Services Provided by Affiliated account of the Fund's contractual Fund pursuant to written contracts which Sub-Advisors sub-advisory fee rate, as well as other are reviewed and approved on an annual The Board reviewed the services to be relevant factors, the Board concluded that basis by the Board. The Board concluded provided by Invesco Trimark Ltd., Invesco the Fund's sub-advisory fees were fair and that Invesco Aim and its affiliates were Asset Management Deutschland, GmbH, reasonable. providing these services in a satisfactory Invesco Asset Management Limited, Invesco manner and in accordance with the terms of Asset Management (Japan) Limited, Invesco D. Financial Resources of the their contracts, and were qualified to Australia Limited, Invesco Global Asset Affiliated Sub-Advisers continue to provide these services to the Management (N.A.), Inc., Invesco Hong Kong The Board considered whether each Fund. Limited, Invesco Institutional (N.A.), Affiliated Sub-Adviser is financially The Board considered the benefits Inc. and Invesco Senior Secured sound and has the resources necessary to realized by Invesco Aim as a result of Management, Inc. (collectively, the perform its obligations under its portfolio brokerage transactions executed "Affiliated Sub-Advisers") under the respective sub-advisory agreement, and through "soft dollar" arrangements. Under sub-advisory agreements and the concluded that each Affiliated Sub-Adviser these arrangements, portfolio brokerage credentials and experience of the officers has the financial resources necessary to commissions paid by the Fund and/or other and employees of the Affiliated fulfill these obligations. funds advised by Invesco Aim are used to Sub-Advisers who will provide these pay for research and
AIM V.I. DIVERSIFIED INCOME FUND NOTE 15--LEGAL PROCEEDINGS--(CONTINUED) PROXY RESULTS A Special Meeting ("Meeting") of Shareholders of AIM V.I. Diversified Income Fund, an investment portfolio of AIM Variable Insurance Funds, a Delaware statutory trust ("Trust"), was held on February 29, 2008. The Meeting was held for the following purposes: (1) Elect 13 trustees to the Board of Trustees of the Trust, each of whom will serve until his or her successor is elected and qualified. (2) Approve an amendment to the Trust's Agreement and Declaration of Trust that would permit the Board of Trustees of the Trust to terminate the Trust, the Fund, and each other series portfolio of the Trust, or a share class without a shareholder vote. (3) Approve a new sub-advisory agreement between Invesco Aim Advisors, Inc. and each of AIM Funds Management, Inc.; Invesco Asset Management Deutschland, GmbH; Invesco Asset Management Limited; Invesco Asset Management (Japan) Limited; Invesco Australia Limited; Invesco Global Asset Management (N.A.), Inc.; Invesco Hong Kong Limited; Invesco Institutional (N.A.), Inc.; and Invesco Senior Secured Management, Inc. The results of the voting on the above matters were as follows:
WITHHELD/ MATTERS VOTES FOR ABSTENTIONS** - ----------------------------------------------------------------------------------------------------------- (1)* Bob R. Baker..................................................... 474,883,590 19,741,622 Frank S. Bayley.................................................. 474,653,109 19,972,103 James T. Bunch................................................... 475,597,417 19,027,795 Bruce L. Crockett................................................ 474,900,579 19,724,633 Albert R. Dowden................................................. 474,749,929 19,875,283 Jack M. Fields................................................... 475,205,840 19,419,372 Martin L. Flanagan............................................... 475,248,336 19,376,876 Carl Frischling.................................................. 474,453,674 20,171,538 Prema Mathai-Davis............................................... 473,569,192 21,056,020 Lewis F. Pennock................................................. 475,072,501 19,552,711 Larry Soll, Ph.D. ............................................... 475,170,544 19,454,668 Raymond Stickel, Jr. ............................................ 475,420,825 19,204,387 Philip A. Taylor................................................. 475,640,570 18,984,642
VOTES WITHHELD/ VOTES FOR AGAINST ABSTENTIONS - -------------------------------------------------------------------------------------------------------------------- (2)* Approve an amendment to the Trust's Agreement and Declaration of Trust that would permit the Board of Trustees of the Trust to terminate the Trust, the Fund, and each other series portfolio of the Trust, or a share class without a shareholder vote.............. 438,131,484 35,586,925 20,906,803 (3) Approve a new sub-advisory agreement between Invesco Aim Advisors, Inc. and each of AIM Funds Management, Inc.; Invesco Asset Management Deutschland, GmbH; Invesco Asset Management Limited; Invesco Asset Management (Japan) Limited; Invesco Australia Limited; Invesco Global Asset Management (N.A.), Inc.; Invesco Hong Kong Limited; Invesco Institutional (N.A.), Inc.; and Invesco Senior Secured Management, Inc............ 3,998,424 65,145 194,839
* Proposals 1 and 2 required approval by a combined vote of all of the portfolios of AIM Variable Insurance Funds. ** Includes Broker Non-Votes. AIM V.I. DIVERSIFIED INCOME FUND [INVESCO AIM LOGO] AIM V.I. DYNAMICS FUND - SERVICE MARK - SEMIANNUAL REPORT TO SHAREHOLDERS - JUNE 30, 2008 AIM Investments [MOUNTAIN GRAPHIC] became INVESCO AIM on March 31, 2008. For more details, go to invescoaim.com 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 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 Invesco Aim Web site, invescoaim.com. On the home page, scroll down and click on 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, 2008, is available at our Web site. Go to invescoaim.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 noted, all data provided by Invesco Aim. THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND PROSPECTUS AND VARIABLE PRODUCT PROSPECTUS, WHICH CONTAIN MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ EACH CAREFULLY BEFORE INVESTING. Invesco Aim Distributors, Inc. NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE FUND PERFORMANCE ======================================================================================= PERFORMANCE SUMMARY FUND VS. INDEXES Cumulative total returns, 12/31/07 to 6/30/08, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower. Series I Shares -11.85% Series II Shares -11.96 S&P 500 Index(TRIANGLE) (Broad Market Index) -11.90 Russell Midcap Growth Index(TRIANGLE) (Style-Specific Index) -6.81 Lipper VUF Mid-Cap Growth Funds Index(TRIANGLE) (Peer Group Index) -8.98 (TRIANGLE)Lipper Inc. The S&P 500--REGISTERED TRADEMARK-- INDEX is a market capitalization-weighted index covering all major areas of the U.S. economy. It is not the 500 largest companies, but rather the most widely held 500 companies chosen with respect to market size, liquidity, and their industry. The RUSSELL MIDCAP--REGISTERED TRADEMARK-- GROWTH INDEX measures the performance of those Russell Midcap companies with higher price-to-book ratios and higher forecasted growth values. The Russell Midcap Growth Index is a trademark/service mark of the Frank Russell Company. Russell--REGISTERED TRADEMARK-- is a trademark of the Frank Russell Company. The LIPPER VUF MID-CAP GROWTH FUNDS INDEX is an equally weighted representation of the largest variable insurance underlying funds in the Lipper Mid-Cap Growth Funds category. These funds have an above-average price-to-earnings ratio, price-to-book ratio, and three-year sales-per-share growth value, compared to the S&P MidCap 400 Index. The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes. A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of an index of funds reflects fund expenses; performance of a market index does not. ======================================================================================= ========================================== AVERAGE ANNUAL TOTAL RETURNS THE PERFORMANCE DATA QUOTED REPRESENT OF THE FUND DIRECTLY. PERFORMANCE FIGURES As of 6/30/08 PAST PERFORMANCE AND CANNOT GUARANTEE GIVEN REPRESENT THE FUND AND ARE NOT COMPARABLE FUTURE RESULTS; CURRENT INTENDED TO REFLECT ACTUAL VARIABLE SERIES I SHARES PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE PRODUCT VALUES. THEY DO NOT REFLECT SALES Inception (8/22/97) 5.15% CONTACT YOUR VARIABLE PRODUCT ISSUER OR CHARGES, EXPENSES AND FEES ASSESSED IN 10 Years 3.54 FINANCIAL ADVISOR FOR THE MOST RECENT CONNECTION WITH A VARIABLE PRODUCT. SALES 5 Years 11.37 MONTH-END VARIABLE PRODUCT PERFORMANCE. CHARGES, EXPENSES AND FEES, WHICH ARE 1 Year -13.38 PERFORMANCE FIGURES REFLECT FUND EXPENSES, DETERMINED BY THE VARIABLE PRODUCT REINVESTED DISTRIBUTIONS AND CHANGES IN ISSUERS, WILL VARY AND WILL LOWER THE SERIES II SHARES NET ASSET VALUE. INVESTMENT RETURN AND TOTAL RETURN. 10 Years 3.28% PRINCIPAL VALUE WILL FLUCTUATE SO THAT YOU THE MOST RECENT MONTH-END PERFORMANCE 5 Years 11.08 MAY HAVE A GAIN OR LOSS WHEN YOU SELL DATA AT THE FUND LEVEL, EXCLUDING VARIABLE 1 Year -13.59 SHARES. PRODUCT CHARGES, IS AVAILABLE ON THE ========================================== THE TOTAL ANNUAL FUND OPERATING EXPENSE INVESCO AIM AUTOMATED INFORMATION LINE, RATIO SET FORTH IN THE MOST RECENT FUND 866 702 4402. AS MENTIONED ABOVE, FOR THE SERIES II SHARES' INCEPTION DATE IS APRIL PROSPECTUS AS OF THE DATE OF THIS REPORT MOST RECENT MONTH-END PERFORMANCE 30, 2004. RETURNS SINCE THAT DATE ARE FOR SERIES I AND SERIES II SHARES WAS INCLUDING VARIABLE PRODUCT CHARGES, PLEASE HISTORICAL. ALL OTHER RETURNS ARE THE 1.11% AND 1.36%, RESPECTIVELY. THE EXPENSE CONTACT YOUR VARIABLE PRODUCT ISSUER OR BLENDED RETURNS OF THE HISTORICAL RATIOS PRESENTED ABOVE MAY VARY FROM THE FINANCIAL ADVISOR. PERFORMANCE OF SERIES II SHARES SINCE EXPENSE RATIOS PRESENTED IN OTHER SECTIONS THEIR INCEPTION AND THE RESTATED OF THIS REPORT THAT ARE BASED ON EXPENSES HISTORICAL PERFORMANCE OF SERIES I SHARES INCURRED DURING THE PERIOD COVERED BY THIS (FOR PERIODS PRIOR TO INCEPTION OF SERIES REPORT. II SHARES) ADJUSTED TO REFLECT THE RULE AIM V.I. DYNAMICS FUND, A SERIES 12B-1 FEES APPLICABLE TO SERIES II SHARES. PORTFOLIO OF AIM VARIABLE INSURANCE FUNDS, THE INCEPTION DATE OF SERIES I SHARES IS IS CURRENTLY OFFERED THROUGH INSURANCE AUGUST 22, 1997. THE PERFORMANCE OF THE COMPANIES ISSUING VARIABLE PRODUCTS. YOU FUND'S SERIES I AND SERIES II SHARE CANNOT PURCHASE SHARES CLASSES WILL DIFFER PRIMARILY DUE TO DIFFERENT CLASS EXPENSES.
AIM V.I. DYNAMICS FUND PORTFOLIO COMPOSITION By sector, based on Net Assets as of June 30, 2008 - ------------------------------------------------------------------------- Industrials 18.8% - ------------------------------------------------------------------------- Information Technology 17.9 - ------------------------------------------------------------------------- Consumer Discretionary 14.7 - ------------------------------------------------------------------------- Energy 13.6 - ------------------------------------------------------------------------- Health Care 9.3 - ------------------------------------------------------------------------- Financials 8.8 - ------------------------------------------------------------------------- Materials 8.2 - ------------------------------------------------------------------------- Telecommunication Services 2.9 - ------------------------------------------------------------------------- Consumer Staples 2.7 - ------------------------------------------------------------------------- Utilities 1.3 - ------------------------------------------------------------------------- Money Market Funds Plus Other Assets Less Liabilities 1.8 _________________________________________________________________________ =========================================================================
SCHEDULE OF INVESTMENTS(a) June 30, 2008 (Unaudited)
SHARES VALUE - --------------------------------------------------------------------------- COMMON STOCKS & OTHER EQUITY INTERESTS-98.20% AEROSPACE & DEFENSE-1.38% Precision Castparts Corp. 12,822 $ 1,235,656 =========================================================================== APPAREL RETAIL-3.45% Aeropostale, Inc.(b) 53,373 1,672,176 - --------------------------------------------------------------------------- Guess?, Inc. 24,264 908,687 - --------------------------------------------------------------------------- Urban Outfitters, Inc.(b) 16,440 512,763 =========================================================================== 3,093,626 =========================================================================== APPAREL, ACCESSORIES & LUXURY GOODS-3.14% Coach, Inc.(b) 27,433 792,265 - --------------------------------------------------------------------------- Hanesbrands, Inc.(b) 61,202 1,661,022 - --------------------------------------------------------------------------- Under Armour, Inc.-Class A(b) 14,032 359,781 =========================================================================== 2,813,068 =========================================================================== APPLICATION SOFTWARE-4.86% Amdocs Ltd.(b) 30,640 901,429 - --------------------------------------------------------------------------- ANSYS, Inc.(b) 31,227 1,471,416 - --------------------------------------------------------------------------- Citrix Systems, Inc.(b) 14,885 437,768 - --------------------------------------------------------------------------- Solera Holdings Inc.(b) 55,850 1,544,811 =========================================================================== 4,355,424 =========================================================================== ASSET MANAGEMENT & CUSTODY BANKS-2.15% Affiliated Managers Group, Inc.(b) 15,161 1,365,400 - --------------------------------------------------------------------------- Riskmetrics Group Inc.(b)(c) 28,813 565,887 =========================================================================== 1,931,287 =========================================================================== BIOTECHNOLOGY-1.88% Genzyme Corp.(b) 13,200 950,664 - --------------------------------------------------------------------------- United Therapeutics Corp.(b) 7,500 733,125 =========================================================================== 1,683,789 =========================================================================== CASINOS & GAMING-0.72% International Game Technology 25,919 647,457 =========================================================================== COAL & CONSUMABLE FUELS-1.74% Alpha Natural Resources, Inc.(b) 15,000 1,564,350 =========================================================================== COMMUNICATIONS EQUIPMENT-1.26% Infinera Corp.(b) 38,638 340,787 - --------------------------------------------------------------------------- Juniper Networks, Inc.(b) 35,729 792,469 =========================================================================== 1,133,256 =========================================================================== COMPUTER & ELECTRONICS RETAIL-0.40% GameStop Corp.-Class A(b) 8,930 360,772 =========================================================================== COMPUTER STORAGE & PERIPHERALS-1.61% Logitech International S.A. (Switzerland)(b)(d) 23,673 631,158 - --------------------------------------------------------------------------- NetApp, Inc.(b) 37,338 808,741 =========================================================================== 1,439,899 =========================================================================== CONSTRUCTION & ENGINEERING-4.90% Foster Wheeler Ltd.(b) 19,672 1,439,007 - --------------------------------------------------------------------------- Quanta Services, Inc.(b) 36,788 1,223,937 - --------------------------------------------------------------------------- Shaw Group Inc. (The)(b) 28,055 1,733,518 =========================================================================== 4,396,462 ===========================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. DYNAMICS FUND
SHARES VALUE - --------------------------------------------------------------------------- CONSTRUCTION & FARM MACHINERY & HEAVY TRUCKS-2.13% Bucyrus International, Inc. 18,488 $ 1,349,994 - --------------------------------------------------------------------------- Joy Global Inc. 7,394 560,687 =========================================================================== 1,910,681 =========================================================================== CONSUMER FINANCE-1.73% SLM Corp.(b) 80,380 1,555,353 =========================================================================== DATA PROCESSING & OUTSOURCED SERVICES-2.02% Alliance Data Systems Corp.(b) 32,071 1,813,615 =========================================================================== DIVERSIFIED COMMERCIAL & PROFESSIONAL SERVICES-3.72% Corrections Corp. of America(b) 55,243 1,517,525 - --------------------------------------------------------------------------- Equifax Inc. 13,113 440,859 - --------------------------------------------------------------------------- IHS Inc.-Class A(b) 19,830 1,380,168 =========================================================================== 3,338,552 =========================================================================== DRUG RETAIL-1.62% Shoppers Drug Mart Corp. (Canada) 26,599 1,457,183 =========================================================================== EDUCATION SERVICES-2.27% Apollo Group Inc.-Class A(b) 20,413 903,479 - --------------------------------------------------------------------------- ITT Educational Services, Inc.(b) 13,742 1,135,502 =========================================================================== 2,038,981 =========================================================================== ELECTRICAL COMPONENTS & EQUIPMENT-1.86% General Cable Corp.(b) 27,392 1,666,803 =========================================================================== ELECTRONIC EQUIPMENT MANUFACTURERS-1.56% Amphenol Corp.-Class A 31,080 1,394,870 =========================================================================== FERTILIZERS & AGRICULTURAL CHEMICALS-1.31% Intrepid Potash, Inc.(b)(c) 7,809 513,676 - --------------------------------------------------------------------------- Potash Corp. of Saskatchewan Inc. (Canada) 2,882 658,739 =========================================================================== 1,172,415 =========================================================================== HEALTH CARE EQUIPMENT-1.12% Hologic, Inc.(b) 45,919 1,001,034 =========================================================================== HEALTH CARE SERVICES-0.77% Express Scripts, Inc.(b) 11,000 689,920 =========================================================================== HOUSEWARES & SPECIALTIES-1.21% Jarden Corp.(b) 59,607 1,087,232 =========================================================================== INDEPENDENT POWER PRODUCERS & ENERGY TRADERS-1.33% KGEN Power Corp. (Acquired 01/12/07; Cost $865,032)(b)(e)(f) 61,788 1,189,419 =========================================================================== INDUSTRIAL MACHINERY-1.80% Flowserve Corp. 11,791 1,611,830 =========================================================================== INVESTMENT BANKING & BROKERAGE-1.19% TD Ameritrade Holding Corp.(b) 59,097 1,069,065 =========================================================================== IT CONSULTING & OTHER SERVICES-1.16% Cognizant Technology Solutions Corp.-Class A(b) 31,892 1,036,809 =========================================================================== LIFE SCIENCES TOOLS & SERVICES-2.64% AMAG Pharmaceuticals, Inc.(b) 12,055 411,076 - --------------------------------------------------------------------------- Pharmaceutical Product Development, Inc. 22,536 966,794 - --------------------------------------------------------------------------- Waters Corp.(b) 15,387 992,461 =========================================================================== 2,370,331 =========================================================================== MANAGED HEALTH CARE-1.78% Aveta, Inc. (Acquired 12/21/05-05/22/06; Cost $1,300,095)(b)(e)(f) 90,000 720,000 - --------------------------------------------------------------------------- Humana Inc.(b) 21,977 874,025 =========================================================================== 1,594,025 =========================================================================== METAL & GLASS CONTAINERS-5.36% Crown Holdings, Inc.(b) 71,816 1,866,498 - --------------------------------------------------------------------------- Owens-Illinois, Inc.(b) 36,171 1,507,969 - --------------------------------------------------------------------------- Pactiv Corp.(b) 67,301 1,428,800 =========================================================================== 4,803,267 =========================================================================== MORTGAGE REIT'S-0.99% Annaly Capital Management Inc. 57,185 886,939 =========================================================================== OIL & GAS DRILLING-5.43% ENSCO International Inc. 13,503 1,090,232 - --------------------------------------------------------------------------- Helmerich & Payne, Inc. 12,300 885,846 - --------------------------------------------------------------------------- Hercules Offshore, Inc.(b) 31,505 1,197,820 - --------------------------------------------------------------------------- Noble Corp. 26,100 1,695,456 =========================================================================== 4,869,354 =========================================================================== OIL & GAS EQUIPMENT & SERVICES-1.63% Cameron International Corp.(b) 26,493 1,466,388 =========================================================================== OIL & GAS EXPLORATION & PRODUCTION-3.66% Carrizo Oil & Gas, Inc.(b) 15,200 1,034,968 - --------------------------------------------------------------------------- Denbury Resources Inc.(b) 19,900 726,350 - --------------------------------------------------------------------------- Southwestern Energy Co.(b) 31,897 1,518,616 =========================================================================== 3,279,934 =========================================================================== OIL & GAS STORAGE & TRANSPORTATION-1.18% Williams Cos., Inc. (The) 26,300 1,060,153 =========================================================================== PERSONAL PRODUCTS-1.11% Estee Lauder Cos. Inc. (The)-Class A 21,354 991,893 =========================================================================== PHARMACEUTICALS-1.09% Allergan, Inc. 18,784 977,707 =========================================================================== PUBLISHING-1.51% McGraw-Hill Cos., Inc. (The) 33,772 1,354,933 ===========================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. DYNAMICS FUND
SHARES VALUE - --------------------------------------------------------------------------- REAL ESTATE MANAGEMENT & DEVELOPMENT-0.19% Meruelo Maddux Properties, Inc.(b) 78,106 $ 170,271 =========================================================================== RESTAURANTS-0.99% Burger King Holdings Inc. 33,069 885,918 =========================================================================== SEMICONDUCTOR EQUIPMENT-0.24% Lam Research Corp.(b) 5,979 216,141 =========================================================================== SEMICONDUCTORS-3.96% Altera Corp. 44,387 918,811 - --------------------------------------------------------------------------- Intersil Corp.-Class A 34,462 838,116 - --------------------------------------------------------------------------- Maxim Integrated Products, Inc. 52,970 1,120,316 - --------------------------------------------------------------------------- ON Semiconductor Corp.(b) 73,291 672,078 =========================================================================== 3,549,321 =========================================================================== SPECIALIZED FINANCE-2.58% IntercontinentalExchange Inc.(b) 8,108 924,312 - --------------------------------------------------------------------------- Moody's Corp. 40,384 1,390,825 =========================================================================== 2,315,137 =========================================================================== SPECIALTY STORES-1.02% Dick's Sporting Goods, Inc.(b) 36,508 647,652 - --------------------------------------------------------------------------- Ulta Salon, Cosmetics & Fragrance, Inc.(b) 23,579 265,028 =========================================================================== 912,680 =========================================================================== STEEL-1.50% Cleveland-Cliffs Inc. 7,455 888,562 - --------------------------------------------------------------------------- Steel Dynamics, Inc. 11,774 460,010 =========================================================================== 1,348,572 =========================================================================== SYSTEMS SOFTWARE-1.19% McAfee Inc.(b) 31,395 1,068,372 =========================================================================== TRUCKING-3.00% Con-way Inc. 20,402 964,199 - --------------------------------------------------------------------------- Hunt (J.B.) Transport Services, Inc. 14,136 470,446 - --------------------------------------------------------------------------- Landstar System, Inc. 22,728 1,255,040 =========================================================================== 2,689,685 =========================================================================== WIRELESS TELECOMMUNICATION SERVICES-2.86% American Tower Corp.-Class A(b) 11,646 492,044 - --------------------------------------------------------------------------- Crown Castle International Corp.(b) 24,738 958,103 - --------------------------------------------------------------------------- SBA Communications Corp.-Class A(b) 30,930 1,113,789 =========================================================================== 2,563,936 =========================================================================== Total Common Stocks & Other Equity Interests (Cost $83,365,026) 88,063,765 =========================================================================== MONEY MARKET FUNDS-1.30% Liquid Assets Portfolio-Institutional Class(g) 582,182 582,182 - --------------------------------------------------------------------------- Premier Portfolio-Institutional Class(g) 582,182 582,182 =========================================================================== Total Money Market Funds (Cost $1,164,364) 1,164,364 =========================================================================== TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)-99.50% (Cost $84,529,390) 89,228,129 =========================================================================== INVESTMENTS PURCHASED WITH CASH COLLATERAL FROM SECURITIES ON LOAN MONEY MARKET FUNDS-0.90% Liquid Assets Portfolio-Institutional Class (Cost $808,880)(g)(h) 808,880 808,880 =========================================================================== TOTAL INVESTMENTS-100.40% (Cost $85,338,270) 90,037,009 =========================================================================== OTHER ASSETS LESS LIABILITIES-(0.40)% (361,341) =========================================================================== NET ASSETS-100.00% $89,675,668 ___________________________________________________________________________ ===========================================================================
Investment Abbreviations: REIT - Real Estate Investment Trust
Notes to Schedule of Investments: (a) Industry and/or sector 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 MSCI Inc. and Standard & Poor's. (b) Non-income producing security. (c) All or a portion of this security was out on loan at June 30, 2008. (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 June 30, 2008 represented 0.70% of the Fund's Net Assets. See Note 1A. (e) Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended. The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at June 30, 2008 was $1,909,419, which represented 2.13% of the Fund's Net Assets. These securities are considered to be illiquid. The Fund is limited to investing 15% of net assets in illiquid securities at the time of purchase. (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 June 30, 2008 was $1,909,419, which represented 2.13% 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. (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 1I. See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. DYNAMICS FUND STATEMENT OF ASSETS AND LIABILITIES June 30, 2008 (Unaudited) ASSETS: Investments, at value (Cost $83,365,026)* $ 88,063,765 - ------------------------------------------------------ Investments in affiliated money market funds (Cost $1,973,244) 1,973,244 ====================================================== Total investments (Cost $85,338,270) 90,037,009 ====================================================== Foreign currencies, at value (Cost $333) 339 - ------------------------------------------------------ Receivables for: Investments sold 859,398 - ------------------------------------------------------ Fund shares sold 16,387 - ------------------------------------------------------ Dividends 69,558 - ------------------------------------------------------ Investment for trustee deferred compensation and retirement plans 18,101 - ------------------------------------------------------ Other assets 2,203 ====================================================== Total assets 91,002,995 ______________________________________________________ ====================================================== LIABILITIES: Payables for: Investments purchased 219,344 - ------------------------------------------------------ Fund shares reacquired 172,783 - ------------------------------------------------------ Collateral upon return of securities loaned 808,880 - ------------------------------------------------------ Accrued fees to affiliates 60,568 - ------------------------------------------------------ Accrued other operating expenses 38,905 - ------------------------------------------------------ Trustee deferred compensation and retirement plans 26,847 ====================================================== Total liabilities 1,327,327 ====================================================== Net assets applicable to shares outstanding $ 89,675,668 ______________________________________________________ ====================================================== NET ASSETS CONSIST OF: Shares of beneficial interest $148,898,161 - ------------------------------------------------------ Undistributed net investment income (loss) (268,413) - ------------------------------------------------------ Undistributed net realized gain (loss) (63,652,778) - ------------------------------------------------------ Unrealized appreciation 4,698,698 ====================================================== $ 89,675,668 ______________________________________________________ ====================================================== NET ASSETS: Series I $ 89,667,129 ______________________________________________________ ====================================================== Series II $ 8,539 ______________________________________________________ ====================================================== SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED NUMBER OF SHARES AUTHORIZED: Series I 5,288,331 ______________________________________________________ ====================================================== Series II 509 ______________________________________________________ ====================================================== Series I: Net asset value per share $ 16.96 ______________________________________________________ ====================================================== Series II: Net asset value per share $ 16.78 ______________________________________________________ ======================================================
* At June 30, 2008, securities with an aggregate value of $786,014 were on loan to brokers. STATEMENT OF OPERATIONS For the six months ended June 30, 2008 (Unaudited) INVESTMENT INCOME: Dividends (net of foreign withholding taxes of $1,811) $ 264,903 - ------------------------------------------------------ Dividends from affiliated money market funds (includes securities lending income of $33,595) 70,679 ====================================================== Total investment income 335,582 ====================================================== EXPENSES: Advisory fees 361,169 - ------------------------------------------------------ Administrative services fees 145,568 - ------------------------------------------------------ Custodian fees 15,446 - ------------------------------------------------------ Distribution fees -- Series II 11 - ------------------------------------------------------ Transfer agent fees 8,211 - ------------------------------------------------------ Trustees' and officer's fees and benefits 10,640 - ------------------------------------------------------ Other 43,260 ====================================================== Total expenses 584,305 ====================================================== Less: Fees waived (1,446) ====================================================== Net expenses 582,859 ====================================================== Net investment income (loss) (247,277) ====================================================== REALIZED AND UNREALIZED GAIN (LOSS) FROM: Net realized gain (loss) from: Investment securities (includes net gains (losses) from securities sold to affiliates of $(49,127)) (8,370,543) - ------------------------------------------------------ Foreign currencies 21,840 ====================================================== (8,348,703) ====================================================== Change in net unrealized appreciation (depreciation) of: Investment securities (5,715,281) - ------------------------------------------------------ Foreign currencies 13 ====================================================== (5,715,268) ====================================================== Net realized and unrealized gain (loss) (14,063,971) ====================================================== Net increase (decrease) in net assets resulting from operations $(14,311,248) ______________________________________________________ ======================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. DYNAMICS FUND STATEMENT OF CHANGES IN NET ASSETS For the six months ended June 30, 2008 and the year ended December 31, 2007 (Unaudited)
JUNE 30, DECEMBER 31, 2008 2007 - ------------------------------------------------------------------------------------------------------ OPERATIONS: Net investment income (loss) $ (247,277) $ (759,274) - ------------------------------------------------------------------------------------------------------ Net realized gain (loss) (8,348,703) 17,222,780 - ------------------------------------------------------------------------------------------------------ Change in net unrealized appreciation (depreciation) (5,715,268) (2,752,289) ====================================================================================================== Net increase (decrease) in net assets resulting from operations (14,311,248) 13,711,217 ====================================================================================================== Share transactions -- net: Series I (18,206,853) (12,316,934) - ------------------------------------------------------------------------------------------------------ Series II -- (6,500) ====================================================================================================== Net increase (decrease) in net assets resulting from share transactions (18,206,853) (12,323,434) ====================================================================================================== Net increase (decrease) in net assets (32,518,101) 1,387,783 ====================================================================================================== NET ASSETS: Beginning of period 122,193,769 120,805,986 ====================================================================================================== End of period (including undistributed net investment income (loss) of $(268,413) and $(21,136), respectively) $ 89,675,668 $122,193,769 ______________________________________________________________________________________________________ ======================================================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. DYNAMICS FUND NOTES TO FINANCIAL STATEMENTS June 30, 2008 (Unaudited) NOTE 1--SIGNIFICANT ACCOUNTING POLICIES AIM V.I. Dynamics Fund (the "Fund") is a series portfolio of AIM Variable Insurance Funds (the "Trust"). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of twenty separate portfolios, (each constituting a "Fund"). 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 Fund or class will be voted on exclusively by the shareholders of such Fund 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 Fund 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. 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 prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. 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, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. 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, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. 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. Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer's assets, general economic conditions, interest rates, investor perceptions and market liquidity. 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. AIM V.I. DYNAMICS FUND The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds as received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. 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, the investment advisor 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. The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. 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 by a significant amount. 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. SECURITIES LENDING -- 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 by the securities lending provider. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its sponsored agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds and is shown as such on the Schedule of Investments. 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. Dividends received on cash collateral investments for securities lending transactions, which are net of compensation to counterparties, is included in Dividends from affiliates on the Statement of Operations. The aggregate value of securities out on loan is shown as a footnote on the Statement of Assets and Liabilities. 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 AIM V.I. DYNAMICS FUND 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. 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. 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. NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES The Trust has entered into a master investment advisory agreement with Invesco Aim Advisors, Inc. (the "Advisor" or "Invesco Aim"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Advisor based on the annual rate of the Fund's average daily net assets as follows:
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% ___________________________________________________________________ ===================================================================
Under the terms of a master sub-advisory agreement approved by shareholders of the Fund on February 29, 2008, effective May 1, 2008, between the Advisor and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Global Asset Management (N.A.), Inc., Invesco Hong Kong Limited, Invesco Institutional (N.A.), Inc., Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd., (collectively, the "Affiliated Sub-Advisors") the Advisor, not the Fund, may pay 40% of the fees paid to the Advisor to any such Affiliated Sub- Advisor(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Advisor(s). The Advisor 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, 2010. 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 Invesco Ltd. ("Invesco") 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. The Advisor did not waive fees and/or reimburse expenses during the period under this expense limitation. Further, the Advisor has contractually agreed, through at least April 30, 2010, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Advisor receives from the affiliated money market funds on investments by the Fund of uninvested cash (but not cash collateral from securities lending) in such affiliated money market funds. For the six months ended June 30, 2008, the Advisor waived advisory fees of $1,446. At the request of the Trustees of the Trust, Invesco agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the six months ended June 30, 2008, Invesco did not reimburse any expenses. AIM V.I. DYNAMICS FUND The Trust has entered into a master administrative services agreement with Invesco Aim pursuant to which the Fund has agreed to pay Invesco Aim a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco Aim for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants' accounts. Pursuant to such agreement, for the six months ended June 30, 2008, Invesco Aim was paid $24,863 for accounting and fund administrative services and reimbursed $120,705 for services provided by insurance companies. The Trust has entered into a transfer agency and service agreement with Invesco Aim Investment Services, Inc. ("IAIS") pursuant to which the Fund has agreed to pay IAIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IAIS for certain expenses incurred by IAIS in the course of providing such services. For the six months ended June 30, 2008, 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 Invesco Aim Distributors, Inc. ("IADI") 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 IADI 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 six months ended June 30, 2008, expenses incurred under the Plan are detailed in the Statement of Operations as distribution fees. Certain officers and trustees of the Trust are officers and directors of Invesco Aim, IAIS and/or IADI. NOTE 3--SUPPLEMENTAL INFORMATION The Fund adopted the provisions of Statement of Financial Accounting Standards No. 157, "Fair Value Measurements" (SFAS 157), effective with the beginning of the Fund's fiscal year. SFAS 157 establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (level 1) and the lowest priority to unobservable inputs (level 3) market prices are not readily available or are unreliable. Based on the inputs the securities or other instruments are tiered into three levels of hierarchy under SFAS 157. Changes in valuation methods may result in transfers in or out of an investment's assigned level within the hierarchy, Level 1 -- Quoted prices in an active market for identical assets. Level 2 -- Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk and others. Level 3 -- Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund's own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. Below is a summary of the tiered input levels, as of the end of the reporting period, June 30, 2008. The inputs or methods used for valuing securities may not be an indication of the risk associated with investing in those securities.
INVESTMENTS IN INPUT LEVEL SECURITIES - -------------------------------------- Level 1 $87,496,432 - -------------------------------------- Level 2 2,540,577 - -------------------------------------- Level 3 -- ====================================== $90,037,009 ______________________________________ ======================================
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS The Fund is permitted to purchase or sell securities from or to certain other AIM Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment advisor (or affiliated investment advisors), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the six months ended June 30, 2008, the Fund engaged in securities sales of $383,992, which resulted in net realized gains (losses) of $(49,127), and securities purchases of $334,644. 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 certain Trustees and Officers of the Fund. 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, certain 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 AIM V.I. DYNAMICS FUND and receive benefits under such plan. "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund. During the six months ended June 30, 2008, the Fund paid legal fees of $1,646 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--CASH BALANCES The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The State Street Bank and Trust Company ("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 Invesco Aim, not to exceed the contractually agreed upon rate. NOTE 7--TAX INFORMATION The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund's fiscal year-end. Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions. The Fund had a capital loss carryforward as of December 31, 2007 which expires as follows:
CAPITAL LOSS EXPIRATION CARRYFORWARD* - --------------------------------------------------------------------------------- December 31, 2010 $55,194,636 _________________________________________________________________________________ =================================================================================
* Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. NOTE 8--INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2008 was $53,098,739 and $68,952,560, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period end.
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS - ----------------------------------------------------------------------------------------------- Aggregate unrealized appreciation of investment securities $12,823,970 - ----------------------------------------------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (8,234,668) =============================================================================================== Net unrealized appreciation of investment securities $ 4,589,302 _______________________________________________________________________________________________ =============================================================================================== Cost of investments for tax purposes is $85,447,707.
NOTE 9--SHARE INFORMATION
CHANGES IN SHARES OUTSTANDING - ------------------------------------------------------------------------------------------------------------------------ SIX MONTHS ENDED YEAR ENDED JUNE 30, 2008(a) DECEMBER 31, 2007 --------------------------- --------------------------- SHARES AMOUNT SHARES AMOUNT - ------------------------------------------------------------------------------------------------------------------------ Sold: Series I 583,787 $ 10,187,409 2,185,271 $ 41,876,286 - ------------------------------------------------------------------------------------------------------------------------ Reacquired: Series I (1,647,104) (28,394,262) (2,876,008) (54,193,220) - ------------------------------------------------------------------------------------------------------------------------ Series II -- -- (329) (6,500) ======================================================================================================================== (1,063,317) $(18,206,853) (691,066) $(12,323,434) ________________________________________________________________________________________________________________________ ========================================================================================================================
(a) There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate 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, Invesco Aim and/or Invesco Aim affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco Aim and or Invesco 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. DYNAMICS FUND NOTE 10--FINANCIAL HIGHLIGHTS The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
SERIES I --------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ------------------------------------------------------------ 2008 2007 2006 2005 2004 2003 - ------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 19.24 $ 17.15 $ 14.77 $ 13.34 $ 11.77 $ 8.54 - ------------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) (0.05) (0.11)(a) (0.09) (0.04) (0.09) (0.07) - ------------------------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) (2.23) 2.20 2.47 1.47 1.66 3.30 =============================================================================================================================== Total from investment operations (2.28) 2.09 2.38 1.43 1.57 3.23 =============================================================================================================================== Net asset value, end of period $ 16.96 $ 19.24 $ 17.15 $ 14.77 $ 13.34 $ 11.77 _______________________________________________________________________________________________________________________________ =============================================================================================================================== Total return(b) (11.85)% 12.19% 16.11% 10.72% 13.34% 37.82% _______________________________________________________________________________________________________________________________ =============================================================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $89,667 $122,184 $120,792 $111,655 $123,609 $169,269 _______________________________________________________________________________________________________________________________ =============================================================================================================================== Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 1.20%(c) 1.11% 1.12% 1.16% 1.14% 1.14% - ------------------------------------------------------------------------------------------------------------------------------- Without fee waivers and/or expense reimbursements 1.20%(c) 1.11% 1.13% 1.17% 1.14% 1.15% =============================================================================================================================== Ratio of net investment income (loss) to average net assets (0.51)%(c) (0.58)% (0.51)% (0.29)% (0.62)% (0.70)% _______________________________________________________________________________________________________________________________ =============================================================================================================================== Portfolio turnover rate(d) 55% 115% 142% 110% 64% 129% _______________________________________________________________________________________________________________________________ ===============================================================================================================================
(a) Calculated using average shares outstanding. (b) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. (c) Ratios are annualized and based on average daily net assets of $97,482,241. (d) Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year.
SERIES II ------------------------------------------------------------------------- APRIL 30, 2004 SIX MONTHS ENDED YEAR ENDED DECEMBER 31, (COMMENCEMENT DATE) JUNE 30, ---------------------------- TO DECEMBER 31, 2008 2007 2006 2005 2004 - ------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $ 19.06 $17.04 $14.71 $13.32 $11.94 - ------------------------------------------------------------------------------------------------------------------------ Income from investment operations: Net investment income (loss) (0.06) (0.15)(a) (0.12) (0.07) (0.07) - ------------------------------------------------------------------------------------------------------------------------ Net gains (losses) on securities (both realized and unrealized) (2.22) 2.17 2.45 1.46 1.45 ======================================================================================================================== Total from investment operations (2.28) 2.02 2.33 1.39 1.38 ======================================================================================================================== Net asset value, end of period $ 16.78 $19.06 $17.04 $14.71 $13.32 ________________________________________________________________________________________________________________________ ======================================================================================================================== Total return(b) (11.96)% 11.85% 15.84% 10.44% 11.56% ________________________________________________________________________________________________________________________ ======================================================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $ 9 $ 10 $ 14 $ 12 $ 11 ________________________________________________________________________________________________________________________ ======================================================================================================================== Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 1.45%(c) 1.36% 1.37% 1.41% 1.40%(d) - ------------------------------------------------------------------------------------------------------------------------ Without fee waivers and/or expense reimbursements 1.45%(c) 1.36% 1.38% 1.42% 1.40%(d) ======================================================================================================================== Ratio of net investment income (loss) to average net assets (0.76)%(c) (0.83)% (0.76)% (0.54)% (0.88)%(d) ________________________________________________________________________________________________________________________ ======================================================================================================================== Portfolio turnover rate(e) 55% 115% 142% 110% 64% ________________________________________________________________________________________________________________________ ========================================================================================================================
(a) Calculated using average shares outstanding. (b) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. (c) Ratios are annualized and based on average daily net assets of $8,670. (d) Annualized. (e) Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year. AIM V.I. DYNAMICS FUND NOTE 11--LEGAL PROCEEDINGS Terms used in the Legal Proceedings Note are defined terms solely for the purpose of this note. 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 Invesco Aim and IADI (Order No. 05-1318). The WVASC makes findings of fact that Invesco Aim and IADI 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 Invesco Aim and IADI violated the West Virginia securities laws. The WVASC orders Invesco Aim and IADI 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. By agreement with the Commissioner of Securities, Invesco Aim's time to respond to that Order has been indefinitely suspended. Civil lawsuits, including purported class action and shareholder derivative suits, have been filed against certain of the AIM Funds, Invesco Funds Group, Inc. ("IFG"), Invesco Aim, IADI 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; and - that certain AIM Funds inadequately employed fair value pricing. These lawsuits allege as theories of recovery, depending on the lawsuit, violations of various provisions of the Federal and state securities laws Employee Retirement Income Security Act of 1974, as amended ("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. The case pending in Illinois State Court regarding fair value pricing was dismissed with prejudice on May 6, 2008. 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 Invesco 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 ERISA purportedly brought on behalf of participants in the Invesco 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 Invesco defendants' motion to dismiss the Amended Class Action Complaint for Violations of ERISA and dismissed such Complaint. Plaintiff appealed this ruling. On June 16, 2008, the Fourth Court of Appeals reversed the dismissal and remanded this lawsuit back to the MDL Court for further proceedings.. IFG, Invesco Aim, IADI 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, Invesco Aim and IADI 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, Invesco Aim and/or related entities and individuals in the future. At the present time, management of Invesco 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 Invesco Aim, IADI or the Fund. AIM V.I. DYNAMICS FUND CALCULATING YOUR ONGOING FUND EXPENSES EXAMPLE As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2008, through June 30, 2008. The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower. ACTUAL EXPENSES The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled "Actual Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
- --------------------------------------------------------------------------------------------------- HYPOTHETICAL (5% ANNUAL RETURN BEFORE ACTUAL EXPENSES) ------------------------------------------------------ BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE CLASS (01/01/08) (06/30/08)(1) PERIOD(2) (06/30/08) PERIOD(2) RATIO - --------------------------------------------------------------------------------------------------- Series I $1,000.00 $881.50 $5.61 $1,018.90 $6.02 1.20% - --------------------------------------------------------------------------------------------------- Series II 1,000.00 880.40 6.78 1,017.65 7.27 1.45 - ---------------------------------------------------------------------------------------------------
(1) The actual ending account value is based on the actual total return of the Fund for the period January 1, 2008, through June 30, 2008, 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 182/366 to reflect the most recent fiscal half year. AIM V.I. DYNAMICS FUND APPROVAL OF INVESTMENT ADVISORY AGREEMENT The Board of Trustees (the Board) of AIM comparative performance and fee data ent weight to the various factors. The Variable Insurance Funds is required under regarding the AIM Funds prepared by an Trustees recognized that the advisory the Investment Company Act of 1940 to independent company, Lipper, Inc. arrangements and resulting advisory fees approve annually the renewal of the AIM (Lipper), under the direction and for the Fund and the other AIM Funds are V.I. Dynamics Fund (the Fund) investment supervision of the independent Senior the result of years of review and advisory agreement with Invesco Aim Officer who also prepares a separate negotiation between the Trustees and Advisors, Inc. (Invesco Aim). During analysis of this information for the Invesco Aim, that the Trustees may focus contract renewal meetings held on June Trustees. Each Sub-Committee then makes to a greater extent on certain aspects of 18-19, 2008, the Board as a whole and the recommendations to the Investments these arrangements in some years than in disinterested or "independent" Trustees, Committee regarding the performance, fees others, and that the Trustees' voting separately, approved the and expenses of their assigned funds. The deliberations and conclusions in a continuance of the Fund's investment Investments Committee considers each particular year may be based in part on advisory agreement for another year, Sub-Committee's recommendations and makes their deliberations and conclusions of effective July 1, 2008. In doing so, the its own recommendations regarding the these same arrangements throughout the Board determined that the Fund's performance, fees and expenses of the AIM year and in prior years. investment advisory agreement is in the Funds to the full Board. The Investments best interests of the Fund and its Committee also considers each FACTORS AND CONCLUSIONS AND SUMMARY OF shareholders and that the compensation to Sub-Committee's recommendations in making INDEPENDENT WRITTEN FEE EVALUATION Invesco Aim under the Fund's investment its annual recommendation to the Board The discussion below serves as a summary advisory agreement is fair and reasonable. whether to approve the continuance of each of the Senior Officer's independent The independent Trustees met separately AIM Fund's investment advisory agreement written evaluation with respect to the during their evaluation of the Fund's and sub-advisory agreements for another Fund's investment advisory agreement as investment advisory agreement with year. well as a discussion of the material independent legal counsel from whom they The independent Trustees are assisted factors and related conclusions that received independent legal advice, and the in their annual evaluation of the Fund's formed the basis for the Board's approval independent Trustees also received investment advisory agreement by the of the Fund's investment advisory assistance during their deliberations from independent Senior Officer. One agreement and sub-advisory agreements. the independent Senior Officer, a responsibility of the Senior Officer is to Unless otherwise stated, information set full-time officer of the AIM Funds who manage the process by which the AIM Funds' forth below is as of June 19, 2008 and reports directly to the independent proposed management fees are negotiated does not reflect any changes that may have Trustees. during the annual contract renewal process occurred since that date, including but to ensure that they are negotiated in a not limited to changes to the Fund's THE BOARD'S FUND EVALUATION PROCESS manner that is at arms' length and performance, advisory fees, expense The Board's Investments Committee has reasonable. Accordingly, the Senior limitations and/or fee waivers. established three Sub-Committees that are Officer must either supervise a responsible for overseeing the management competitive bidding process or prepare an I. Investment Advisory Agreement of a number of the series portfolios of independent written evaluation. The Senior A. Nature, Extent and Quality of the AIM Funds. This Sub-Committee Officer has recommended that an Services Provided by Invesco Aim structure permits the Trustees to focus on independent written evaluation be provided The Board reviewed the advisory services the performance of the AIM Funds that have and, at the direction of the Board, has provided to the Fund by Invesco Aim under been assigned to them. The Sub-Committees prepared an independent written the Fund's investment advisory agreement, meet throughout the year to review the evaluation. the performance of Invesco Aim in performance of their assigned funds, and During the annual contract renewal providing these services, and the the Sub-Committees review monthly and process, the Board considered the factors credentials and experience of the officers quarterly comparative performance discussed below under the heading "Factors and employees of Invesco Aim who provide information and periodic asset flow data and Conclusions and Summary of Independent these services. The Board's review of the for their assigned funds. These materials Written Fee Evaluation" in evaluating the qualifications of Invesco Aim to provide are prepared under the direction and fairness and reasonableness of the Fund's these services included the Board's supervision of the independent Senior investment advisory agreement and consideration of Invesco Aim's portfolio Officer. Over the course of each year, the sub-advisory agreements at the contract and product review process, various back Sub-Committees meet with portfolio renewal meetings and at their meetings office support functions provided by managers for their assigned funds and throughout the year as part of their Invesco Aim, and Invesco Aim's equity and other members of management and review ongoing oversight of the Fund. The Fund's fixed income trading operations. The Board with these individuals the performance, investment advisory agreement and concluded that the nature, extent and investment objective(s), policies, sub-advisory agreements were considered quality of the advisory services provided strategies and limitations of these funds. separately, although the Board also to the Fund by Invesco Aim were In addition to their meetings considered the common interests of all of appropriate and that Invesco Aim currently throughout the year, the Sub-Committees the AIM Funds in their deliberations. The is providing satisfactory advisory meet at designated contract renewal Board considered all of the information services in accordance with the terms of meetings each year to conduct an in-depth provided to them and did not identify any the Fund's investment advisory agreement. review of the performance, fees and particular factor that was controlling. In addition, based on their ongoing expenses of their assigned funds. During Each Trustee may have evaluated the meetings throughout the year with the the contract renewal process, the Trustees information provided differently from one Fund's portfolio manager or managers, the receive another and attributed differ- Board concluded that these individu- continued
AIM V.I. DYNAMICS FUND als are competent and able to continue to pendent written evaluation of the Fund's sidered the effect this expense limitation carry out their responsibilities under the Senior Officer only considered Fund would have on the Fund's estimated total Fund's investment advisory agreement. performance through the most recent expenses. The Board concluded that the In determining whether to continue the calendar year, the Board also reviewed levels of fee waivers/expense limitations Fund's investment advisory agreement, the more recent Fund performance and this for the Fund were fair and reasonable. Board considered the prior relationship review did not change their conclusions. After taking account of the Fund's between Invesco Aim and the Fund, as well contractual advisory fee rate, as well as as the Board's knowledge of Invesco Aim's C. Advisory Fees and Fee Waivers the comparative advisory fee information operations, and concluded that it was The Board compared the Fund's contractual and the expense limitation discussed beneficial to maintain the current advisory fee rate to the contractual above, the Board concluded that the Fund's relationship, in part, because of such advisory fee rates of funds in the Fund's advisory fees were fair and reasonable. knowledge. The Board also considered the expense group that are not managed by steps that Invesco Aim and its affiliates Invesco Aim, at a common asset level and D. Economies of Scale and Breakpoints have taken over the last several years to as of the end of the past calendar year. The Board considered the extent to which improve the quality and efficiency of the The Board noted that the Fund's there are economies of scale in Invesco services they provide to the AIM Funds in contractual advisory fee rate was below Aim's provision of advisory services to the areas of investment performance, the median contractual advisory fee rate the Fund. The Board also considered product line diversification, of funds in its expense group. The Board whether the Fund benefits from such distribution, fund operations, shareholder also reviewed the methodology used by economies of scale through contractual services and compliance. The Board Lipper in determining contractual fee breakpoints in the Fund's advisory fee concluded that the quality and efficiency rates. schedule or through advisory fee waivers of the services Invesco Aim and its The Board also compared the Fund's or expense limitations. The Board noted affiliates provide to the AIM Funds in effective fee rate (the advisory fee after that the Fund's contractual advisory fee each of these areas have generally any advisory fee waivers and before any schedule includes seven breakpoints but improved, and support the Board's approval expense limitations/waivers) to the that, due to the Fund's asset level at the of the continuance of the Fund's advisory fee rates of other clients of end of the past calendar year and the way investment advisory agreement. Invesco Aim and its affiliates with in which the breakpoints have been investment strategies comparable to those structured, the Fund has yet to benefit B. Fund Performance of the Fund, including three mutual funds from the breakpoints. Based on this The Board compared the Fund's performance advised by Invesco Aim and one mutual fund information, the Board concluded that the during the past one, three and five sub-advised by an Invesco Aim affiliate. Fund's advisory fees would reflect calendar years to the performance of funds The Board noted that the Fund's rate was: economies of scale at higher asset levels. in the Fund's performance group that are (i) above the rates for the three mutual The Board also noted that the Fund shares not managed by Invesco Aim, and against funds; and (ii) above the sub-advisory fee directly in economies of scale through the performance of all funds in the Lipper rate for the sub-advised mutual fund. lower fees charged by third party service Variable Annuity Underlying Funds - Additionally, the Board compared the providers based on the combined size of Mid-Cap Growth Index. The Board also Fund's effective fee rate to the total all of the AIM Funds and affiliates. reviewed the criteria used by Invesco Aim advisory fees paid by a separately managed to identify the funds in the Fund's account/wrap account advised by Invesco E. Profitability and Financial performance group for inclusion in the Aim affiliates. The Board noted that the Resources of Invesco Aim Lipper reports. The Board noted that the Fund's rate was above the rate for the The Board reviewed information from Fund's performance was in the fourth separately managed account/wrap account. Invesco Aim concerning the costs of the quintile of its performance group for the The Board considered that management of advisory and other services that Invesco one year period and the third quintile for the separately managed account/wrap Aim and its affiliates provide to the Fund the three and five year periods (the first account by the Invesco Aim affiliate and the profitability of Invesco Aim and quintile being the best performing funds involves different levels of services and its affiliates in providing these and the fifth quintile being the worst different operational and regulatory services. The Board also reviewed performing funds). The Board noted that requirements than Invesco Aim's management information concerning the financial the Fund's performance was below the of the Fund. The Board concluded that condition of Invesco Aim and its performance of the Index for the one year these differences are appropriately affiliates. The Board also reviewed with period and above the performance for the reflected in the fee structure for the Invesco Aim the methodology used to three and five year periods. The Board Fund. prepare the profitability information. The noted that Invesco Aim acknowledges the The Board noted that Invesco Aim has Board considered the overall profitability Fund's underperformance because of shorter contractually agreed to waive fees and/or of Invesco Aim, as well as the term performance results and continues to limit expenses of the Fund through at profitability of Invesco Aim in connection monitor the Fund. The Board also least April 30, 2010 in an amount with managing the Fund. The Board noted considered the steps Invesco Aim has taken necessary to limit total annual operating that Invesco Aim continues to operate at a over the last several years to improve the expenses to a specified percentage of net profit, although increased expenses in quality and efficiency of the services average daily net assets for each class of recent years have reduced the that Invesco Aim provides to the AIM the Fund. The Board considered the profitability of Invesco Aim and its Funds. The Board concluded that Invesco contractual nature of this fee waiver and affiliates. The Board concluded that the Aim continues to be responsive to the noted that it remains in effect until at Fund's fees were fair and reasonable, and Board's focus on fund performance. least April 30, 2010. The Board also that the level of profits realized by Although the inde- con- Invesco Aim and its affiliates from continued
AIM V.I. DYNAMICS FUND providing services to the Fund was not ment obligation for the research and by the Affiliated Sub-Advisers were excessive in light of the nature, quality execution services from Invesco Aim to the appropriate. The Board noted that the and extent of the services provided. The funds and therefore may reduce Invesco Affiliated Sub-Advisers, which have Board considered whether Invesco Aim is Aim's expenses. The Board also noted that offices and personnel that are financially sound and has the resources research obtained through soft dollar geographically dispersed in financial necessary to perform its obligations under arrangements may be used by Invesco Aim in centers around the world, have been formed the Fund's investment advisory agreement, making investment decisions for the Fund in part for the purpose of researching and and concluded that Invesco Aim has the and may therefore benefit Fund compiling information and making financial resources necessary to fulfill shareholders. The Board concluded that recommendations on the markets and these obligations. Invesco Aim's soft dollar arrangements economies of various countries and were appropriate. The Board also concluded securities of companies located in such F. Independent Written Evaluation of that, based on their review and countries or on various types of the Fund's Senior Officer representations made by Invesco Aim, these investments and investment techniques, and The Board noted that, at their direction, arrangements were consistent with providing investment advisory services. the Senior Officer of the Fund, who is regulatory requirements. The Board concluded that the sub-advisory independent of Invesco Aim and Invesco The Board considered the fact that the agreements will benefit the Fund and its Aim's affiliates, had prepared an Fund's uninvested cash and cash collateral shareholders by permitting Invesco Aim to independent written evaluation to assist from any securities lending arrangements utilize the additional resources and the Board in determining the may be invested in money market funds talent of the Affiliated Sub-Advisers in reasonableness of the proposed management advised by Invesco Aim pursuant to managing the Fund. fees of the AIM Funds, including the Fund. procedures approved by the Board. The The Board noted that they had relied upon Board noted that Invesco Aim will receive B. Fund Performance the Senior Officer's written evaluation advisory fees from these affiliated money The Board did not view Fund performance as instead of a competitive bidding process. market funds attributable to such a relevant factor in considering whether In determining whether to continue the investments, although Invesco Aim has to approve the sub-advisory agreements for Fund's investment advisory agreement, the contractually agreed to waive through at the Fund, as no Affiliated Sub-Adviser Board considered the Senior Officer's least April 30, 2010, the advisory fees currently manages any portion of the written evaluation. payable by the Fund in an amount equal to Fund's assets. 100% of the net advisory fees Invesco Aim G. Collateral Benefits to Invesco Aim receives from the affiliated money market C. Sub-Advisory Fees and its Affiliates funds with respect to the Fund's The Board considered the services to be The Board considered various other investment of uninvested cash, but not provided by the Affiliated Sub-Advisers benefits received by Invesco Aim and its cash collateral. The Board considered the pursuant to the sub-advisory agreements affiliates resulting from Invesco Aim's contractual nature of this fee waiver and and the services to be provided by Invesco relationship with the Fund, including the noted that it remains in effect until at Aim pursuant to the Fund's investment fees received by Invesco Aim and its least April 30, 2010. The Board concluded advisory agreement, as well as the affiliates for their provision of that the Fund's investment of uninvested allocation of fees between Invesco Aim and administrative, transfer agency and cash and cash collateral from any the Affiliated Sub-Advisers pursuant to distribution services to the Fund. The securities lending arrangements in the the sub-advisory agreements. The Board Board considered the performance of affiliated money market funds is in the noted that the sub-advisory fees have no Invesco Aim and its affiliates in best interests of the Fund and its direct effect on the Fund or its providing these services and the shareholders. shareholders, as they are paid by Invesco organizational structure employed by Aim to the Affiliated Sub-Advisers, and Invesco Aim and its affiliates to provide II. Sub-Advisory Agreements that Invesco Aim and the Affiliated these services. The Board also considered A. Nature, Extent and Quality of Sub-Advisers are affiliates. After taking that these services are provided to the Services Provided by Affiliated account of the Fund's contractual Fund pursuant to written contracts which Sub-Advisers sub-advisory fee rate, as well as other are reviewed and approved on an annual The Board reviewed the services to be relevant factors, the Board concluded that basis by the Board. The Board concluded provided by Invesco Trimark Ltd., Invesco the Fund's sub-advisory fees were fair and that Invesco Aim and its affiliates were Asset Management Deutschland, GmbH, reasonable. providing these services in a satisfactory Invesco Asset Management Limited, Invesco manner and in accordance with the terms of Asset Management (Japan) Limited, Invesco D. Financial Resources of the their contracts, and were qualified to Australia Limited, Invesco Global Asset Affiliated Sub-Advisers continue to provide these services to the Management (N.A.), Inc., Invesco Hong Kong The Board considered whether each Fund. Limited, Invesco Institutional (N.A.), Affiliated Sub-Adviser is financially The Board considered the benefits Inc. and Invesco Senior Secured sound and has the resources necessary to realized by Invesco Aim as a result of Management, Inc. (collectively, the perform its obligations under its portfolio brokerage transactions executed "Affiliated Sub-Advisers") under the respective sub-advisory agreement, and through "soft dollar" arrangements. Under sub-advisory agreements and the concluded that each Affiliated Sub-Adviser these arrangements, portfolio brokerage credentials and experience of the officers has the financial resources necessary to commissions paid by the Fund and/or other and employees of the Affiliated fulfill these obligations. funds advised by Invesco Aim are used to Sub-Advisers who will provide these pay for research and execution services. services. The Board concluded that the The Board noted that soft dollar nature, extent and quality of the services arrangements shift the pay- to be provided
AIM V.I. DYNAMICS FUND PROXY RESULTS A Special Meeting ("Meeting") of Shareholders of AIM V.I. Dynamics Fund, an investment portfolio of AIM Variable Insurance Funds, a Delaware statutory trust ("Trust"), was held on February 29, 2008. The Meeting was held for the following purposes: (1) Elect 13 trustees to the Board of Trustees of the Trust, each of whom will serve until his or her successor is elected and qualified. (2) Approve an amendment to the Trust's Agreement and Declaration of Trust that would permit the Board of Trustees of the Trust to terminate the Trust, the Fund, and each other series portfolio of the Trust, or a share class without a shareholder vote. (3) Approve a new sub-advisory agreement between Invesco Aim Advisors, Inc. and each of AIM Funds Management, Inc.; Invesco Asset Management Deutschland, GmbH; Invesco Asset Management Limited; Invesco Asset Management (Japan) Limited; Invesco Australia Limited; Invesco Global Asset Management (N.A.), Inc.; Invesco Hong Kong Limited; Invesco Institutional (N.A.), Inc.; and Invesco Senior Secured Management, Inc. (4)(a) Approve modification of fundamental restriction on issuer diversification. (4)(b) Approve modification of fundamental restrictions on issuing senior securities and borrowing money. (4)(c) Approve modification of fundamental restriction on underwriting securities. (4)(d) Approve modification of fundamental restriction on industry concentration. (4)(e) Approve modification of fundamental restriction on real estate investments. (4)(f) Approve modification of fundamental restriction on purchasing or selling commodities. (4)(g) Approve modification of fundamental restriction on making loans. (4)(h) Approve modification of fundamental restriction on investments in investment companies. (5) Approve making the investment objective of the fund non-fundamental. The results of the voting on the above matters were as follows:
WITHHELD/ MATTERS VOTES FOR ABSTENTIONS** - ------------------------------------------------------------------------------------------------------------ (1)* Bob R. Baker..................................................... 474,883,590 19,741,622 Frank S. Bayley.................................................. 474,653,109 19,972,103 James T. Bunch................................................... 475,597,417 19,027,795 Bruce L. Crockett................................................ 474,900,579 19,724,633 Albert R. Dowden................................................. 474,749,929 19,875,283 Jack M. Fields................................................... 475,205,840 19,419,372 Martin L. Flanagan............................................... 475,248,336 19,376,876 Carl Frischling.................................................. 474,453,674 20,171,538 Prema Mathai-Davis............................................... 473,569,192 21,056,020 Lewis F. Pennock................................................. 475,072,501 19,552,711 Larry Soll, Ph.D. ............................................... 475,170,544 19,454,668 Raymond Stickel, Jr. ............................................ 475,420,825 19,204,387 Philip A. Taylor................................................. 475,640,570 18,984,642
VOTES WITHHELD/ VOTES FOR AGAINST ABSTENTIONS - -------------------------------------------------------------------------------------------------------------------- (2)* Approve an amendment to the Trust's Agreement and Declaration of Trust that would permit the Board of Trustees of the Trust to terminate the Trust, the Fund, and each other series portfolio of the Trust, or a share class without a shareholder vote......................... 438,131,484 35,586,925 20,906,803 (3) Approve a new sub-advisory agreement between Invesco Aim Advisors, Inc. and each of AIM Funds Management, Inc.; Invesco Asset Management Deutschland, GmbH; Invesco Asset Management Limited; Invesco Asset Management (Japan) Limited; Invesco Australia Limited; Invesco Global Asset Management (N.A.), Inc.; Invesco Hong Kong Limited; Invesco Institutional (N.A.), Inc.; and Invesco Senior Secured Management, Inc. ................................ 5,513,198 347,716 347,162 (4)(a) Approve modification of fundamental restriction on issuer diversification.......................................... 5,675,180 249,697 283,199 (4)(b) Approve modification of fundamental restrictions on issuing senior securities and borrowing money............ 5,668,655 256,010 283,411 (4)(c) Approve modification of fundamental restriction on underwriting securities.................................. 5,673,338 251,327 283,411 (4)(d) Approve modification of fundamental restriction on industry concentration................................... 5,671,810 252,856 283,410 (4)(e) Approve modification of fundamental restriction on real estate investments....................................... 5,673,231 251,435 283,410 (4)(f) Approve modification of fundamental restriction on purchasing or selling commodities........................ 5,673,521 251,144 283,411 (4)(g) Approve modification of fundamental restriction on making loans.................................................... 5,669,983 254,683 283,410 (4)(h) Approve modification of fundamental restriction on investments in investment companies...................... 5,644,095 280,571 283,410 (5) Approve making the investment objective of the fund non- fundamental.............................................. 5,378,969 400,348 428,759
* Proposals 1 and 2 required approval by a combined vote of all of the portfolios of AIM Variable Insurance Funds. ** Includes Broker Non-Votes. AIM V.I. DYNAMICS FUND [INVESCO AIM LOGO] AIM V.I. FINANCIAL SERVICES FUND - SERVICE MARK - Semiannual Report to Shareholders - June 30, 2008 AIM Investments [MOUNTAIN GRAPHIC] became INVESCO AIM on March 31, 2008. For more details, go to invescoaim.com 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 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 Invesco Aim Web site, invescoaim.com. On the home page, scroll down and click on 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, 2008, is available at our Web site. Go to invescoaim.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 noted, all data provided by Invesco Aim. THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND PROSPECTUS AND VARIABLE PRODUCT PROSPECTUS, WHICH CONTAIN MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ EACH CAREFULLY BEFORE INVESTING. Invesco Aim Distributors, Inc. NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE FUND PERFORMANCE ======================================================================================= PERFORMANCE SUMMARY FUND VS. INDEXES Cumulative total returns, 12/31/07 to 6/30/08, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower. Series I Shares -31.65% Series II Shares -31.72 S&P 500 Index(TRIANGLE) (Broad Market Index) -11.90 S&P 500 Financials Index(TRIANGLE) (Style-Specific Index) -29.73 Lipper VUF Financial Services Funds Category Average(TRIANGLE) (Peer Group) -24.49 (TRIANGLE)Lipper Inc. The S&P 500--REGISTERED TRADEMARK-- INDEX is a market capitalization-weighted index covering all major areas of the U.S. economy. It is not the 500 largest companies, but rather the most widely held 500 companies chosen with respect to market size, liquidity, and their industry. The S&P 500 FINANCIALS INDEX is a market capitalization-weighted index of companies involved in activities such as banking, consumer finance, investment banking and brokerage, asset management, insurance and investment, and real estate, including REITs. The LIPPER VUF FINANCIAL SERVICES FUNDS CATEGORY AVERAGE represents an average of all of the variable insurance underlying funds in the Lipper Financial Services Funds category. These funds invest at least 65% of their portfolios in equity securities of companies engaged in providing financial services. The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes. A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of an index of funds reflects fund expenses; performance of a market index does not. ======================================================================================= ========================================== AVERAGE ANNUAL TOTAL RETURNS GUARANTEE COMPARABLE FUTURE RESULTS; ANCE FIGURES GIVEN REPRESENT THE FUND AND As of 6/30/08 CURRENT PERFORMANCE MAY BE LOWER OR ARE NOT INTENDED TO REFLECT ACTUAL HIGHER. PLEASE CONTACT YOUR VARIABLE VARIABLE PRODUCT VALUES. THEY DO NOT SERIES I SHARES PRODUCT ISSUER OR FINANCIAL ADVISOR FOR REFLECT SALES CHARGES, EXPENSES AND FEES Inception (9/20/99) -0.22% THE MOST RECENT MONTH-END VARIABLE PRODUCT ASSESSED IN CONNECTION WITH A VARIABLE 5 Years -3.64 PERFORMANCE. PERFORMANCE FIGURES REFLECT PRODUCT. SALES CHARGES, EXPENSES AND FEES, 1 Year -46.98 FUND EXPENSES, REINVESTED DISTRIBUTIONS WHICH ARE DETERMINED BY THE VARIABLE AND CHANGES IN NET ASSET VALUE. INVESTMENT PRODUCT ISSUERS, WILL VARY AND WILL LOWER SERIES II SHARES RETURN AND PRINCIPAL VALUE WILL FLUCTUATE THE TOTAL RETURN. Inception -0.46% SO THAT YOU MAY HAVE A GAIN OR LOSS WHEN THE MOST RECENT MONTH-END PERFORMANCE 5 Years -3.86 YOU SELL SHARES. DATA AT THE FUND LEVEL, EXCLUDING VARIABLE 1 Year -47.07 THE TOTAL ANNUAL FUND OPERATING EXPENSE PRODUCT CHARGES, IS AVAILABLE ON THE RATIO SET FORTH IN THE MOST RECENT FUND INVESCO AIM AUTOMATED INFORMATION LINE, SERIES II SHARES' INCEPTION DATE IS APRIL PROSPECTUS AS OF THE DATE OF THIS REPORT 866 702 4402. AS MENTIONED ABOVE, FOR THE 30, 2004. RETURNS SINCE THAT DATE ARE FOR SERIES I AND SERIES II SHARES WAS MOST RECENT MONTH-END PERFORMANCE HISTORICAL. ALL OTHER RETURNS ARE THE 1.11% AND 1.36%, RESPECTIVELY. THE EXPENSE INCLUDING VARIABLE PRODUCT CHARGES, PLEASE BLENDED RETURNS OF THE HISTORICAL RATIOS PRESENTED ABOVE MAY VARY FROM THE CONTACT YOUR VARIABLE PRODUCT ISSUER OR PERFORMANCE OF SERIES II SHARES SINCE EXPENSE RATIOS PRESENTED IN OTHER SECTIONS FINANCIAL ADVISOR. THEIR INCEPTION AND THE RESTATED OF THIS REPORT THAT ARE BASED ON EXPENSES HISTORICAL PERFORMANCE OF SERIES I SHARES INCURRED DURING THE PERIOD COVERED BY THIS (FOR PERIODS PRIOR TO INCEPTION OF SERIES REPORT. II SHARES) ADJUSTED TO REFLECT THE RULE AIM V.I. FINANCIAL SERVICES FUND, A 12B-1 FEES APPLICABLE TO SERIES II SHARES. SERIES PORTFOLIO OF AIM VARIABLE INSURANCE THE INCEPTION DATE OF SERIES I SHARES IS FUNDS, IS CURRENTLY OFFERED THROUGH SEPTEMBER 20, 1999. THE PERFORMANCE OF THE INSURANCE COMPANIES ISSUING VARIABLE FUND'S SERIES I AND SERIES II SHARE PRODUCTS. YOU CANNOT PURCHASE SHARES OF CLASSES WILL DIFFER PRIMARILY DUE TO THE FUND DIRECTLY. PERFORM- DIFFERENT CLASS EXPENSES. THE PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE AND CANNOT
AIM V.I. FINANCIAL SERVICES FUND PORTFOLIO COMPOSITION By industry, based on Net Assets As of June 30, 2008 - ------------------------------------------------------------------------- Other Diversified Financial Services 15.8 - ------------------------------------------------------------------------- Regional Banks 10.3 - ------------------------------------------------------------------------- Insurance Brokers 9.9 - ------------------------------------------------------------------------- Investment Banking & Brokerage 9.9 - ------------------------------------------------------------------------- Consumer Finance 8.8 - ------------------------------------------------------------------------- Thrifts & Mortgage Finance 8.6 - ------------------------------------------------------------------------- Asset Management & Custody Banks 6.4 - ------------------------------------------------------------------------- Specialized Finance 6.4 - ------------------------------------------------------------------------- Multi-Line Insurance 4.9 - ------------------------------------------------------------------------- Diversified Banks 4.2 - ------------------------------------------------------------------------- Life & Health Insurance 3.3 - ------------------------------------------------------------------------- Industries each with less than 3% of Total Net Assets 8.1 - ------------------------------------------------------------------------- Money Market Funds Plus Other Assets Less Liabilities 3.4 _________________________________________________________________________ =========================================================================
SCHEDULE OF INVESTMENTS(a) June 30, 2008 (Unaudited)
SHARES VALUE - ------------------------------------------------------------------------------- COMMON STOCKS & OTHER EQUITY INTERESTS-96.64% ASSET MANAGEMENT & CUSTODY BANKS-6.37% Blackstone Group L.P. (The)(b) 33,065 $ 602,113 - ------------------------------------------------------------------------------- Federated Investors, Inc.-Class B(b) 61,447 2,115,006 - ------------------------------------------------------------------------------- State Street Corp. 21,480 1,374,505 =============================================================================== 4,091,624 =============================================================================== CONSUMER FINANCE-8.75% AmeriCredit Corp.(b)(c) 69,800 601,676 - ------------------------------------------------------------------------------- Capital One Financial Corp.(b) 103,570 3,936,696 - ------------------------------------------------------------------------------- SLM Corp.(b)(c) 55,878 1,081,239 =============================================================================== 5,619,611 =============================================================================== DATA PROCESSING & OUTSOURCED SERVICES-1.90% Automatic Data Processing, Inc. 29,084 1,218,620 =============================================================================== DIVERSIFIED BANKS-4.19% U.S. Bancorp(b) 37,627 1,049,417 - ------------------------------------------------------------------------------- Wachovia Corp.(b) 105,755 1,642,375 =============================================================================== 2,691,792 =============================================================================== DIVERSIFIED CAPITAL MARKETS-1.85% UBS AG-(Switzerland)(b)(c) 57,357 1,184,996 =============================================================================== INSURANCE BROKERS-9.89% Aon Corp.(b) 8,040 369,357 - ------------------------------------------------------------------------------- Marsh & McLennan Cos., Inc. 187,485 4,977,727 - ------------------------------------------------------------------------------- National Financial Partners Corp.(b) 50,444 999,800 =============================================================================== 6,346,884 =============================================================================== INVESTMENT BANKING & BROKERAGE-9.92% FBR Capital Markets Corp.(b)(c) 237,678 1,195,520 - ------------------------------------------------------------------------------- Merrill Lynch & Co., Inc.(b) 70,514 2,235,999 - ------------------------------------------------------------------------------- Morgan Stanley 81,510 2,940,066 =============================================================================== 6,371,585 =============================================================================== LIFE & HEALTH INSURANCE-3.27% Prudential Financial, Inc.(b) 5,853 349,658 - ------------------------------------------------------------------------------- StanCorp Financial Group, Inc.(b) 37,189 1,746,396 =============================================================================== 2,096,054 =============================================================================== MULTI-LINE INSURANCE-4.92% American International Group, Inc.(b) 31,554 834,919 - ------------------------------------------------------------------------------- Hartford Financial Services Group, Inc. (The) 36,029 2,326,392 =============================================================================== 3,161,311 =============================================================================== OTHER DIVERSIFIED FINANCIAL SERVICES-15.82% Bank of America Corp. 83,376 1,990,185 - ------------------------------------------------------------------------------- Citigroup Inc. 245,689 4,117,748 - ------------------------------------------------------------------------------- JPMorgan Chase & Co. 118,072 4,051,050 =============================================================================== 10,158,983 ===============================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. FINANCIAL SERVICES FUND
SHARES VALUE - ------------------------------------------------------------------------------- PROPERTY & CASUALTY INSURANCE-2.22% Security Capital Assurance Ltd.(b)(c)(d) 91,487 $ 26,531 - ------------------------------------------------------------------------------- XL Capital Ltd.-Class A(b) 68,173 1,401,637 =============================================================================== 1,428,168 =============================================================================== REGIONAL BANKS-10.30% Fifth Third Bancorp(b) 176,995 1,801,809 - ------------------------------------------------------------------------------- Popular, Inc.(b) 182,766 1,204,428 - ------------------------------------------------------------------------------- SunTrust Banks, Inc.(b) 47,081 1,705,274 - ------------------------------------------------------------------------------- Zions Bancorp.(b) 60,469 1,904,169 =============================================================================== 6,615,680 =============================================================================== SPECIALIZED CONSUMER SERVICES-2.23% H&R Block, Inc.(b) 66,804 1,429,606 =============================================================================== SPECIALIZED FINANCE-6.42% CIT Group, Inc.(b) 186,528 1,270,255 - ------------------------------------------------------------------------------- Moody's Corp.(b) 82,713 2,848,636 =============================================================================== 4,118,891 =============================================================================== THRIFTS & MORTGAGE FINANCE-8.59% Fannie Mae(b) 149,513 2,916,999 - ------------------------------------------------------------------------------- Freddie Mac 56,500 926,600 - ------------------------------------------------------------------------------- Hudson City Bancorp, Inc.(b) 22,737 379,253 - ------------------------------------------------------------------------------- Washington Mutual, Inc.(b) 261,642 1,289,895 =============================================================================== 5,512,747 =============================================================================== Total Common Stocks & Other Equity Interests (Cost $99,985,677) 62,046,552 =============================================================================== MONEY MARKET FUNDS-2.78% Liquid Assets Portfolio-Institutional Class(e) 891,240 891,240 - ------------------------------------------------------------------------------- Premier Portfolio-Institutional Class(e) 891,240 891,240 =============================================================================== Total Money Market Funds (Cost $1,782,480) 1,782,480 =============================================================================== TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)-99.42% (Cost $101,768,157) 63,829,032 =============================================================================== INVESTMENTS PURCHASED WITH CASH COLLATERAL FROM SECURITIES ON LOAN MONEY MARKET FUNDS-27.29% Liquid Assets Portfolio-Institutional Class (Cost $17,517,701)(e)(f) 17,517,701 17,517,701 =============================================================================== TOTAL INVESTMENTS-126.71% (Cost $119,285,858) 81,346,733 =============================================================================== OTHER ASSETS LESS LIABILITIES-(26.71)% (17,145,060) =============================================================================== NET ASSETS-100.00% $ 64,201,673 _______________________________________________________________________________ ===============================================================================
Notes to Schedule of Investments: (a) Industry and/or sector 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 MSCI Inc. and Standard & Poor's. (b) All or a portion of this security was out on loan at June 30, 2008. (c) Non-income producing security. (d) Security fair valued in good faith in accordance with the procedures established by the Board of Trustees. The value of this security at June 30, 2008 represented 0.04% 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. (f) 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 1J. 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 June 30, 2008 (Unaudited) ASSETS: Investments, at value (Cost $99,985,677)* $ 62,046,552 - ------------------------------------------------------ Investments in affiliated money market funds (Cost $19,300,181) 19,300,181 ====================================================== Total investments (Cost $119,285,858) 81,346,733 ====================================================== Cash 33,943 - ------------------------------------------------------ Receivables for: Fund shares sold 411,794 - ------------------------------------------------------ Dividends 132,799 - ------------------------------------------------------ Investment for trustee deferred compensation and retirement plans 18,985 - ------------------------------------------------------ Other assets 2,390 ====================================================== Total assets 81,946,644 ______________________________________________________ ====================================================== LIABILITIES: Payables for: Investments purchased 33,944 - ------------------------------------------------------ Fund shares reacquired 69,067 - ------------------------------------------------------ Collateral upon return of securities loaned 17,517,701 - ------------------------------------------------------ Accrued fees to affiliates 56,489 - ------------------------------------------------------ Accrued other operating expenses 37,795 - ------------------------------------------------------ Trustee deferred compensation and retirement plans 29,975 ====================================================== Total liabilities 17,744,971 ====================================================== Net assets applicable to shares outstanding $ 64,201,673 ______________________________________________________ ====================================================== NET ASSETS CONSIST OF: Shares of beneficial interest $ 90,494,634 - ------------------------------------------------------ Undistributed net investment income 2,925,070 - ------------------------------------------------------ Undistributed net realized gain 8,721,094 - ------------------------------------------------------ Unrealized appreciation (depreciation) (37,939,125) ====================================================== $ 64,201,673 ______________________________________________________ ====================================================== NET ASSETS: Series I $ 59,985,189 ______________________________________________________ ====================================================== Series II $ 4,216,484 ______________________________________________________ ====================================================== SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED NUMBER OF SHARES AUTHORIZED: Series I 7,156,337 ______________________________________________________ ====================================================== Series II 507,547 ______________________________________________________ ====================================================== Series I: Net asset value per share $ 8.38 ====================================================== Series II: Net asset value per share $ 8.31 ______________________________________________________ ======================================================
* At June 30, 2008, securities with an aggregate value of $16,520,811 were on loan to brokers. STATEMENT OF OPERATIONS For the six months ended June 30, 2008 (Unaudited) INVESTMENT INCOME: Dividends (net of foreign withholding taxes of $1,972) $ 1,315,441 - ------------------------------------------------------ Dividends from affiliated money market funds (includes securities lending income of $48,213) 114,391 ====================================================== Total investment income 1,429,832 ______________________________________________________ ====================================================== EXPENSES: Advisory fees 299,319 - ------------------------------------------------------ Administrative services fees 124,527 - ------------------------------------------------------ Custodian fees 5,027 - ------------------------------------------------------ Distribution fees -- Series II 5,403 - ------------------------------------------------------ Transfer agent fees 10,141 - ------------------------------------------------------ Trustees' and officer's fees and benefits 9,195 - ------------------------------------------------------ Other 39,546 ====================================================== Total expenses 493,158 ====================================================== Less: Fees waived, expenses reimbursed and expense offset arrangement(s) (4,928) ====================================================== Net expenses 488,230 ====================================================== Net investment income 941,602 ====================================================== REALIZED AND UNREALIZED GAIN (LOSS) FROM: Net realized gain from investment securities 4,118,510 ====================================================== Change in net unrealized appreciation (depreciation) of investment securities (34,555,794) ====================================================== Net realized and unrealized gain (loss) (30,437,284) ====================================================== Net increase (decrease) in net assets resulting from operations $(29,495,682) ______________________________________________________ ======================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. FINANCIAL SERVICES FUND STATEMENT OF CHANGES IN NET ASSETS For the six months ended June 30, 2008 and the year ended December 31, 2007 (Unaudited)
JUNE 30, DECEMBER 31, 2008 2007 - -------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income $ 941,602 $ 1,980,686 - -------------------------------------------------------------------------------------------------------- Net realized gain 4,118,510 5,642,587 - -------------------------------------------------------------------------------------------------------- Change in net unrealized appreciation (depreciation) (34,555,794) (34,537,586) ======================================================================================================== Net increase (decrease) in net assets resulting from operations (29,495,682) (26,914,313) ======================================================================================================== Distributions to shareholders from net investment income: Series I -- (1,843,313) - -------------------------------------------------------------------------------------------------------- Series II -- (73,636) ======================================================================================================== Total distributions from net investment income -- (1,916,949) ======================================================================================================== Distributions to shareholders from net realized gains: Series I -- (6,958,807) - -------------------------------------------------------------------------------------------------------- Series II -- (281,396) ======================================================================================================== Total distributions from net realized gains -- (7,240,203) ======================================================================================================== Share transactions-net: Series I 2,622,605 (26,100,103) - -------------------------------------------------------------------------------------------------------- Series II 2,242,543 3,247,596 ======================================================================================================== Net increase (decrease) in net assets resulting from share transactions 4,865,148 (22,852,507) ======================================================================================================== Net increase (decrease) in net assets (24,630,534) (58,923,972) ________________________________________________________________________________________________________ ======================================================================================================== NET ASSETS: Beginning of period 88,832,207 147,756,179 ======================================================================================================== End of period (including undistributed net investment income of $2,925,070 and $1,983,468, respectively) $ 64,201,673 $ 88,832,207 ________________________________________________________________________________________________________ ========================================================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. FINANCIAL SERVICES FUND NOTES TO FINANCIAL STATEMENTS June 30, 2008 (Unaudited) NOTE 1--SIGNIFICANT ACCOUNTING POLICIES AIM V.I. Financial Services Fund (the "Fund") is a series portfolio of AIM Variable Insurance Funds (the "Trust"). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of twenty separate portfolios, (each constituting a "Fund"). 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 Fund or class will be voted on exclusively by the shareholders of such Fund 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 Fund 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. 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 prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. 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, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. 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, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. 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. Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer's assets, general economic conditions, interest rates, investor perceptions and market liquidity. 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. The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds as received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. AIM V.I. FINANCIAL SERVICES FUND 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, the investment advisor 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. The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. 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 by a significant amount. 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. OTHER RISKS -- The Fund's investments are concentrated in a comparatively narrow segment of the economy. Consequently, the Fund may tend to be more volatile than other mutual funds, and the value of the Fund's investments may tend to rise and fall more rapidly. The financial services sector is subject to extensive government regulation, which may change frequently. The profitability of businesses in this sector depends heavily on the availability and cost of money and may fluctuate significantly in response to changes to interest rates and general economic conditions. J. SECURITIES LENDING -- 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 by the securities lending provider. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its sponsored agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds and is shown as such on the Schedule of Investments. 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. Dividends received on cash collateral investments for securities lending transactions, which are net of compensation to counterparties, is included in Dividends from affiliates on the Statement of Operations. The aggregate value of securities out on loan is shown as a footnote on the Statement of Assets and Liabilities. AIM V.I. FINANCIAL SERVICES FUND NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES The Trust has entered into a master investment advisory agreement with Invesco Aim Advisors, Inc. (the "Advisor" or "Invesco Aim"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Advisor based on the annual rate of the Fund's average daily net assets as follows:
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% ___________________________________________________________________ ===================================================================
Under the terms of a master sub-advisory agreement approved by shareholders of the Fund on February 29, 2008, effective May 1, 2008, between the Advisor and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Global Asset Management (N.A.), Inc., Invesco Hong Kong Limited, Invesco Institutional (N.A.), Inc., Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the "Affiliated Sub-Advisors") the Advisor, not the Fund, may pay 40% of the fees paid to the Advisor to any such Affiliated Sub- Advisor(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Advisor(s). The Advisor 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, 2010. 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 Invesco Ltd. ("Invesco") 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. To the extent that the annualized expense ratio does not exceed the expense limitation, the Advisor will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year. Further, the Advisor has contractually agreed, through at least April 30, 2010, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Advisor receives from the affiliated money market funds on investments by the Fund of uninvested cash (but not cash collateral from securities lending) in such affiliated money market funds. For the six months ended June 30, 2008, the Advisor waived advisory fees of $2,727 and reimbursed class level expenses of $381 of Series II shares. At the request of the Trustees of the Trust, Invesco agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the six months ended June 30, 2008, Invesco did not reimburse any expenses. The Trust has entered into a master administrative services agreement with Invesco Aim pursuant to which the Fund has agreed to pay Invesco Aim a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco Aim for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants' accounts. Pursuant to such agreement, for the six months ended June 30, 2008, Invesco Aim was paid $24,863 for accounting and fund administrative services and reimbursed $99,663 for services provided by insurance companies. The Trust has entered into a transfer agency and service agreement with Invesco Aim Investment Services, Inc. ("IAIS") pursuant to which the Fund has agreed to pay IAIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IAIS for certain expenses incurred by IAIS in the course of providing such services. For the six months ended June 30, 2008, 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 Invesco Aim Distributors, Inc. ("IADI") 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 IADI 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 six months ended June 30, 2008, expenses incurred under the Plan are detailed in the Statement of Operations as distribution fees. Certain officers and trustees of the Trust are officers and directors of Invesco Aim, IAIS and/or IADI. AIM V.I. FINANCIAL SERVICES FUND NOTE 3--SUPPLEMENTAL INFORMATION The Fund adopted the provisions of Statement of Financial Accounting Standards No. 157, "Fair Value Measurements" (SFAS 157), effective with the beginning of the Fund's fiscal year. SFAS 157 establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (level 1) and the lowest priority to unobservable inputs (level 3) market prices are not readily available or are unreliable. Based on the inputs the securities or other instruments are tiered into three levels of hierarchy under SFAS 157. Changes in valuation methods may result in transfers in or out of an investment's assigned level within the hierarchy, Level 1 -- Quoted prices in an active market for identical assets. Level 2 -- Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk and others. Level 3 -- Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund's own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. Below is a summary of the tiered input levels, as of the end of the reporting period, June 30, 2008. The inputs or methods used for valuing securities may not be an indication of the risk associated with investing in those securities.
INVESTMENTS IN INPUT LEVEL SECURITIES - ------------------------------------ Level 1 $81,346,733 - ------------------------------------ Level 2 -- - ------------------------------------ Level 3 -- - ------------------------------------ $81,346,733 ____________________________________ ====================================
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS The Fund is permitted to purchase or sell securities from or to certain other AIM Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment advisor (or affiliated investment advisors), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the six months ended June 30, 2008, the Fund engaged in securities purchases of $264,974. NOTE 5--EXPENSE OFFSET ARRANGEMENT The expense offset arrangement is comprised of custodian credits which result from periodic overnight cash balances at the custodian. For the six months ended June 30, 2008, the Fund received credits from this arrangement, which resulted in the reduction of the Fund's total expenses of $1,820. 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 certain Trustees and Officers of the Fund. 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, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund. During the six months ended June 30, 2008, the Fund paid legal fees of $1,616 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust. NOTE 7--CASH BALANCES The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The State Street Bank and Trust Company ("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 Invesco Aim, not to exceed the contractually agreed upon rate. NOTE 8--TAX INFORMATION The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund's fiscal year-end. The Fund did not have a capital loss carryforward as of December 31, 2007. AIM V.I. FINANCIAL SERVICES 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 six months ended June 30, 2008 was $23,840,459 and $17,057,810, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period end.
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS - ------------------------------------------------------------------------------------------------ Aggregate unrealized appreciation of investment securities $ 2,197,925 - ------------------------------------------------------------------------------------------------ Aggregate unrealized (depreciation) of investment securities (41,004,775) ================================================================================================ Net unrealized appreciation (depreciation) of investment securities $(38,806,850) ________________________________________________________________________________________________ ================================================================================================ Cost of investments for tax purposes is $120,153,583.
NOTE 10--SHARE INFORMATION
CHANGES IN SHARES OUTSTANDING - ------------------------------------------------------------------------------------------------------------------------ SIX MONTHS ENDED YEAR ENDED JUNE 30, 2008(a) DECEMBER 31, 2007 --------------------------- --------------------------- SHARES AMOUNT SHARES AMOUNT - ------------------------------------------------------------------------------------------------------------------------ Sold: Series I 1,776,672 $ 19,594,515 1,170,982 $ 19,006,293 - ------------------------------------------------------------------------------------------------------------------------ Series II 260,329 2,842,303 251,992 4,101,308 - ------------------------------------------------------------------------------------------------------------------------ Issued as reinvestment of dividends: Series I -- -- 666,827 8,802,120 - ------------------------------------------------------------------------------------------------------------------------ Series II -- -- 27,101 355,032 - ------------------------------------------------------------------------------------------------------------------------ Reacquired: Series I (1,563,423) (16,971,910) (3,284,263) (53,908,516) - ------------------------------------------------------------------------------------------------------------------------ Series II (55,894) (599,760) (72,050) (1,208,744) ======================================================================================================================== 417,684 $ 4,865,148 (1,239,411) $(22,852,507) ________________________________________________________________________________________________________________________ ========================================================================================================================
(a) There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate 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, Invesco Aim and/or Invesco Aim affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco Aim and or Invesco 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. FINANCIAL SERVICES FUND NOTE 11--FINANCIAL HIGHLIGHTS The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
SERIES I ------------------------------------------------------------------------------ SIX MONTHS YEAR ENDED DECEMBER 31, ENDED JUNE 30, ----------------------------------------------------------- 2008 2007 2006 2005 2004 2003 - ------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $ 12.26 $ 17.41 $ 15.26 $ 14.61 $ 13.54 $ 10.50 - ------------------------------------------------------------------------------------------------------------------------------ Income from investment operations: Net investment income 0.13(a) 0.27(a) 0.23(a) 0.19(a) 0.15 0.08 - ------------------------------------------------------------------------------------------------------------------------------ Net gains (losses) on securities (both realized and unrealized) (4.01) (4.04) 2.28 0.66 1.02 3.02 ============================================================================================================================== Total from investment operations (3.88) (3.77) 2.51 0.85 1.17 3.10 ============================================================================================================================== Less distributions: Dividends from net investment income -- (0.29) (0.26) (0.20) (0.10) (0.06) - ------------------------------------------------------------------------------------------------------------------------------ Distributions from net realized gains -- (1.09) (0.10) -- -- -- ============================================================================================================================== Total distributions -- (1.38) (0.36) (0.20) (0.10) (0.06) ============================================================================================================================== Net asset value, end of period $ 8.38 $ 12.26 $ 17.41 $ 15.26 $ 14.61 $ 13.54 ______________________________________________________________________________________________________________________________ ============================================================================================================================== Total return(b) (31.65)% (22.22)% 16.52% 5.84% 8.68% 29.58% ______________________________________________________________________________________________________________________________ ============================================================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $59,985 $85,144 $146,092 $141,241 $203,879 $210,352 ______________________________________________________________________________________________________________________________ ============================================================================================================================== Ratio of expenses to average net assets 1.21%(c)(d) 1.11% 1.12% 1.12% 1.12% 1.09% ============================================================================================================================== Ratio of net investment income to average net assets 2.37%(c) 1.61% 1.44% 1.30% 0.89% 0.87% ______________________________________________________________________________________________________________________________ ============================================================================================================================== Portfolio turnover rate(e) 23% 9% 14% 22% 67% 65% ______________________________________________________________________________________________________________________________ ==============================================================================================================================
(a) Calculated using average shares outstanding. (b) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. (c) Ratios are annualized and based on average daily net assets of $75,911,027. (d) After fee waivers and/or expense reimbursements. Ratio of expenses to average net assets prior to fee waivers and/or expense reimbursements was 1.22% (annualized) for the six months ended June 30, 2008. (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 11--FINANCIAL HIGHLIGHTS--(CONTINUED)
SERIES II ------------------------------------------------------------------------ APRIL 20, 2004 SIX MONTHS YEAR ENDED DECEMBER 31, (COMMENCEMENT DATE) ENDED JUNE 30, ----------------------------- TO DECEMBER 31, 2008 2007 2006 2005 2004 - ------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $ 12.17 $ 17.33 $15.23 $14.59 $13.50 - ------------------------------------------------------------------------------------------------------------------------ Income from investment operations: Net investment income 0.11(a) 0.22(a) 0.20(a) 0.15(a) 0.12 - ------------------------------------------------------------------------------------------------------------------------ Net gains (losses) on securities (both realized and unrealized) (3.97) (4.00) 2.26 0.67 1.07 ======================================================================================================================== Total from investment operations (3.86) (3.78) 2.46 0.82 1.19 ======================================================================================================================== Less distributions: Dividends from net investment income -- (0.29) (0.26) (0.18) (0.10) - ------------------------------------------------------------------------------------------------------------------------ Distributions from net realized gains -- (1.09) (0.10) -- -- ======================================================================================================================== Total distributions -- (1.38) (0.36) (0.18) (0.10) ======================================================================================================================== Net asset value, end of period $ 8.31 $ 12.17 $17.33 $15.23 $14.59 ________________________________________________________________________________________________________________________ ======================================================================================================================== Total return(b) (31.72)% (22.39)% 16.22% 5.61% 8.85% ________________________________________________________________________________________________________________________ ======================================================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $ 4,216 $ 3,688 $1,664 $ 11 $ 11 ________________________________________________________________________________________________________________________ ======================================================================================================================== Ratio of expenses to average net assets 1.44%(c)(d) 1.36% 1.37% 1.37% 1.38%(e) ======================================================================================================================== Ratio of net investment income to average net assets 2.14%(c) 1.36% 1.19% 1.05% 0.63%(e) ________________________________________________________________________________________________________________________ ======================================================================================================================== Portfolio turnover rate(f) 23% 9% 14% 22% 67% ________________________________________________________________________________________________________________________ ========================================================================================================================
(a) Calculated using average shares outstanding. (b) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. (c) Ratios are annualized and based on average daily net assets of $4,345,996. (d) After fee waivers and/or expense reimbursements. Ratio of expenses to average net assets prior to fee waivers and/or expense reimbursements was 1.47% (annualized) for the six months ended June 30, 2008. (e) Annualized. (f) Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year. AIM V.I. FINANCIAL SERVICES FUND NOTE 11--FINANCIAL HIGHLIGHTS--(CONTINUED)--(CONTINUED) NOTE 12--LEGAL PROCEEDINGS Terms used in the Legal Proceedings Note are defined terms solely for the purpose of this note. 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 Invesco Aim and IADI (Order No. 05- 1318). The WVASC makes findings of fact that Invesco Aim and IADI 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 Invesco Aim and IADI violated the West Virginia securities laws. The WVASC orders Invesco Aim and IADI 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. By agreement with the Commissioner of Securities, Invesco Aim's time to respond to that Order has been indefinitely suspended. Civil lawsuits, including purported class action and shareholder derivative suits, have been filed against certain of the AIM Funds, Invesco Funds Group, Inc. ("IFG"), Invesco Aim, IADI 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; and - that certain AIM Funds inadequately employed fair value pricing. These lawsuits allege as theories of recovery, depending on the lawsuit, violations of various provisions of the Federal and state securities laws Employee Retirement Income Security Act of 1974, as amended ("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. The case pending in Illinois State Court regarding fair value pricing was dismissed with prejudice on May 6, 2008. 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 Invesco 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 ERISA purportedly brought on behalf of participants in the Invesco 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 Invesco defendants' motion to dismiss the Amended Class Action Complaint for Violations of ERISA and dismissed such Complaint. Plaintiff appealed this ruling. On June 16, 2008, the Fourth Court of Appeals reversed the dismissal and remanded this lawsuit back to the MDL Court for further proceedings. IFG, Invesco Aim, IADI 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, Invesco Aim and IADI 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, Invesco Aim and/or related entities and individuals in the future. At the present time, management of Invesco 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 Invesco Aim, IADI or the Fund. AIM V.I. FINANCIAL SERVICES FUND NOTE 12--LEGAL PROCEEDINGS--(CONTINUED) CALCULATING YOUR ONGOING FUND EXPENSES EXAMPLE As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2008, through June 30, 2008. The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower. ACTUAL EXPENSES The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled "Actual Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
- --------------------------------------------------------------------------------------------------- HYPOTHETICAL (5% ANNUAL RETURN BEFORE ACTUAL EXPENSES) ------------------------------------------------------ BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE CLASS (01/01/08) (06/30/08)(1) PERIOD(2) (06/30/08) PERIOD(2) RATIO - --------------------------------------------------------------------------------------------------- Series I $1,000.00 $683.50 $5.06 $1,018.85 $6.07 1.21% - --------------------------------------------------------------------------------------------------- Series II 1,000.00 682.80 6.02 1,017.70 7.22 1.44 - ---------------------------------------------------------------------------------------------------
(1) The actual ending account value is based on the actual total return of the Fund for the period January 1, 2008, through June 30, 2008, 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 182/366 to reflect the most recent fiscal half year. AIM V.I. FINANCIAL SERVICES FUND APPROVAL OF INVESTMENT ADVISORY AGREEMENT The Board of Trustees (the Board) of AIM renewal process, the Trustees receive from one another and attributed different Variable Insurance Funds is required under comparative performance and fee data weight to the various factors. The the Investment Company Act of 1940 to regarding the AIM Funds prepared by an Trustees recognized that the advisory approve annually the renewal of the AIM independent company, Lipper, Inc. arrangements and resulting advisory fees V.I. Financial Services Fund (the Fund) (Lipper), under the direction and for the Fund and the other AIM Funds are investment advisory agreement with Invesco supervision of the independent Senior the result of years of review and Aim Advisors, Inc. (Invesco Aim). During Officer who also prepares a separate negotiation between the Trustees and contract renewal meetings held on June analysis of this information for the Invesco Aim, that the Trustees may focus 18-19, 2008, the Board as a whole and the Trustees. Each Sub-Committee then makes to a greater extent on certain aspects of disinterested or "independent" Trustees, recommendations to the Investments these arrangements in some years than in voting separately, approved the Committee regarding the performance, fees others, and that the Trustees' continuance of the Fund's investment and expenses of their assigned funds. The deliberations and conclusions in a advisory agreement for another year, Investments Committee considers each particular year may be based in part on effective July 1, 2008. In doing so, the Sub-Committee's recommendations and makes their deliberations and conclusions of Board determined that the Fund's its own recommendations regarding the these same arrangements throughout the investment advisory agreement is in the performance, fees and expenses of the AIM year and in prior years. best interests of the Fund and its Funds to the full Board. The Investments shareholders and that the compensation to Committee also considers each FACTORS AND CONCLUSIONS AND SUMMARY OF Invesco Aim under the Fund's investment Sub-Committee's recommendations in making INDEPENDENT WRITTEN FEE EVALUATION advisory agreement is fair and reasonable. its annual recommendation to the Board The discussion below serves as a summary The independent Trustees met separately whether to approve the continuance of each of the Senior Officer's independent during their evaluation of the Fund's AIM Fund's investment advisory agreement written evaluation with respect to the investment advisory agreement with and sub-advisory agreements for another Fund's investment advisory agreement as independent legal counsel from whom they year. well as a discussion of the material received independent legal advice, and the The independent Trustees are assisted factors and related conclusions that independent Trustees also received in their annual evaluation of the Fund's formed the basis for the Board's approval assistance during their deliberations from investment advisory agreement by the of the Fund's investment advisory the independent Senior Officer, a independent Senior Officer. One agreement and sub-advisory agreements. full-time officer of the AIM Funds who responsibility of the Senior Officer is to Unless otherwise stated, information set reports directly to the independent manage the process by which the AIM Funds' forth below is as of June 19, 2008 and Trustees. proposed management fees are negotiated does not reflect any changes that may have during the annual contract renewal process occurred since that date, including but THE BOARD'S FUND EVALUATION PROCESS to ensure that they are negotiated in a not limited to changes to the Fund's The Board's Investments Committee has manner that is at arms' length and performance, advisory fees, expense established three Sub-Committees that are reasonable. Accordingly, the Senior limitations and/or fee waivers. responsible for overseeing the management Officer must either supervise a of a number of the series portfolios of competitive bidding process or prepare an I. Investment Advisory Agreement the AIM Funds. This Sub-Committee independent written evaluation. The Senior A. Nature, Extent and Quality of structure permits the Trustees to focus on Officer has recommended that an Services Provided by Invesco Aim the performance of the AIM Funds that have independent written evaluation be provided The Board reviewed the advisory services been assigned to them. The Sub-Committees and, at the direction of the Board, has provided to the Fund by Invesco Aim under meet throughout the year to review the prepared an independent written the Fund's investment advisory agreement, performance of their assigned funds, and evaluation. the performance of Invesco Aim in the Sub-Committees review monthly and During the annual contract renewal providing these services, and the quarterly comparative performance process, the Board considered the factors credentials and experience of the officers information and periodic asset flow data discussed below under the heading "Factors and employees of Invesco Aim who provide for their assigned funds. These materials and Conclusions and Summary of Independent these services. The Board's review of the are prepared under the direction and Written Fee Evaluation" in evaluating the qualifications of Invesco Aim to provide supervision of the independent Senior fairness and reasonableness of the Fund's these services included the Board's Officer. Over the course of each year, the investment advisory agreement and consideration of Invesco Aim's portfolio Sub-Committees meet with portfolio sub-advisory agreements at the contract and product review process, various back managers for their assigned funds and renewal meetings and at their meetings office support functions provided by other members of management and review throughout the year as part of their Invesco Aim and its affiliates, and with these individuals the performance, ongoing oversight of the Fund. The Fund's Invesco Aim's equity and fixed income investment objective(s), policies, investment advisory agreement and trading operations. The Board concluded strategies and limitations of these funds. sub-advisory agreements were considered that the nature, extent and quality of the In addition to their meetings separately, although the Board also advisory services provided to the Fund by throughout the year, the Sub-Committees considered the common interests of all of Invesco Aim were appropriate and that meet at designated contract renewal the AIM Funds in their deliberations. The Invesco Aim currently is providing meetings each year to conduct an in-depth Board considered all of the information satisfactory advisory services in review of the performance, fees and provided to them and did not identify any accordance with the terms of the Fund's expenses of their assigned funds. During particular factor that was controlling. investment advisory agreement. In the contract Each Trustee may have evaluated the addition, based on their ongoing meetings information provided differently throughout the year with the Fund's portfolio manager or continued
AIM V.I. FINANCIAL SERVICES FUND managers, the Board concluded that these Board also concluded that it would be breakpoints in the Fund's advisory fee individuals are competent and able to appropriate for the Board to continue to schedule or through advisory fee waivers continue to carry out their monitor more closely the performance of or expense limitations. The Board noted responsibilities under the Fund's the Fund. Although the independent written that the Fund's contractual advisory fee investment advisory agreement. evaluation of the Fund's Senior Officer schedule includes seven breakpoints, but In determining whether to continue the only considered Fund performance through that due to the Fund's asset level at the Fund's investment advisory agreement, the the most recent calendar year, the Board end of the past calendar year, the Fund is Board considered the prior relationship also reviewed more recent Fund performance not currently benefiting from the between Invesco Aim and the Fund, as well and this review did not change their breakpoints. Based on this information, as the Board's knowledge of Invesco Aim's conclusions. the Board concluded that the Fund's operations, and concluded that it was advisory fees would reflect economies of beneficial to maintain the current C. Advisory Fees and Fee Waivers scale at higher asset levels. The Board relationship, in part, because of such The Board compared the Fund's contractual also noted that the Fund shares directly knowledge. The Board also considered the advisory fee rate to the contractual in economies of scale through lower fees steps that Invesco Aim and its affiliates advisory fee rates of funds in the Fund's charged by third party service providers have taken over the last several years to Lipper expense group that are not managed based on the combined size of all of the improve the quality and efficiency of the by Invesco Aim, at a common asset level AIM Funds and affiliates. services they provide to the AIM Funds in and as of the end of the past calendar the areas of investment performance, year. The Board noted that the Fund's E. Profitability and Financial product line diversification, contractual advisory fee rate was below Resources of Invesco Aim distribution, fund operations, shareholder the median contractual advisory fee rate The Board reviewed information from services and compliance. The Board of funds in its expense group. The Board Invesco Aim concerning the costs of the concluded that the quality and efficiency also reviewed the methodology used by advisory and other services that Invesco of the services Invesco Aim and its Lipper in determining contractual fee Aim and its affiliates provide to the Fund affiliates provide to the AIM Funds in rates. and the profitability of Invesco Aim and each of these areas have generally The Board also compared the Fund's its affiliates in providing these improved, and support the Board's approval effective fee rate (the advisory fee after services. The Board also reviewed of the continuance of the Fund's any advisory fee waivers and before any information concerning the financial investment advisory agreement. expense limitations/waivers) to the condition of Invesco Aim and its advisory fee rates of other clients of affiliates. The Board also reviewed with B. Fund Performance Invesco Aim and its affiliates with Invesco Aim the methodology used to The Board compared the Fund's performance investment strategies comparable to those prepare the profitability information. The during the past one, three and five of the Fund, including one mutual fund Board considered the overall profitability calendar years to the performance of funds advised by Invesco Aim. The Board noted of Invesco Aim, as well as the in the Fund's performance group that are that the Fund's rate was above the rate profitability of Invesco Aim in connection not managed by Invesco Aim, and against for the mutual fund. with managing the Fund. The Board noted the performance of all funds in the S&P The Board noted that Invesco Aim has that Invesco Aim continues to operate at a 500 Financials Index. The Board also contractually agreed to waive fees and/or net profit, although increased expenses in reviewed the criteria used by Invesco Aim limit expenses of the Fund through at recent years have reduced the to identify the funds in the Fund's least April 30, 2010 in an amount profitability of Invesco Aim and its performance group for inclusion in the necessary to limit total annual operating affiliates. The Board concluded that the Lipper reports. The Board noted that the expenses to a specified percentage of Fund's fees were fair and reasonable, and Fund's performance was in the fifth average daily net assets for each class of that the level of profits realized by quintile of its performance group for the the Fund. The Board considered the Invesco Aim and its affiliates from one, three and five year periods (the contractual nature of this fee waiver and providing services to the Fund was not first quintile being the best performing noted that it remains in effect until at excessive in light of the nature, quality funds and the fifth quintile being the least April 30, 2010. The Board also and extent of the services provided. The worst performing funds). The Board noted considered the effect this fee waiver Board considered whether Invesco Aim is that the Fund's performance was below the would have on the Fund's total estimated financially sound and has the resources performance of the Index for the one, expenses. necessary to perform its obligations under three and five year periods. The Board After taking account of the Fund's the Fund's investment advisory agreement, also noted that Invesco Aim acknowledges contractual advisory fee rate, as well as and concluded that Invesco Aim has the the Fund's underperformance and is focused the comparative advisory fee information financial resources necessary to fulfill on the longer term and business issues and the expense limitation discussed these obligations. that affect the Fund's performance. The above, the Board concluded that the Fund's Board also considered the steps Invesco advisory fees were fair and reasonable. F. Independent Written Evaluation of Aim has taken over the last several years the Fund's Senior Officer to improve the quality and efficiency of D. Economies of Scale and Breakpoints The Board noted that, at their direction, the services that Invesco Aim provides to The Board considered the extent to which the Senior Officer of the Fund, who is the AIM Funds. The Board concluded that there are economies of scale in Invesco independent of Invesco Aim and Invesco Invesco Aim continues to be responsive to Aim's provision of advisory services to Aim's affiliates, had prepared an the Board's focus on fund performance. the Fund. The Board also considered independent written evaluation to assist However, due to the Fund's whether the Fund benefits from such the Board in determining the underperformance, the economies of scale through contractual reasonableness of the proposed management fees of the AIM Funds, including the Fund. The continued
AIM V.I. FINANCIAL SERVICES FUND Board noted that they had relied upon the The Board noted that Invesco Aim will B. Fund Performance Senior Officer's written evaluation receive advisory fees from these The Board did not view Fund performance as instead of a competitive bidding process. affiliated money market funds attributable a relevant factor in considering whether In determining whether to continue the to such investments, although Invesco Aim to approve the sub-advisory agreements for Fund's investment advisory agreement, the has contractually agreed to waive through the Fund, as no Affiliated Sub-Adviser Board considered the Senior Officer's at least April 30, 2010, the advisory fees currently manages any portion of the written evaluation. payable by the Fund in an amount equal to Fund's assets. 100% of the net advisory fees Invesco Aim G. Collateral Benefits to Invesco Aim receives from the affiliated money market C. Sub-Advisory Fees and its Affiliates funds with respect to the Fund's The Board considered the services to be The Board considered various other investment of uninvested cash, but not provided by the Affiliated Sub-Advisers benefits received by Invesco Aim and its cash collateral. The Board considered the pursuant to the sub-advisory agreements affiliates resulting from Invesco Aim's contractual nature of this fee waiver and and the services to be provided by Invesco relationship with the Fund, including the noted that it remains in effect until at Aim pursuant to the Fund's investment fees received by Invesco Aim and its least April 30, 2010. The Board concluded advisory agreement, as well as the affiliates for their provision of that the Fund's investment of uninvested allocation of fees between Invesco Aim and administrative, transfer agency and cash and cash collateral from any the Affiliated Sub-Advisers pursuant to distribution services to the Fund. The securities lending arrangements in the the sub-advisory agreements. The Board Board considered the performance of affiliated money market funds is in the noted that the sub-advisory fees have no Invesco Aim and its affiliates in best interests of the Fund and its direct effect on the Fund or its providing these services and the shareholders. shareholders, as they are paid by Invesco organizational structure employed by Aim to the Affiliated Sub-Advisers, and Invesco Aim and its affiliates to provide II. Sub-Advisory Agreements that Invesco Aim and the Affiliated these services. The Board also considered A. Nature, Extent and Quality of Sub-Advisers are affiliates. After taking that these services are provided to the Services Provided by Affiliated account of the Fund's contractual Fund pursuant to written contracts which Sub-Advisers sub-advisory fee rate, as well as other are reviewed and approved on an annual The Board reviewed the services to be relevant factors, the Board concluded that basis by the Board. The Board concluded provided by Invesco Trimark Ltd., Invesco the Fund's sub-advisory fees were fair and that Invesco Aim and its affiliates were Asset Management Deutschland, GmbH, reasonable. providing these services in a satisfactory Invesco Asset Management Limited, Invesco manner and in accordance with the terms of Asset Management (Japan) Limited, Invesco D. Financial Resources of the their contracts, and were qualified to Australia Limited, Invesco Global Asset Affiliated Sub-Advisers continue to provide these services to the Management (N.A.), Inc., Invesco Hong Kong The Board considered whether each Fund. Limited, Invesco Institutional (N.A.), Affiliated Sub-Adviser is financially The Board considered the benefits Inc. and Invesco Senior Secured sound and has the resources necessary to realized by Invesco Aim as a result of Management, Inc. (collectively, the perform its obligations under its portfolio brokerage transactions executed "Affiliated Sub-Advisers") under the respective sub-advisory agreement, and through "soft dollar" arrangements. Under sub-advisory agreements and the concluded that each Affiliated Sub-Adviser these arrangements, portfolio brokerage credentials and experience of the officers has the financial resources necessary to commissions paid by the Fund and/or other and employees of the Affiliated fulfill these obligations. funds advised by Invesco Aim are used to Sub-Advisers who will provide these pay for research and execution services. services. The Board concluded that the The Board noted that soft dollar nature, extent and quality of the services arrangements shift the payment obligation to be provided by the Affiliated for the research and execution services Sub-Advisers were appropriate. The Board from Invesco Aim to the funds and noted that the Affiliated Sub-Advisers, therefore may reduce Invesco Aim's which have offices and personnel that are expenses. The Board also noted that geographically dispersed in financial research obtained through soft dollar centers around the world, have been formed arrangements may be used by Invesco Aim in in part for the purpose of researching and making investment decisions for the Fund compiling information and making and may therefore benefit Fund recommendations on the markets and shareholders. The Board concluded that economies of various countries and Invesco Aim's soft dollar arrangements securities of companies located in such were appropriate. The Board also concluded countries or on various types of that, based on their review and investments and investment techniques, and representations made by Invesco Aim, these providing investment advisory services. arrangements were consistent with The Board concluded that the sub-advisory regulatory requirements. agreements will benefit the Fund and its The Board considered the fact that the shareholders by permitting Invesco Aim to Fund's uninvested cash and cash collateral utilize the additional resources and from any securities lending arrangements talent of the Affiliated Sub-Advisers in may be invested in money market funds managing the Fund. advised by Invesco Aim pursuant to procedures approved by the Board.
AIM V.I. FINANCIAL SERVICES FUND NOTE 12--LEGAL PROCEEDINGS--(CONTINUED) PROXY RESULTS A Special Meeting ("Meeting") of Shareholders of AIM V.I. Financial Services Fund, an investment portfolio of AIM Variable Insurance Funds, a Delaware statutory trust ("Trust"), was held on February 29, 2008. The Meeting was held for the following purposes: (1) Elect 13 trustees to the Board of Trustees of the Trust, each of whom will serve until his or her successor is elected and qualified. (2) Approve an amendment to the Trust's Agreement and Declaration of Trust that would permit the Board of Trustees of the Trust to terminate the Trust, the Fund, and each other series portfolio of the Trust, or a share class without a shareholder vote. (3) Approve a new sub-advisory agreement between Invesco Aim Advisors, Inc. and each of AIM Funds Management, Inc.; Invesco Asset Management Deutschland, GmbH; Invesco Asset Management Limited; Invesco Asset Management (Japan) Limited; Invesco Australia Limited; Invesco Global Asset Management (N.A.), Inc.; Invesco Hong Kong Limited; Invesco Institutional (N.A.), Inc.; and Invesco Senior Secured Management, Inc. (4)(a) Approve modification of fundamental restrictions on issuing senior securities and borrowing money. (4)(b) Approve modification of fundamental restriction on underwriting securities. (4)(c) Approve modification of fundamental restriction on industry concentration. (4)(d) Approve modification of fundamental restriction on real estate investments. (4)(e) Approve modification of fundamental restriction on purchasing or selling commodities. (4)(f) Approve modification of fundamental restriction on making loans. (4)(g) Approve modification of fundamental restriction on investment in investment companies. (5) Approve changing the fund's sub-classification from "diversified" to "non- diversified" and approve the elimination of a related fundamental investment restriction. (6) Approve making the investment objective of the fund non-fundamental. The results of the voting on the above matters were as follows:
WITHHELD/ MATTERS VOTES FOR ABSTENTIONS** - ------------------------------------------------------------------------------------------------------------ (1)* Bob R. Baker..................................................... 474,883,590 19,741,622 Frank S. Bayley.................................................. 474,653,109 19,972,103 James T. Bunch................................................... 475,597,417 19,027,795 Bruce L. Crockett................................................ 474,900,579 19,724,633 Albert R. Dowden................................................. 474,749,929 19,875,283 Jack M. Fields................................................... 475,205,840 19,419,372 Martin L. Flanagan............................................... 475,248,336 19,376,876 Carl Frischling.................................................. 474,453,674 20,171,538 Prema Mathai-Davis............................................... 473,569,192 21,056,020 Lewis F. Pennock................................................. 475,072,501 19,552,711 Larry Soll, Ph.D. ............................................... 475,170,544 19,454,668 Raymond Stickel, Jr. ............................................ 475,420,825 19,204,387 Philip A. Taylor................................................. 475,640,570 18,984,642
VOTES WITHHELD/ VOTES FOR AGAINST ABSTENTIONS - -------------------------------------------------------------------------------------------------------------------- (2)* Approve an amendment to the Trust's Agreement and Declaration of Trust that would permit the Board of Trustees of the Trust to terminate the Trust, the Fund, and each other series portfolio of the Trust, or a share class without a shareholder vote......................... 438,131,484 35,586,925 20,906,803 (3) Approve a new sub-advisory agreement between Invesco Aim Advisors, Inc. and each of AIM Funds Management, Inc.; Invesco Asset Management Deutschland, GmbH; Invesco Asset Management Limited; Invesco Asset Management (Japan) Limited; Invesco Australia Limited; Invesco Global Asset Management (N.A.), Inc.; Invesco Hong Kong Limited; Invesco Institutional (N.A.), Inc.; and Invesco Senior Secured Management, Inc.................................. 5,737,690 268,671 302,907 (4)(a) Approve modification of fundamental restrictions on issuing senior securities and borrowing money............ 5,793,510 271,118 244,640 (4)(b) Approve modification of fundamental restriction on underwriting securities.................................. 5,769,486 294,338 245,444 (4)(c) Approve modification of fundamental restriction on industry concentration................................... 5,811,362 253,266 244,640 (4)(d) Approve modification of fundamental restriction on real estate investments....................................... 5,786,064 277,760 245,444 (4)(e) Approve modification of fundamental restriction on purchasing or selling commodities........................ 5,803,177 262,014 244,077 (4)(f) Approve modification of fundamental restriction on making loans.................................................... 5,767,229 294,890 247,149 (4)(g) Approve modification of fundamental restriction on investment in investment companies....................... 5,813,626 248,346 247,296 (5) Approve changing the fund's sub-classification from "diversified" to "non-diversified" and approve the elimination of a related fundamental investment restriction.............................................. 5,628,786 304,230 376,252 (6) Approve making the investment objective of the fund non- fundamental.............................................. 5,619,704 313,726 375,838
* Proposals 1 and 2 required approval by a combined vote of all of the portfolios of AIM Variable Insurance Funds. ** Includes Broker Non-Votes. AIM V.I. FINANCIAL SERVICES FUND [INVESCO AIM LOGO] AIM V.I. GLOBAL HEALTH CARE FUND - SERVICE MARK - Semiannual Report to Shareholders - June 30, 2008 AIM Investments [MOUNTAIN GRAPHIC] became INVESCO AIM on March 31, 2008. For more details, go to invescoaim.com 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 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 Invesco Aim Web site, invescoaim.com. On the home page, scroll down and click on 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, 2008, is available at our Web site. Go to invescoaim.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 noted, all data provided by Invesco Aim. THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND PROSPECTUS AND VARIABLE PRODUCT PROSPECTUS, WHICH CONTAIN MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ EACH CAREFULLY BEFORE INVESTING. Invesco Aim Distributors, Inc. NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE FUND PERFORMANCE ======================================================================================= PERFORMANCE SUMMARY FUND VS. INDEXES Cumulative total returns, 12/31/07 to 6/30/08, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower. Series I Shares -9.39% Series II Shares -9.53 MSCI World Index(TRIANGLE) (Broad Market Index) -10.57 MSCI World Health Care Index(TRIANGLE) (Style-Specific Index) -9.36 Lipper VUF Health/Biotechnology Funds Category Average(TRIANGLE) (Peer Group) -9.17 (TRIANGLE)Lipper Inc. The MSCI WORLD INDEX--SERVICE MARK-- is a free float-adjusted market capitalization index that is designed to measure global developed market equity performance. The MSCI WORLD HEALTH CARE INDEX is a free float-adjusted market capitalization index that represents the health care segment in global developed market equity performance. The LIPPER VUF HEALTH/BIOTECHNOLOGY FUNDS CATEGORY AVERAGE represents an average of all of the variable insurance underlying funds in the Lipper Health/Biotechnology Funds category. These funds invest at least 65% of their portfolios in equity securities of companies engaged in healthcare, medicine, and biotechnology. The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes. A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of an index of funds reflects fund expenses; performance of a market index does not. ======================================================================================= ========================================== AVERAGE ANNUAL TOTAL RETURNS CURRENT PERFORMANCE MAY BE LOWER OR VARIABLE PRODUCTS. YOU CANNOT PURCHASE As of 6/30/08 HIGHER. PLEASE CONTACT YOUR VARIABLE SHARES OF THE FUND DIRECTLY. PERFORMANCE PRODUCT ISSUER OR FINANCIAL ADVISOR FOR FIGURES GIVEN REPRESENT THE FUND AND ARE SERIES I SHARES THE MOST RECENT MONTH-END VARIABLE PRODUCT NOT INTENDED TO REFLECT ACTUAL VARIABLE Inception (5/21/97) 7.62% PERFORMANCE. PERFORMANCE FIGURES REFLECT PRODUCT VALUES. THEY DO NOT REFLECT SALES 10 Years 5.19 FUND EXPENSES, REINVESTED DISTRIBUTIONS CHARGES, EXPENSES AND FEES ASSESSED IN 5 Years 6.45 AND CHANGES IN NET ASSET VALUE. INVESTMENT CONNECTION WITH A VARIABLE PRODUCT. SALES 1 Year -4.43 RETURN AND PRINCIPAL VALUE WILL FLUCTUATE CHARGES, EXPENSES AND FEES, WHICH ARE SO THAT YOU MAY HAVE A GAIN OR LOSS WHEN DETERMINED BY THE VARIABLE PRODUCT SERIES II SHARES YOU SELL SHARES. ISSUERS, WILL VARY AND WILL LOWER THE 10 Years 4.91% TOTAL RETURN. 5 Years 6.16 THE NET ANNUAL FUND OPERATING EXPENSE 1 Year -4.77 RATIO SET FORTH IN THE MOST RECENT FUND THE MOST RECENT MONTH-END PERFORMANCE ========================================== PROSPECTUS AS OF THE DATE OF THIS REPORT DATA AT THE FUND LEVEL, EXCLUDING VARIABLE FOR SERIES I AND SERIES II SHARES WAS PRODUCT CHARGES, IS AVAILABLE ON THE SERIES II SHARES' INCEPTION DATE IS APRIL 1.07% AND 1.32%, RESPECTIVELY.(1) THE INVESCO AIM AUTOMATED INFORMATION LINE, 30, 2004. RETURNS SINCE THAT DATE ARE TOTAL ANNUAL FUND OPERATING EXPENSE RATIO 866 702 4402. AS MENTIONED ABOVE, FOR THE HISTORICAL. ALL OTHER RETURNS ARE THE SET FORTH IN THE MOST RECENT FUND MOST RECENT MONTH-END PERFORMANCE BLENDED RETURNS OF THE HISTORICAL PROSPECTUS AS OF THE DATE OF THIS REPORT INCLUDING VARIABLE PRODUCT CHARGES, PLEASE PERFORMANCE OF SERIES II SHARES SINCE FOR SERIES I AND SERIES II SHARES WAS CONTACT YOUR VARIABLE PRODUCT ISSUER OR THEIR INCEPTION AND THE RESTATED 1.08% AND 1.33%, RESPECTIVELY. THE EXPENSE FINANCIAL ADVISOR. HISTORICAL PERFORMANCE OF SERIES I SHARES RATIOS PRESENTED ABOVE MAY VARY FROM THE (FOR PERIODS PRIOR TO INCEPTION OF SERIES EXPENSE RATIOS PRESENTED IN OTHER SECTIONS (1) Total annual operating expenses less II SHARES) ADJUSTED TO REFLECT THE RULE OF THIS REPORT THAT ARE BASED ON EXPENSES any contractual fee waivers and/or 12B-1 FEES APPLICABLE TO SERIES II SHARES. INCURRED DURING THE PERIOD COVERED BY THIS expense reimbursements by the advisor THE INCEPTION DATE OF SERIES I SHARES IS REPORT. in effect through at least April 30, MAY 21, 1997. THE PERFORMANCE OF THE 2010. See current prospectus for more FUND'S SERIES I AND SERIES II SHARE AIM V.I. GLOBAL HEALTH CARE FUND, A information. CLASSES WILL DIFFER PRIMARILY DUE TO SERIES PORTFOLIO OF AIM VARIABLE INSURANCE DIFFERENT CLASS EXPENSES. FUNDS, IS CURRENTLY OFFERED THROUGH INSURANCE COMPANIES ISSUING THE PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE AND CANNOT GUARANTEE COMPARABLE FUTURE RESULTS;
AIM V.I. GLOBAL HEALTH CARE FUND PORTFOLIO COMPOSITION By country, based on Net Assets as of June 30, 2008 - ------------------------------------------------------------------------- United States 76.7% - ------------------------------------------------------------------------- Switzerland 5.4 - ------------------------------------------------------------------------- Germany 4.8 - ------------------------------------------------------------------------- United Kingdom 2.4 - ------------------------------------------------------------------------- Countries each less than 2.0% of portfolio 7.6 - ------------------------------------------------------------------------- Money Market Funds Plus Other Assets Less Liabilities 3.1 _________________________________________________________________________ =========================================================================
SCHEDULE OF INVESTMENTS(a) June 30, 2008 (Unaudited)
SHARES VALUE - ------------------------------------------------------------------------------- COMMON STOCKS & OTHER EQUITY INTERESTS-96.87% BIOTECHNOLOGY-21.64% Acadia Pharmaceuticals Inc.(b)(c) 62,593 $ 230,968 - ------------------------------------------------------------------------------- Altus Pharmaceuticals Inc.(b)(c) 42,106 187,372 - ------------------------------------------------------------------------------- Amgen Inc.(b)(c) 93,797 4,423,467 - ------------------------------------------------------------------------------- Amylin Pharmaceuticals, Inc.(b)(c) 33,107 840,587 - ------------------------------------------------------------------------------- Array BioPharma Inc.(b)(c) 74,312 349,266 - ------------------------------------------------------------------------------- Avigen, Inc.(c) 130,833 378,107 - ------------------------------------------------------------------------------- BioMarin Pharmaceutical Inc.(b)(c) 85,018 2,463,822 - ------------------------------------------------------------------------------- Celgene Corp.(c) 99,308 6,342,802 - ------------------------------------------------------------------------------- Genentech, Inc.(c) 32,606 2,474,795 - ------------------------------------------------------------------------------- Gentium Spa-ADR (Italy)(b)(c) 42,600 145,266 - ------------------------------------------------------------------------------- Genzyme Corp.(c) 91,317 6,576,650 - ------------------------------------------------------------------------------- Gilead Sciences, Inc.(b)(c) 141,870 7,512,016 - ------------------------------------------------------------------------------- ImClone Systems Inc.(c) 34,726 1,405,014 - ------------------------------------------------------------------------------- Incyte Corp.(b)(c) 55,215 420,186 - ------------------------------------------------------------------------------- Medarex, Inc.(b)(c) 133,052 879,474 - ------------------------------------------------------------------------------- Onyx Pharmaceuticals, Inc.(b)(c) 45,761 1,629,092 - ------------------------------------------------------------------------------- OSI Pharmaceuticals, Inc.(b)(c) 35,493 1,466,571 - ------------------------------------------------------------------------------- Rigel Pharmaceuticals, Inc.(b)(c) 44,542 1,009,322 - ------------------------------------------------------------------------------- United Therapeutics Corp.(b)(c) 37,292 3,645,293 - ------------------------------------------------------------------------------- Vertex Pharmaceuticals Inc.(b)(c) 31,917 1,068,262 - ------------------------------------------------------------------------------- ZymoGenetics, Inc.(b)(c) 41,593 350,213 =============================================================================== 43,798,545 =============================================================================== DIVERSIFIED CHEMICALS-1.01% Bayer A.G. (Germany)(d) 24,444 2,053,141 =============================================================================== DRUG RETAIL-2.26% CVS Caremark Corp. 61,083 2,417,054 - ------------------------------------------------------------------------------- Drogasil S.A. (Brazil) 146,520 1,361,192 - ------------------------------------------------------------------------------- Rite Aid Corp(b)(c) 497,794 791,493 =============================================================================== 4,569,739 =============================================================================== ELECTRONIC EQUIPMENT MANUFACTURERS-0.97% Agilent Technologies, Inc.(b)(c) 55,173 1,960,848 =============================================================================== HEALTH CARE DISTRIBUTORS-2.08% Animal Health International, Inc.(b)(c) 117,933 734,723 - ------------------------------------------------------------------------------- Celesio A.G. (Germany)(b) 35,117 1,270,563 - ------------------------------------------------------------------------------- McKesson Corp.(b) 39,608 2,214,483 =============================================================================== 4,219,769 =============================================================================== HEALTH CARE EQUIPMENT-12.45% American Medical Systems Holdings, Inc.(b)(c) 153,765 2,298,787 - ------------------------------------------------------------------------------- Covidien Ltd.(b) 43,465 2,081,539 - ------------------------------------------------------------------------------- Dexcom Inc.(b)(c) 132,631 801,091 - ------------------------------------------------------------------------------- Hologic, Inc.(b)(c) 117,731 2,566,536 - ------------------------------------------------------------------------------- Hospira, Inc.(c) 48,872 1,960,256 - ------------------------------------------------------------------------------- Medtronic, Inc. 138,142 7,148,848 - ------------------------------------------------------------------------------- Nobel Biocare Holding A.G. (Switzerland)(d) 27,576 896,347 - ------------------------------------------------------------------------------- ResMed Inc.(b)(c) 38,978 1,393,074 - ------------------------------------------------------------------------------- Smith & Nephew PLC (United Kingdom)(d) 206,527 2,268,317 - ------------------------------------------------------------------------------- Wright Medical Group, Inc.(b)(c) 51,680 1,468,229 - ------------------------------------------------------------------------------- Zimmer Holdings, Inc.(c) 34,184 2,326,221 =============================================================================== 25,209,245 =============================================================================== HEALTH CARE FACILITIES-3.10% Assisted Living Concepts Inc.-Class A(b)(c) 162,302 892,661 - ------------------------------------------------------------------------------- Rhoen-Klinikum A.G. (Germany)(b)(d) 131,333 4,166,439 - ------------------------------------------------------------------------------- Tenet Healthcare Corp.(b)(c) 220,174 1,224,167 =============================================================================== 6,283,267 ===============================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. GLOBAL HEALTH CARE FUND
SHARES VALUE - ------------------------------------------------------------------------------- HEALTH CARE SERVICES-5.81% DaVita, Inc.(b)(c) 42,428 $ 2,254,200 - ------------------------------------------------------------------------------- Express Scripts, Inc.(c) 29,922 1,876,708 - ------------------------------------------------------------------------------- HMS Holdings Corp.(b)(c) 35,590 764,117 - ------------------------------------------------------------------------------- Laboratory Corp. of America Holdings(b)(c) 21,215 1,477,200 - ------------------------------------------------------------------------------- Medco Health Solutions, Inc.(b)(c) 47,948 2,263,146 - ------------------------------------------------------------------------------- Pediatrix Medical Group, Inc.(b)(c) 18,877 929,315 - ------------------------------------------------------------------------------- Quest Diagnostics Inc.(b) 45,387 2,199,908 =============================================================================== 11,764,594 =============================================================================== HEALTH CARE SUPPLIES-1.23% Align Technology, Inc.(b)(c) 88,436 927,694 - ------------------------------------------------------------------------------- DENTSPLY International Inc.(b) 42,565 1,566,392 =============================================================================== 2,494,086 =============================================================================== HEALTH CARE TECHNOLOGY-0.58% Allscripts Healthcare Solutions, Inc.(b)(c) 93,901 1,165,311 =============================================================================== INDUSTRIAL CONGLOMERATES-0.53% Teleflex Inc.(b) 19,120 1,062,881 =============================================================================== LIFE & HEALTH INSURANCE-1.04% Amil Participacoes S.A. (Brazil)(e) 230,700 2,100,084 =============================================================================== LIFE SCIENCES TOOLS & SERVICES-10.27% Affymetrix, Inc.(b)(c) 64,620 664,940 - ------------------------------------------------------------------------------- AMAG Pharmaceuticals, Inc.(b)(c) 28,528 972,805 - ------------------------------------------------------------------------------- Applera Corp.-Applied Biosystems Group 50,708 1,697,704 - ------------------------------------------------------------------------------- Charles River Laboratories International, Inc.(c) 35,374 2,261,106 - ------------------------------------------------------------------------------- Invitrogen Corp.(b)(c) 38,366 1,506,249 - ------------------------------------------------------------------------------- MDS Inc. (Canada)(b)(c) 79,996 1,297,720 - ------------------------------------------------------------------------------- Pharmaceutical Product Development, Inc. 86,229 3,699,224 - ------------------------------------------------------------------------------- Pharmanet Development Group, Inc.(b)(c) 64,064 1,010,289 - ------------------------------------------------------------------------------- QIAGEN N.V. (Netherlands)(b)(c) 71,801 1,445,354 - ------------------------------------------------------------------------------- Sequenom Inc.(c) 42,024 670,703 - ------------------------------------------------------------------------------- Thermo Fisher Scientific, Inc.(b)(c) 48,238 2,688,304 - ------------------------------------------------------------------------------- Varian Inc.(c) 32,559 1,662,462 - ------------------------------------------------------------------------------- Waters Corp.(c) 18,806 1,212,987 =============================================================================== 20,789,847 =============================================================================== MANAGED HEALTH CARE-4.95% Aetna Inc.(b) 38,451 1,558,419 - ------------------------------------------------------------------------------- Aveta, Inc. (Acquired 12/21/05; Cost $1,655,802)(c)(e)(f)(g) 122,652 981,216 - ------------------------------------------------------------------------------- CIGNA Corp. 38,875 1,375,786 - ------------------------------------------------------------------------------- Health Net Inc.(c) 54,949 1,322,073 - ------------------------------------------------------------------------------- UnitedHealth Group Inc. 132,298 3,472,823 - ------------------------------------------------------------------------------- WellPoint Inc.(b)(c) 27,696 1,319,991 =============================================================================== 10,030,308 =============================================================================== PERSONAL PRODUCTS-0.43% Herbalife Ltd.(b)(c) 22,384 867,380 =============================================================================== PHARMACEUTICALS-28.52% Allergan, Inc.(b) 28,998 1,509,346 - ------------------------------------------------------------------------------- ARYx Therapeutics, Inc.(b)(c) 84,692 667,373 - ------------------------------------------------------------------------------- Biodel Inc.(b)(c) 27,316 355,108 - ------------------------------------------------------------------------------- Cadence Pharmaceuticals, Inc.(b)(c) 145,015 883,141 - ------------------------------------------------------------------------------- EastPharma Ltd.-GDR (Turkey)(f) 9,193 70,859 - ------------------------------------------------------------------------------- EastPharma Ltd.-GDR (Turkey)(e)(f) 104,939 808,864 - ------------------------------------------------------------------------------- Forest Laboratories, Inc.(c) 57,946 2,013,044 - ------------------------------------------------------------------------------- Hikma Pharmaceuticals PLC (United Kingdom)(d) 125,990 1,262,806 - ------------------------------------------------------------------------------- Inspire Pharmaceuticals, Inc.(b)(c) 74,372 318,312 - ------------------------------------------------------------------------------- Ipsen S.A. (France)(d) 35,041 1,787,796 - ------------------------------------------------------------------------------- Johnson & Johnson 71,193 4,580,558 - ------------------------------------------------------------------------------- Laboratorios Almirall S.A. (Spain) (Acquired 06/19/07; Cost $1,869,932)(d)(e) 99,610 2,156,451 - ------------------------------------------------------------------------------- Laboratorios Almirall S.A. (Spain)(d) 1,116 24,160 - ------------------------------------------------------------------------------- MAP Pharmaceuticals Inc.(b)(c) 42,310 437,062 - ------------------------------------------------------------------------------- Medicines Co. (The)(b)(c) 27,469 544,436 - ------------------------------------------------------------------------------- Medicis Pharmaceutical Corp.-Class A(b) 44,943 933,915 - ------------------------------------------------------------------------------- Merck & Co. Inc. 186,601 7,032,992 - ------------------------------------------------------------------------------- Merck KGaA (Germany)(d) 15,438 2,192,115 - ------------------------------------------------------------------------------- Novartis A.G.-ADR (Switzerland) 56,971 3,135,684 - ------------------------------------------------------------------------------- Pfizer Inc. 106,314 1,857,306 - ------------------------------------------------------------------------------- Pharmstandard-GDR (Russia)(e)(f) 23,450 646,047 - ------------------------------------------------------------------------------- Roche Holding A.G. (Switzerland)(d) 38,974 6,994,828 - ------------------------------------------------------------------------------- Schering-Plough Corp.(b) 201,190 3,961,431 - ------------------------------------------------------------------------------- Shire Ltd.-ADR (United Kingdom)(b) 26,435 1,298,752 - ------------------------------------------------------------------------------- Takeda Pharmaceutical Co. Ltd. (Japan)(d) 38,600 1,957,789 - ------------------------------------------------------------------------------- Teva Pharmaceutical Industries Ltd.-ADR (Israel) 34,000 1,557,200 - ------------------------------------------------------------------------------- Wyeth 182,519 8,753,611 =============================================================================== 57,740,986 =============================================================================== Total Common Stocks & Other Equity Interests (Cost $206,757,734) 196,110,031 =============================================================================== MONEY MARKET FUNDS-3.77% Liquid Assets Portfolio-Institutional Class(h) 3,816,654 3,816,654 - ------------------------------------------------------------------------------- Premier Portfolio-Institutional Class(h) 3,816,653 3,816,653 =============================================================================== Total Money Market Funds (Cost $7,633,307) 7,633,307 =============================================================================== TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)-100.64% (Cost $214,391,041) 203,743,338 ===============================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. GLOBAL HEALTH CARE FUND
SHARES VALUE - ------------------------------------------------------------------------------- INVESTMENTS PURCHASED WITH CASH COLLATERAL FROM SECURITIES ON LOAN MONEY MARKET FUNDS-14.22% Liquid Assets Portfolio-Institutional Class (Cost $28,780,417)(h)(i) 28,780,417 $ 28,780,417 =============================================================================== TOTAL INVESTMENTS-114.86% (Cost $243,171,458) 232,523,755 =============================================================================== OTHER ASSETS LESS LIABILITIES-(14.86)% (30,088,919) =============================================================================== NET ASSETS-100.00% $202,434,836 _______________________________________________________________________________ ===============================================================================
Investment Abbreviations: ADR - American Depositary Receipt GDR - Global Depositary Receipt
Notes to Schedule of Investments: (a) Industry and/or sector 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 MSCI Inc. and Standard & Poor's. (b) All or a portion of this security was out on loan at June 30, 2008. (c) Non-income producing security. (d) In accordance with the procedures established by the Board of Trustees, the foreign security is fair valued using adjusted closing market prices. The aggregate value of these securities at June 30, 2008 was $25,760,189, which represented 12.73% of the Fund's Net Assets. See Note 1A. (e) Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended. The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at June 30, 2008 was $6,692,662, which represented 3.31% 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 June 30, 2008 was $2,506,986, which represented 1.24% of the Fund's Net Assets. See Note 1A. (g) Security considered to be illiquid. The Fund is limited to investing 15% of net assets in illiquid securities at the time of purchase. The value of this security considered illiquid at June 30, 2008 represented 0.48% of the Fund's Net Assets. (h) The money market fund and the Fund are affiliated by having the same investment advisor. (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 1J. See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. GLOBAL HEALTH CARE FUND STATEMENT OF ASSETS AND LIABILITIES June 30, 2008 (Unaudited) ASSETS: Investments, at value (Cost $206,757,734)* $196,110,031 - ------------------------------------------------------ Investments in affiliated money market funds (Cost $36,413,724) 36,413,724 ====================================================== Total investments (Cost $243,171,458) 232,523,755 ====================================================== Foreign currencies, at value (Cost $171,372) 173,995 - ------------------------------------------------------ Receivables for: Fund shares sold 33,397 - ------------------------------------------------------ Dividends 121,973 - ------------------------------------------------------ Investment for trustee deferred compensation and retirement plans 25,211 - ------------------------------------------------------ Other assets 5,181 ====================================================== Total assets 232,883,512 ______________________________________________________ ====================================================== LIABILITIES: Payables for: Investments purchased 650,673 - ------------------------------------------------------ Fund shares reacquired 488,134 - ------------------------------------------------------ Foreign currency contracts outstanding 296,065 - ------------------------------------------------------ Collateral upon return of securities loaned 28,780,417 - ------------------------------------------------------ Accrued fees to affiliates 145,376 - ------------------------------------------------------ Accrued other operating expenses 41,226 - ------------------------------------------------------ Trustee deferred compensation and retirement plans 46,785 ====================================================== Total liabilities 30,448,676 ====================================================== Net assets applicable to shares outstanding $202,434,836 ______________________________________________________ ====================================================== NET ASSETS CONSIST OF: Shares of beneficial interest $171,473,654 - ------------------------------------------------------ Undistributed net investment income 155,605 - ------------------------------------------------------ Undistributed net realized gain 41,746,021 - ------------------------------------------------------ Unrealized appreciation (depreciation) (10,940,444) ====================================================== $202,434,836 ______________________________________________________ ====================================================== NET ASSETS: Series I $180,240,814 ______________________________________________________ ====================================================== Series II $ 22,194,022 ______________________________________________________ ====================================================== SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED NUMBER OF SHARES AUTHORIZED: Series I 8,268,998 ______________________________________________________ ====================================================== Series II 1,029,593 ______________________________________________________ ====================================================== Series I: Net asset value per share $ 21.80 ______________________________________________________ ====================================================== Series II: Net asset value per share $ 21.56 ______________________________________________________ ======================================================
* At June 30, 2008, securities with an aggregate value of $27,671,635 were on loan to brokers. STATEMENT OF OPERATIONS For the six months ended June 30, 2008 (Unaudited) INVESTMENT INCOME: Dividends (net of foreign withholding taxes of $102,910) $ 1,177,390 - ------------------------------------------------------ Dividends from affiliated money market funds (includes securities lending income of $111,903) 259,620 ====================================================== Total investment income 1,437,010 ====================================================== EXPENSES: Advisory fees 812,974 - ------------------------------------------------------ Administrative services fees 300,258 - ------------------------------------------------------ Custodian fees 22,284 - ------------------------------------------------------ Distribution fees -- Series II 28,385 - ------------------------------------------------------ Transfer agent fees 16,454 - ------------------------------------------------------ Trustees' and officer's fees and benefits 11,191 - ------------------------------------------------------ Other 47,873 ====================================================== Total expenses 1,239,419 ====================================================== Less: Fees waived (6,363) ====================================================== Net expenses 1,233,056 ====================================================== Net investment income 203,954 ====================================================== REALIZED AND UNREALIZED GAIN (LOSS) FROM: Net realized gain (loss) from: Investment securities (includes net gains from securities sold to affiliates of $4,604) 4,127,443 - ------------------------------------------------------ Foreign currencies (74,275) - ------------------------------------------------------ Foreign currency contracts (1,123,696) ====================================================== 2,929,472 ====================================================== Change in net unrealized appreciation (depreciation) of: Investment securities (25,531,495) - ------------------------------------------------------ Foreign currencies 2,218 - ------------------------------------------------------ Foreign currency contracts (456,005) ====================================================== (25,985,282) ====================================================== Net realized and unrealized gain (loss) (23,055,810) ====================================================== Net increase (decrease) in net assets resulting from operations $(22,851,856) ______________________________________________________ ======================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. GLOBAL HEALTH CARE FUND STATEMENT OF CHANGES IN NET ASSETS For the six months ended June 30, 2008 and the year ended December 31, 2007 (Unaudited)
JUNE 30, DECEMBER 31, 2008 2007 - ------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) $ 203,954 $ (387,523) - ------------------------------------------------------------------------------------------------------- Net realized gain 2,929,472 50,032,609 - ------------------------------------------------------------------------------------------------------- Change in net unrealized appreciation (depreciation) (25,985,282) (15,481,212) ======================================================================================================= Net increase (decrease) in net assets resulting from operations (22,851,856) 34,163,874 ======================================================================================================= Share transactions-net: Series I (22,567,268) (37,376,785) - ------------------------------------------------------------------------------------------------------- Series II 3,589,311 (85,677,899) ======================================================================================================= Net increase (decrease) in net assets resulting from share transactions (18,977,957) (123,054,684) ======================================================================================================= Net increase (decrease) in net assets (41,829,813) (88,890,810) ======================================================================================================= NET ASSETS: Beginning of period 244,264,649 333,155,459 ======================================================================================================= End of period (including undistributed net investment income (loss) of $155,605 and $(48,349), respectively) $202,434,836 $ 244,264,649 _______________________________________________________________________________________________________ =======================================================================================================
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 June 30, 2008 (Unaudited) NOTE 1--SIGNIFICANT ACCOUNTING POLICIES AIM V.I. Global Health Care Fund (the "Fund") is a series portfolio of AIM Variable Insurance Funds (the "Trust"). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of twenty separate portfolios, (each constituting a "Fund"). 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 Fund or class will be voted on exclusively by the shareholders of such Fund 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 Fund 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. 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 prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. 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, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. 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, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. 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. Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer's assets, general economic conditions, interest rates, investor perceptions and market liquidity. 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. The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds as received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. AIM V.I. GLOBAL HEALTH CARE FUND 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, the investment advisor 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. The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. 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 by a significant amount. 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. OTHER RISKS -- The Fund's investments are concentrated in a comparatively narrow segment of the economy. Consequently, the Fund may tend to be more volatile than other mutual funds, and the value of the Fund's investments may tend to rise and fall more rapidly. J. SECURITIES LENDING -- 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 by the securities lending provider. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its sponsored agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds and is shown as such on the Schedule of Investments. 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. Dividends received on cash collateral investments for securities lending transactions, which are net of compensation to counterparties, is included in Dividends from affiliates on the Statement of Operations. The aggregate value of securities out on loan is shown as a footnote on the Statement of Assets and Liabilities. 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. GLOBAL HEALTH CARE 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. L. 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. 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 Invesco Aim Advisors, Inc. (the "Advisor" or "Invesco Aim"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Advisor based on the annual rate of the Fund's average daily net assets as follows:
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% ___________________________________________________________________ ===================================================================
Under the terms of a master sub-advisory agreement approved by shareholders of the Fund on February 29, 2008, effective May 1, 2008, between the Advisor and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Global Asset Management (N.A.), Inc., Invesco Hong Kong Limited, Invesco Institutional (N.A.), Inc., Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd., (collectively, the "Affiliated Sub-Advisors") the Advisor, not the Fund, may pay 40% of the fees paid to the Advisor to any such Affiliated Sub- Advisor(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Advisor(s). The Advisor 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, 2010. 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 Invesco Ltd. ("Invesco") 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. To the extent that the annualized expense ratio does not exceed the expense limitation, the Advisor will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year. The Advisor did not waive fees and/or reimburse expenses during the period under this expense limitation. Further, the Advisor has contractually agreed, through at least April 30, 2010, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Advisor receives from the affiliated money market funds on investments by the Fund of uninvested cash (but not cash collateral from securities lending) in such affiliated money market funds. For the six months ended June 30, 2008, the Advisor waived advisory fees of $6,363. At the request of the Trustees of the Trust, Invesco agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the six months ended June 30, 2008, Invesco did not reimburse any expenses. The Trust has entered into a master administrative services agreement with Invesco Aim pursuant to which the Fund has agreed to pay Invesco Aim a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco Aim for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants' accounts. Pursuant to such agreement, for the six months ended June 30, 2008, Invesco Aim was paid $29,904 for accounting and fund administrative services and reimbursed $270,354 for services provided by insurance companies. AIM V.I. GLOBAL HEALTH CARE FUND The Trust has entered into a transfer agency and service agreement with Invesco Aim Investment Services, Inc. ("IAIS") pursuant to which the Fund has agreed to pay IAIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IAIS for certain expenses incurred by IAIS in the course of providing such services. For the six months ended June 30, 2008, 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 Invesco Aim Distributors, Inc. ("IADI") 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 IADI 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 six months ended June 30, 2008, expenses incurred under the Plan are detailed in the Statement of Operations as distribution fees. Certain officers and trustees of the Trust are officers and directors of Invesco Aim, IAIS and/or IADI. NOTE 3--SUPPLEMENTAL INFORMATION The Fund adopted the provisions of Statement of Financial Accounting Standards No. 157, "Fair Value Measurements" (SFAS 157), effective with the beginning of the Fund's fiscal year. SFAS 157 establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (level 1) and the lowest priority to unobservable inputs (level 3) market prices are not readily available or are unreliable. Based on the inputs the securities or other instruments are tiered into three levels of hierarchy under SFAS 157. Changes in valuation methods may result in transfers in or out of an investment's assigned level within the hierarchy, Level 1 -- Quoted prices in an active market for identical assets. Level 2 -- Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk and others. Level 3 -- Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund's own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. Below is a summary of the tiered input levels, as of the end of the reporting period, June 30, 2008. The inputs or methods used for valuing securities may not be an indication of the risk associated with investing in those securities.
INVESTMENTS IN OTHER INPUT LEVEL SECURITIES INVESTMENTS* - ------------------------------------------------------- Level 1 $204,902,627 $(296,065) - ------------------------------------------------------- Level 2 27,621,128 -- - ------------------------------------------------------- Level 3 -- -- ======================================================= $232,523,755 $(296,065) _______________________________________________________ =======================================================
* Other investments include foreign currency contracts, which are included at unrealized appreciation/(depreciation). NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS The Fund is permitted to purchase or sell securities from or to certain other AIM Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment advisor (or affiliated investment advisors), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the six months ended June 30, 2008, the Fund engaged in securities sales of $18,721, which resulted in net realized gains of $4,604, and securities purchases of $677,870. 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 certain Trustees and Officers of the Fund. 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, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund. During the six months ended June 30, 2008, the Fund paid legal fees of $1,783 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. GLOBAL HEALTH CARE FUND NOTE 6--CASH BALANCES The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The State Street Bank and Trust Company ("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 Invesco Aim, not to exceed the contractually agreed upon rate. NOTE 7--FOREIGN CURRENCY CONTRACTS
OPEN FOREIGN CURRENCY CONTRACTS AT PERIOD END - --------------------------------------------------------------------------------------------------------------------------- CONTRACT TO UNREALIZED SETTLEMENT ----------------------------------- VALUE APPRECIATION DATE DELIVER RECEIVE 06/30/08 (DEPRECIATION) - --------------------------------------------------------------------------------------------------------------------------- 08/08/08 CHF 5,400,000 USD 5,163,264 $5,289,556 $(126,292) - --------------------------------------------------------------------------------------------------------------------------- 08/08/08 EUR 5,900,000 USD 9,130,840 9,270,157 (139,317) - --------------------------------------------------------------------------------------------------------------------------- 08/08/08 GBP 1,250,000 USD 2,451,625 2,482,081 (30,456) =========================================================================================================================== Total open foreign currency contracts $(296,065) ___________________________________________________________________________________________________________________________ ===========================================================================================================================
Currency Abbreviations: CHF - Swiss Franc EUR - Euro GBP - British Pound Sterling USD - U.S. Dollar
NOTE 8--TAX INFORMATION The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund's fiscal year-end. The Fund did not have a capital loss carryforward as of December 31, 2007: 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 six months ended June 30, 2008 was $75,438,009 and $86,604,066, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period end.
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS - ------------------------------------------------------------------------------------------------ Aggregate unrealized appreciation of investment securities $ 15,286,869 - ------------------------------------------------------------------------------------------------ Aggregate unrealized (depreciation) of investment securities (26,076,628) ================================================================================================ Net unrealized appreciation (depreciation) of investment securities $(10,789,759) ________________________________________________________________________________________________ ================================================================================================ Cost of investments for tax purposes is $243,313,514.
AIM V.I. GLOBAL HEALTH CARE FUND NOTE 10--SHARE INFORMATION
CHANGES IN SHARES OUTSTANDING - ------------------------------------------------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED JUNE 30, 2008(a) DECEMBER 31, 2007 --------------------------- ---------------------------- SHARES AMOUNT SHARES AMOUNT - ------------------------------------------------------------------------------------------------------------------------- Sold: Series I 717,931 $ 16,339,563 1,565,542 $ 36,237,613 - ------------------------------------------------------------------------------------------------------------------------- Series II 233,158 5,293,779 2,076,812 46,171,584 ========================================================================================================================= Reacquired: Series I (1,737,778) (38,906,831) (3,226,676) (73,614,398) - ------------------------------------------------------------------------------------------------------------------------- Series II (77,581) (1,704,468) (5,774,963) (131,849,483) ========================================================================================================================= (864,270) $(18,977,957) (5,359,285) $(123,054,684) _________________________________________________________________________________________________________________________ =========================================================================================================================
(a) There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 70% of the outstanding shares of the Fund. The Fund and the Fund's principal underwriter or advisor, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco Aim and/or Invesco Aim affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco Aim and or Invesco 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 March 2008, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities. The standard is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity's financial position and financial performance. It is effective for financial statements issued for fiscal years beginning after November 15, 2008. Management is currently in the process of determining the impact of the standard on the Fund's disclosures in the financial statements. AIM V.I. GLOBAL HEALTH CARE FUND NOTE 12--FINANCIAL HIGHLIGHTS The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
SERIES I --------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ------------------------------------------------------------ 2008 2007 2006 2005 2004 2003 - ------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 24.06 $ 21.51 $ 20.44 $ 18.90 $ 17.57 $ 13.75 - ------------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) 0.02 (0.01)(a) (0.04)(a) (0.06) (0.03) (0.03) - ------------------------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) (2.28) 2.56 1.11 1.60 1.36 3.85 =============================================================================================================================== Total from investment operations (2.26) 2.55 1.07 1.54 1.33 3.82 =============================================================================================================================== Net asset value, end of period $ 21.80 $ 24.06 $ 21.51 $ 20.44 $ 18.90 $ 17.57 _______________________________________________________________________________________________________________________________ =============================================================================================================================== Total return(b) (9.39)% 11.85% 5.24% 8.15% 7.57% 27.78% _______________________________________________________________________________________________________________________________ =============================================================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $180,241 $223,448 $235,509 $257,736 $354,889 $340,711 _______________________________________________________________________________________________________________________________ =============================================================================================================================== Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 1.11%(c) 1.06% 1.10% 1.08% 1.11% 1.07% - ------------------------------------------------------------------------------------------------------------------------------- Without fee waivers and/or expense reimbursements 1.12%(c) 1.07% 1.10% 1.09% 1.11% 1.07% =============================================================================================================================== Ratio of net investment income (loss) to average net assets 0.21%(c) (0.06)% (0.19)% (0.24)% (0.17)% (0.20)% _______________________________________________________________________________________________________________________________ =============================================================================================================================== Portfolio turnover rate(d) 36% 66% 79% 82% 175% 114% _______________________________________________________________________________________________________________________________ ===============================================================================================================================
(a) Calculated using average shares outstanding. (b) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. (c) Ratios are annualized and based on average daily net assets of $195,151,539. (d) Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year.
SERIES II ------------------------------------------------------------------------------ APRIL 30, 2004, SIX MONTHS ENDED YEAR ENDED DECEMBER 31, (COMMENCEMENT DATE) TO JUNE 30, ------------------------------ DECEMBER 31, 2008 2007 2006 2005 2004 - -------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 23.82 $ 21.36 $ 20.34 $18.86 $18.19 - -------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) (0.00) (0.07)(a) (0.09)(a) (0.09) (0.05) - -------------------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) (2.26) 2.53 1.11 1.57 0.72 ========================================================================================================================== Total from investment operations (2.26) 2.46 1.02 1.48 0.67 ========================================================================================================================== Net asset value, end of period $ 21.56 $ 23.82 $ 21.36 $20.34 $18.86 __________________________________________________________________________________________________________________________ ========================================================================================================================== Total return(b) (9.49)% 11.52% 5.01% 7.85% 3.68% __________________________________________________________________________________________________________________________ ========================================================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $22,194 $20,817 $97,646 $ 11 $ 10 __________________________________________________________________________________________________________________________ ========================================================================================================================== Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 1.36%(c) 1.31% 1.35% 1.33% 1.36%(d) - -------------------------------------------------------------------------------------------------------------------------- Without fee waivers and/or expense reimbursements 1.37%(c) 1.32% 1.35% 1.34% 1.36%(d) ========================================================================================================================== Ratio of net investment income (loss) to average net assets (0.04)%(c) (0.31)% (0.44)% (0.49)% (0.42)%(d) __________________________________________________________________________________________________________________________ ========================================================================================================================== Portfolio turnover rate(e) 36% 66% 79% 82% 175% __________________________________________________________________________________________________________________________ ==========================================================================================================================
(a) Calculated using average shares outstanding. (b) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. (c) Ratios are annualized and based on average daily net assets of $22,832,779. (d) Annualized. (e) Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year. AIM V.I. GLOBAL HEALTH CARE FUND NOTE 12--FINANCIAL HIGHLIGHTS--(CONTINUED) NOTE 13--LEGAL PROCEEDINGS Terms used in the Legal Proceedings Note are defined terms solely for the purpose of this note. 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 Invesco Aim and IADI (Order No. 05- 1318). The WVASC makes findings of fact that Invesco Aim and IADI 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 Invesco Aim and IADI violated the West Virginia securities laws. The WVASC orders Invesco Aim and IADI 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. By agreement with the Commissioner of Securities, Invesco Aim's time to respond to that Order has been indefinitely suspended. Civil lawsuits, including purported class action and shareholder derivative suits, have been filed against certain of the AIM Funds, Invesco Funds Group, Inc. ("IFG"), Invesco Aim, IADI 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; and - that certain AIM Funds inadequately employed fair value pricing. These lawsuits allege as theories of recovery, depending on the lawsuit, violations of various provisions of the Federal and state securities laws Employee Retirement Income Security Act of 1974, as amended ("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. The case pending in Illinois State Court regarding fair value pricing was dismissed with prejudice on May 6, 2008. 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 Invesco 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 ERISA purportedly brought on behalf of participants in the Invesco 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 Invesco defendants' motion to dismiss the Amended Class Action Complaint for Violations of ERISA and dismissed such Complaint. Plaintiff appealed this ruling. On June 16, 2008, the Fourth Court of Appeals reversed the dismissal and remanded this lawsuit back to the MDL Court for further proceedings.. IFG, Invesco Aim, IADI 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, Invesco Aim and IADI 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, Invesco Aim and/or related entities and individuals in the future. At the present time, management of Invesco 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 Invesco Aim, IADI or the Fund. AIM V.I. GLOBAL HEALTH CARE FUND CALCULATING YOUR ONGOING FUND EXPENSES EXAMPLE As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2008, through June 30, 2008. The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower. ACTUAL EXPENSES The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled "Actual Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
- --------------------------------------------------------------------------------------------------- HYPOTHETICAL (5% ANNUAL RETURN BEFORE ACTUAL EXPENSES) ------------------------------------------------------ BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE CLASS (01/01/08) (06/30/08)(1) PERIOD(2) (06/30/08) PERIOD(2) RATIO - --------------------------------------------------------------------------------------------------- Series I $1,000.00 $906.10 $5.26 $1,019.34 $5.57 1.11% - --------------------------------------------------------------------------------------------------- Series II 1,000.00 904.70 6.44 1,018.10 6.82 1.36 - ---------------------------------------------------------------------------------------------------
(1) The actual ending account value is based on the actual total return of the Fund for the period January 1, 2008, through June 30, 2008, 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 182/366 to reflect the most recent fiscal half year. AIM V.I. GLOBAL HEALTH CARE FUND APPROVAL OF INVESTMENT ADVISORY AGREEMENT The Board of Trustees (the Board) of AIM renewal process, the Trustees receive from one another and attributed different Variable Insurance Funds is required under comparative performance and fee data weight to the various factors. The the Investment Company Act of 1940 to regarding the AIM Funds prepared by an Trustees recognized that the advisory approve annually the renewal of the AIM independent company, Lipper, Inc. arrangements and resulting advisory fees V.I. Global Health Care Fund (the Fund) (Lipper), under the direction and for the Fund and the other AIM Funds are investment advisory agreement with Invesco supervision of the independent Senior the result of years of review and Aim Advisors, Inc. (Invesco Aim). During Officer who also prepares a separate negotiation between the Trustees and contract renewal meetings held on June analysis of this information for the Invesco Aim, that the Trustees may focus 18-19, 2008, the Board as a whole and the Trustees. Each Sub-Committee then makes to a greater extent on certain aspects of disinterested or "independent" Trustees, recommendations to the Investments these arrangements in some years than in voting separately, approved the Committee regarding the performance, fees others, and that the Trustees' continuance of the Fund's investment and expenses of their assigned funds. The deliberations and conclusions in a advisory agreement for another year, Investments Committee considers each particular year may be based in part on effective July 1, 2008. In doing so, the Sub-Committee's recommendations and makes their deliberations and conclusions of Board determined that the Fund's its own recommendations regarding the these same arrangements throughout the investment advisory agreement is in the performance, fees and expenses of the AIM year and in prior years. best interests of the Fund and its Funds to the full Board. The Investments shareholders and that the compensation to Committee also considers each FACTORS AND CONCLUSIONS AND SUMMARY OF Invesco Aim under the Fund's investment Sub-Committee's recommendations in making INDEPENDENT WRITTEN FEE EVALUATION advisory agreement is fair and reasonable. its annual recommendation to the Board whether to approve the continuance of each The discussion below serves as a summary The independent Trustees met separately Invesco Aim Fund's investment advisory of the Senior Officer's independent during their evaluation of the Fund's agreement and sub-advisory agreements for written evaluation with respect to the investment advisory agreement with another year. Fund's investment advisory agreement as independent legal counsel from whom they well as a discussion of the material received independent legal advice, and the The independent Trustees are assisted factors and related conclusions that independent Trustees also received in their annual evaluation of the Fund's formed the basis for the Board's approval assistance during their deliberations from investment advisory agreement by the of the Fund's investment advisory the independent Senior Officer, a independent Senior Officer. One agreement and sub-advisory agreements. full-time officer of the AIM Funds who responsibility of the Senior Officer is to Unless otherwise stated, information set reports directly to the independent manage the process by which the AIM Funds' forth below is as of June 19, 2008 and Trustees. proposed management fees are negotiated does not reflect any changes that may have during the annual contract renewal process occurred since that date, including but THE BOARD'S FUND EVALUATION PROCESS to ensure that they are negotiated in a not limited to changes to the Fund's manner that is at arms' length and performance, advisory fees, expense The Board's Investments Committee has reasonable. Accordingly, the Senior limitations and/or fee waivers. established three Sub-Committees that are Officer must either supervise a responsible for overseeing the management competitive bidding process or prepare an I. Investment Advisory Agreement of a number of the series portfolios of independent written evaluation. The Senior the AIM Funds. This Sub-Committee Officer has recommended that an A. Nature, Extent and Quality of structure permits the Trustees to focus on independent written evaluation be provided Services Provided by Invesco Aim the performance of the AIM Funds that have and, at the direction of the Board, has been assigned to them. The Sub-Committees prepared an independent written The Board reviewed the advisory services meet throughout the year to review the evaluation. provided to the Fund by Invesco Aim under performance of their assigned funds, and the Fund's investment advisory agreement, the Sub-Committees review monthly and During the annual contract renewal the performance of Invesco Aim in quarterly comparative performance process, the Board considered the factors providing these services, and the information and periodic asset flow data discussed below under the heading "Factors credentials and experience of the officers for their assigned funds. These materials and Conclusions and Summary of Independent and employees of Invesco Aim who provide are prepared under the direction and Written Fee Evaluation" in evaluating the these services. The Board's review of the supervision of the independent Senior fairness and reasonableness of the Fund's qualifications of Invesco Aim to provide Officer. Over the course of each year, the investment advisory agreement and these services included the Board's Sub-Committees meet with portfolio sub-advisory agreements at the contract consideration of Invesco Aim's portfolio managers for their assigned funds and renewal meetings and at their meetings and product review process, various back other members of management and review throughout the year as part of their office support functions provided by with these individuals the performance, ongoing oversight of the Fund. The Fund's Invesco Aim and its affiliates, and investment objective(s), policies, investment advisory agreement and Invesco Aim's equity and fixed income strategies and limitations of these funds. sub-advisory agreements were considered trading operations. The Board concluded separately, although the Board also that the nature, extent and quality of the In addition to their meetings considered the common interests of all of advisory services provided to the Fund by throughout the year, the Sub-Committees the AIM Funds in their deliberations. The Invesco Aim were appropriate and that meet at designated contract renewal Board considered all of the information Invesco Aim currently is providing meetings each year to conduct an in-depth provided to them and did not identify any satisfactory advisory services in review of the performance, fees and particular factor that was controlling. accordance with the terms of the Fund's expenses of their assigned funds. During Each Trustee may have evaluated the investment advisory agreement. In the contract information provided differently addition, based on their ongoing meetings throughout the year with the Fund's portfolio manager or continued
AIM V.I. GLOBAL HEALTH CARE FUND managers, the Board concluded that these to be responsive to the Board's focus on economies of scale through contractual individuals are competent and able to fund performance. Although the independent breakpoints in the Fund's advisory fee continue to carry out their written evaluation of the Fund's Senior schedule or through advisory fee waivers responsibilities under the Fund's Officer only considered Fund performance or expense limitations. The Board noted investment advisory agreement. through the most recent calendar year, the that the Fund's contractual advisory fee Board also reviewed more recent Fund schedule currently includes seven In determining whether to continue the performance and this review did not change breakpoints and that the level of the Fund's investment advisory agreement, the their conclusions. Fund's advisory fees, as a percentage of Board considered the prior relationship the Fund's net assets, has decreased as between Invesco Aim and the Fund, as well C. Advisory Fees and Fee Waivers net assets increased because of the as the Board's knowledge of Invesco Aim's breakpoints. Based on this information, operations, and concluded that it was The Board compared the Fund's contractual the Board concluded that the Fund's beneficial to maintain the current advisory fee rate to the contractual advisory fees appropriately reflect relationship, in part, because of such advisory fee rates of funds in the Fund's economies of scale at current asset knowledge. The Board also considered the Lipper expense group that are not managed levels. The Board also noted that the Fund steps that Invesco Aim and its affiliates by Invesco Aim, at a common asset level shares directly in economies of scale have taken over the last several years to and as of the end of the past calendar through lower fees charged by third party improve the quality and efficiency of the year. The Board noted that the Fund's service providers based on the combined services they provide to the AIM Funds in contractual advisory fee rate was below size of all of the AIM Funds and the areas of investment performance, the median contractual advisory fee rate affiliates. product line diversification, of funds in its expense group. The Board distribution, fund operations, shareholder also reviewed the methodology used by E. Profitability and Financial services and compliance. The Board Lipper in determining contractual fee Resources of Invesco Aim concluded that the quality and efficiency rates. of the services Invesco Aim and its The Board reviewed information from affiliates provide to the AIM Funds in The Board also compared the Fund's Invesco Aim concerning the costs of the each of these areas generally have effective fee rate (the advisory fee after advisory and other services that Invesco improved, and support the Board's approval any advisory fee waivers and before any Aim and its affiliates provide to the Fund of the continuance of the Fund's expense limitations/waivers) to the and the profitability of Invesco Aim and investment advisory agreement. advisory fee rates of other clients of its affiliates in providing these Invesco Aim and its affiliates with services. The Board also reviewed B. Fund Performance investment strategies comparable to those information concerning the financial of the Fund, including one mutual fund condition of Invesco Aim and its The Board compared the Fund's performance advised by Invesco Aim and one mutual affiliates. The Board also reviewed with during the past one, three and five funds sub-advised by an Invesco Aim Invesco Aim the methodology used to calendar years to the performance of funds affiliate. The Board noted that the Fund's prepare the profitability information. The in the Fund's performance group that are rate was: (i) above the rate for the Board considered the overall profitability not managed by Invesco Aim, and against mutual fund; and (ii) above the of Invesco Aim, as well as the the performance of all funds in the Lipper sub-advisory fee rate for the sub-advised profitability of Invesco Aim in connection Variable Annuity Underlying Funds -- mutual fund. with managing the Fund. The Board noted Health/Biotechnology Index. The Board also that Invesco Aim continues to operate at a reviewed the criteria used by Invesco Aim The Board noted that Invesco Aim has net profit, although increased expenses in to identify the funds in the Fund's contractually agreed to waive fees and/or recent years have reduced the performance group for inclusion in the limit expenses of the Fund through at profitability of Invesco Aim and its Lipper reports. The Board noted that the least April 30, 2010 in an amount affiliates. The Board concluded that the Fund's performance was in the third necessary to limit total annual operating Fund's fees were fair and reasonable, and quintile of its performance group for the expenses to a specified percentage of that the level of profits realized by one year period, and the fifth quintile average daily net assets for each class of Invesco Aim and its affiliates from for the three and five year periods (the the Fund. The Board considered the providing services to the Fund was not first quintile being the best performing contractual nature of this fee waiver and excessive in light of the nature, quality funds and the fifth quintile being the noted that it remains in effect until at and extent of the services provided. The worst performing funds). The Board noted least April 30, 2010. The Board also Board considered whether Invesco Aim is that the Fund's performance was below the considered the effect this expense financially sound and has the resources performance of the Index for the one, limitation would have on the Fund's necessary to perform its obligations under three, and five year periods. The Board estimated total expenses. the Fund's investment advisory agreement, noted that Invesco Aim made changes to the and concluded that Invesco Aim has the Fund's portfolio management team in 2005 After taking account of the Fund's financial resources necessary to fulfill and 2006, which appear to be producing contractual advisory fee rate, as well as these obligations. encouraging results, but Invesco Aim will the comparative advisory fee information continue to monitor the Fund. The Board and the expense limitation discussed F. Independent Written Evaluation of also considered the steps Invesco Aim has above, the Board concluded that the Fund's the Fund's Senior Officer taken over the last several years to advisory fees were fair and reasonable. improve the quality and efficiency of the The Board noted that, at their direction, services that Invesco Aim provides to the D. Economies of Scale and Breakpoints the Senior Officer of the Fund, who is AIM Funds. The Board concluded that independent of Invesco Aim and Invesco Invesco Aim continues The Board considered the extent to which Aim's affiliates, had prepared an there are economies of scale in Invesco independent written evaluation to assist Aim's provision of advisory services to the Board in determining the the Fund. The Board also considered reasonableness whether the Fund benefits from such continued
AIM V.I. GLOBAL HEALTH CARE FUND of the proposed management fees of the AIM funds advised by Invesco Aim pursuant to B. Fund Performance Funds, including the Fund. The Board noted procedures approved by the Board. The that they had relied upon the Senior Board noted that Invesco Aim will receive The Board did not view Fund performance as Officer's written evaluation instead of a advisory fees from these affiliated money a relevant factor in considering whether competitive bidding process. In market funds attributable to such to approve the sub-advisory agreements for determining whether to continue the Fund's investments, although Invesco Aim has the Fund, as no Affiliated Sub-Adviser investment advisory agreement, the Board contractually agreed to waive through at currently manages any portion of the considered the Senior Officer's written least April 30, 2010, the advisory fees Fund's assets. evaluation. payable by the Fund in an amount equal to 100% of the net advisory fees Invesco Aim C. Sub-Advisory Fees G. Collateral Benefits to Invesco Aim receives from the affiliated money market and its Affiliates funds with respect to the Fund's The Board considered the services to be investment of uninvested cash, but not provided by the Affiliated Sub-Advisers The Board considered various other cash collateral. The Board considered the pursuant to the sub-advisory agreements benefits received by Invesco Aim and its contractual nature of this fee waiver and and the services to be provided by Invesco affiliates resulting from Invesco Aim's noted that it remains in effect until at Aim pursuant to the Fund's investment relationship with the Fund, including the least April 30, 2010. The Board concluded advisory agreement, as well as the fees received by Invesco Aim and its that the Fund's investment of uninvested allocation of fees between Invesco Aim and affiliates for their provision of cash and cash collateral from any the Affiliated Sub-Advisers pursuant to administrative, transfer agency and securities lending arrangements in the the sub-advisory agreements. The Board distribution services to the Fund. The affiliated money market funds is in the noted that the sub-advisory fees have no Board considered the performance of best interests of the Fund and its direct effect on the Fund or its Invesco Aim and its affiliates in shareholders. shareholders, as they are paid by Invesco providing these services and the Aim to the Affiliated Sub-Advisers, and organizational structure employed by II. Sub-Advisory Agreements that Invesco Aim and the Affiliated Invesco Aim and its affiliates to provide Sub-Advisers are affiliates. After taking these services. The Board also considered A. Nature, Extent and Quality of account of the Fund's contractual that these services are provided to the Services Provided by Affiliated sub-advisory fee rate, as well as other Fund pursuant to written contracts which Sub-Advisers relevant factors, the Board concluded that are reviewed and approved on an annual the Fund's sub-advisory fees were fair and basis by the Board. The Board concluded The Board reviewed the services to be reasonable. that Invesco Aim and its affiliates were provided by Invesco Trimark Ltd., Invesco providing these services in a satisfactory Asset Management Deutschland, GmbH, D. Financial Resources of the manner and in accordance with the terms of Invesco Asset Management Limited, Invesco Affiliated Sub-Advisers their contracts, and were qualified to Asset Management (Japan) Limited, Invesco continue to provide these services to the Australia Limited, Invesco Global Asset The Board considered whether each Fund. Management (N.A.), Inc., Invesco Hong Kong Affiliated Sub-Adviser is financially Limited, Invesco Institutional (N.A.), sound and has the resources necessary to The Board considered the benefits Inc. and Invesco Senior Secured perform its obligations under its realized by Invesco Aim as a result of Management, Inc. (collectively, the respective sub-advisory agreement, and portfolio brokerage transactions executed "Affiliated Sub-Advisers") under the concluded that each Affiliated Sub-Adviser through "soft dollar" arrangements. Under sub-advisory agreements and the has the financial resources necessary to these arrangements, portfolio brokerage credentials and experience of the officers fulfill these obligations. commissions paid by the Fund and/or other and employees of the Affiliated funds advised by Invesco Aim are used to Sub-Advisers who will provide these pay for research and execution services. services. The Board concluded that the The Board noted that soft dollar nature, extent and quality of the services arrangements shift the payment obligation to be provided by the Affiliated for the research and execution services Sub-Advisers were appropriate. The Board from Invesco Aim to the funds and noted that the Affiliated Sub-Advisers, therefore may reduce Invesco Aim's which have offices and personnel that are expenses. The Board also noted that geographically dispersed in financial research obtained through soft dollar centers around the world, have been formed arrangements may be used by Invesco Aim in in part for the purpose of researching and making investment decisions for the Fund compiling information and making and may therefore benefit Fund recommendations on the markets and shareholders. The Board concluded that economies of various countries and Invesco Aim's soft dollar arrangements securities of companies located in such were appropriate. The Board also concluded countries or on various types of that, based on their review and investments and investment techniques, and representations made by Invesco Aim, these providing investment advisory services. arrangements were consistent with The Board concluded that the sub-advisory regulatory requirements. agreements will benefit the Fund and its shareholders by permitting Invesco Aim to The Board considered the fact that the utilize the additional resources and Fund's uninvested cash and cash collateral talent of the Affiliated Sub-Advisers in from any securities lending arrangements managing the Fund. may be invested in money market
AIM V.I. GLOBAL HEALTH CARE FUND PROXY RESULTS A Special Meeting ("Meeting") of Shareholders of AIM V.I. Global Health Care Fund, an investment portfolio of AIM Variable Insurance Funds, a Delaware statutory trust ("Trust"), was held on February 29, 2008. The Meeting was held for the following purposes: (1) Elect 13 trustees to the Board of Trustees of the Trust, each of whom will serve until his or her successor is elected and qualified. (2) Approve an amendment to the Trust's Agreement and Declaration of Trust that would permit the Board of Trustees of the Trust to terminate the Trust, the Fund, and each other series portfolio of the Trust, or a share class without a shareholder vote. (3) Approve a new sub-advisory agreement between Invesco Aim Advisors, Inc. and each of AIM Funds Management, Inc.; Invesco Asset Management Deutschland, GmbH; Invesco Asset Management Limited; Invesco Asset Management (Japan) Limited; Invesco Australia Limited; Invesco Global Asset Management (N.A.), Inc.; Invesco Hong Kong Limited; Invesco Institutional (N.A.), Inc.; and Invesco Senior Secured Management, Inc. (4)(a) Approve modification of fundamental restriction on issuer diversification. (4)(b) Approve modification of fundamental restrictions on issuing senior securities and borrowing money. (4)(c) Approve modification of fundamental restrictions on underwriting securities. (4)(d) Approve modification of fundamental restrictions on industry concentration. (4)(e) Approve modification of fundamental restrictions on real estate investments. (4)(f) Approve modification of fundamental restrictions on purchasing or selling commodities. (4)(g) Approve modification of fundamental restrictions on making loans. (4)(h) Approve modification of fundamental restrictions on investment in investment companies. (5) Approve making the investment objective of the fund non-fundamental. The results of the voting on the above matters were as follows:
WITHHELD/ MATTERS VOTES FOR ABSTENTIONS** - ------------------------------------------------------------------------------------------------------------ (1)* Bob R. Baker.................................................... 474,883,590 19,741,622 Frank S. Bayley................................................. 474,653,109 19,972,103 James T. Bunch.................................................. 475,597,417 19,027,795 Bruce L. Crockett............................................... 474,900,579 19,724,633 Albert R. Dowden................................................ 474,749,929 19,875,283 Jack M. Fields.................................................. 475,205,840 19,419,372 Martin L. Flanagan.............................................. 475,248,336 19,376,876 Carl Frischling................................................. 474,453,674 20,171,538 Prema Mathai-Davis.............................................. 473,569,192 21,056,020 Lewis F. Pennock................................................ 475,072,501 19,552,711 Larry Soll, Ph.D................................................ 475,170,544 19,454,668 Raymond Stickel, Jr............................................. 475,420,825 19,204,387 Philip A. Taylor ............................................... 475,640,570 18,984,642
VOTES WITHHELD/ VOTES FOR AGAINST ABSTENTIONS - -------------------------------------------------------------------------------------------------------------------- (2)* Approve an amendment to the Trust's Agreement and Declaration of Trust that would permit the Board of Trustees of the Trust to terminate the Trust, the Fund, and each other series portfolio of the Trust, or a share class without a shareholder vote........................ 438,131,484 35,586,925 20,906,803 (3) Approve a new sub-advisory agreement between Invesco Aim Advisors, Inc. and each of AIM Funds Management, Inc.; Invesco Asset Management Deutschland, GmbH; Invesco Asset Management Limited; Invesco Asset Management (Japan) Limited; Invesco Australia Limited; Invesco Global Asset Management (N.A.), Inc.; Invesco Hong Kong Limited; Invesco Institutional (N.A.), Inc.; and Invesco Senior Secured Management, Inc.......................... 8,360,968 260,347 474,554 (4)(a) Approve modification of fundamental restriction on issuer diversification.................................. 8,416,124 292,765 386,980 (4)(b) Approve modification of fundamental restrictions on issuing senior securities and borrowing money........... 8,346,334 362,695 386,840 (4)(c) Approve modification of fundamental restriction on underwriting securities................................. 8,326,407 382,482 386,980 (4)(d) Approve modification of fundamental restriction on industry concentration.................................. 8,405,530 302,410 387,929 (4)(e) Approve modification of fundamental restriction on real estate investments...................................... 8,414,449 297,665 383,755 (4)(f) Approve modification of fundamental restriction on purchasing or selling commodities....................... 8,360,483 348,546 386,840 (4)(g) Approve modification of fundamental restriction on making loans............................................ 8,379,001 326,380 390,488 (4)(h) Approve modification of fundamental restriction on investment in investment companies...................... 8,410,057 295,324 390,488 (5) Approve making the investment objective of the fund non- fundamental............................................. 8,158,276 402,148 535,445
* Proposals 1 and 2 required approval by a combined vote of all of the portfolios of AIM Variable Insurance Funds. ** Includes Broker Non-Votes. AIM V.I. GLOBAL HEALTH CARE FUND [INVESCO AIM LOGO] AIM V.I. GLOBAL REAL ESTATE FUND - SERVICE MARK - Semiannual Report to Shareholders - June 30, 2008 AIM Investments [MOUNTAIN GRAPHIC] became INVESCO AIM on March 31, 2008. For more details, go to invescoaim.com 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 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 Invesco Aim Web site, invescoaim.com. On the home page, scroll down and click on 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, 2008, is available at our Web site. Go to invescoaim.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 noted, all data provided by Invesco Aim. THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND PROSPECTUS AND VARIABLE PRODUCT PROSPECTUS, WHICH CONTAIN MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ EACH CAREFULLY BEFORE INVESTING. Invesco Aim Distributors, Inc. NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE FUND PERFORMANCE ======================================================================================= PERFORMANCE SUMMARY FUND VS. INDEXES Cumulative total returns, 12/31/07 to 6/30/08, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower. Series I Shares -14.31% Series II Shares -14.40 MSCI World Index(TRIANGLE) (Broad Market Index) -10.57 FTSE EPRA/NAREIT Global Real Estate Index(BOX) (Style-Specific Index) -13.71 Lipper VUF Real Estate Funds Category Average(TRIANGLE) (Peer Group) -6.27 (TRIANGLE)Lipper Inc.; (BOX)Invesco Aim, Bloomberg L.P. The MSCI WORLD INDEX--SERVICE MARK-- is a free float-adjusted market capitalization index that is designed to measure global developed market equity performance. The FTSE EPRA/NAREIT GLOBAL REAL ESTATE INDEX is designed to track the performance of listed real estate companies and REITs worldwide. It is compiled by FTSE Group (an independent company, originally a joint venture of the Financial Times and the London Stock Exchange, whose sole business is the creation and management of indexes and associated data services); NAREIT and EPRA. THE LIPPER VUF REAL ESTATE FUNDS CATEGORY AVERAGE represents an average of all of the variable insurance underlying funds in the Lipper Real Estate Funds category. These funds invest at least 65% of their portfolio in equity securities of domestic and foreign companies engaged in the real estate industry. Compared to the S&P/Citigroup World ex-U.S. BMI. The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes. A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of an index of funds reflects fund expenses; performance of a market index does not. ======================================================================================= ========================================== AVERAGE ANNUAL TOTAL RETURNS THE PERFORMANCE DATA QUOTED REPRESENT THROUGH INSURANCE COMPANIES ISSUING As of 6/30/08 PAST PERFORMANCE AND CANNOT GUARANTEE VARIABLE PRODUCTS. YOU CANNOT PURCHASE COMPARABLE FUTURE RESULTS; CURRENT SHARES OF THE FUND DIRECTLY. PERFORMANCE SERIES I SHARES PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE FIGURES GIVEN REPRESENT THE FUND AND ARE Inception (3/31/98) 10.82% CONTACT YOUR VARIABLE PRODUCT ISSUER OR NOT INTENDED TO REFLECT ACTUAL VARIABLE 10 Years 11.67 FINANCIAL ADVISOR FOR THE MOST RECENT PRODUCT VALUES. THEY DO NOT REFLECT SALES 5 Years 16.73 MONTH-END VARIABLE PRODUCT PERFORMANCE. CHARGES, EXPENSES AND FEES ASSESSED IN 1 Year -18.26 PERFORMANCE FIGURES REFLECT FUND EXPENSES, CONNECTION WITH A VARIABLE PRODUCT. SALES REINVESTED DISTRIBUTIONS AND CHANGES IN CHARGES, EXPENSES AND FEES, WHICH ARE SERIES II SHARES NET ASSET VALUE. INVESTMENT RETURN AND DETERMINED BY THE VARIABLE PRODUCT 10 Years 11.41% PRINCIPAL VALUE WILL FLUCTUATE SO THAT YOU ISSUERS, WILL VARY AND WILL LOWER THE 5 Years 16.46 MAY HAVE A GAIN OR LOSS WHEN YOU SELL TOTAL RETURN. 1 Year -18.42 SHARES. THE MOST RECENT MONTH-END PERFORMANCE ========================================== THE TOTAL ANNUAL FUND OPERATING EXPENSE DATA AT THE FUND LEVEL, EXCLUDING VARIABLE RATIO SET FORTH IN THE MOST RECENT FUND PRODUCT CHARGES, IS AVAILABLE ON THE SERIES II SHARES' INCEPTION DATE IS APRIL PROSPECTUS AS OF THE DATE OF THIS REPORT INVESCO AIM AUTOMATED INFORMATION LINE, 30, 2004. RETURNS SINCE THAT DATE ARE FOR SERIES I AND SERIES II SHARES WAS 866 702 4402. AS MENTIONED ABOVE, FOR THE HISTORICAL. ALL OTHER RETURNS ARE THE 1.13% AND 1.38%, RESPECTIVELY. THE EXPENSE MOST RECENT MONTH-END PERFORMANCE BLENDED RETURNS OF THE HISTORICAL RATIOS PRESENTED ABOVE MAY VARY FROM THE INCLUDING VARIABLE PRODUCT CHARGES, PLEASE PERFORMANCE OF SERIES II SHARES SINCE EXPENSE RATIOS PRESENTED IN OTHER SECTIONS CONTACT YOUR VARIABLE PRODUCT ISSUER OR THEIR INCEPTION AND THE RESTATED OF THIS REPORT THAT ARE BASED ON EXPENSES FINANCIAL ADVISOR. HISTORICAL PERFORMANCE OF SERIES I SHARES INCURRED DURING THE PERIOD COVERED BY THIS HAD THE ADVISOR NOT WAIVED FEES AND/OR (FOR PERIODS PRIOR TO INCEPTION OF SERIES REPORT. REIMBURSED EXPENSES IN THE PAST, II SHARES) ADJUSTED TO REFLECT THE RULE AIM V.I. GLOBAL REAL ESTATE FUND, A PERFORMANCE WOULD HAVE BEEN LOWER. 12B-1 FEES APPLICABLE TO SERIES II SHARES. SERIES PORTFOLIO OF AIM VARIABLE INSURANCE THE INCEPTION DATE OF SERIES I SHARES IS FUNDS, IS CURRENTLY OFFERED MARCH 31, 1998. THE PERFORMANCE OF THE FUND'S SERIES I AND SERIES II SHARE CLASSES WILL DIFFER PRIMARILY DUE TO DIFFERENT CLASS EXPENSES.
AIM V.I. GLOBAL REAL ESTATE FUND PORTFOLIO COMPOSITION By property type, based on Net Assets, as of June 30, 2008 - ------------------------------------------------------------------------- Diversified 36.0% - ------------------------------------------------------------------------- Retail 24.0 - ------------------------------------------------------------------------- Office 13.5 - ------------------------------------------------------------------------- Residential 8.9 - ------------------------------------------------------------------------- Healthcare 5.1 - ------------------------------------------------------------------------- Industrial 4.5 - ------------------------------------------------------------------------- Lodging-Resorts 1.8 - ------------------------------------------------------------------------- Self Storage 1.8 - ------------------------------------------------------------------------- Specialty 1.5 - ------------------------------------------------------------------------- Money Market Funds Plus Other Assets Less Liabilities 2.9 _________________________________________________________________________ =========================================================================
SCHEDULE OF INVESTMENTS(a) June 30, 2008 (Unaudited)
SHARES VALUE - ------------------------------------------------------------------------------- FOREIGN COMMON STOCKS & OTHER EQUITY INTERESTS-97.13% AUSTRALIA-10.52% CFS Retail Property Trust(a) 606,800 $ 1,075,797 - ------------------------------------------------------------------------------- GPT Group(a) 1,006,400 2,141,097 - ------------------------------------------------------------------------------- Mirvac Group(a) 487,100 1,381,728 - ------------------------------------------------------------------------------- Stockland(a) 707,400 3,653,984 - ------------------------------------------------------------------------------- Westfield Group(a)(b) 412,600 6,426,158 =============================================================================== 14,678,764 =============================================================================== AUSTRIA-0.31% Conwert Immobilien Invest S.E.(c) 24,900 428,106 =============================================================================== CANADA-3.77% Boardwalk Real Estate Investment Trust 30,600 1,138,277 - ------------------------------------------------------------------------------- Cominar Real Estate Investment Trust 15,500 329,386 - ------------------------------------------------------------------------------- H&R Real Estate Investment Trust 51,400 904,362 - ------------------------------------------------------------------------------- Primaris Retail Real Estate Investment Trust 40,500 726,872 - ------------------------------------------------------------------------------- RioCan Real Estate Investment Trust 110,900 2,157,778 =============================================================================== 5,256,675 =============================================================================== CHINA-0.21% Guangzhou R&F Properties Co. Ltd.-Class H 72,000 134,262 - ------------------------------------------------------------------------------- Shimao Property Holdings Ltd. 138,000 158,401 =============================================================================== 292,663 =============================================================================== FINLAND-0.72% Citycon Oyj 197,913 1,000,249 =============================================================================== FRANCE-6.13% Gecina S.A.(b) 7,400 893,639 - ------------------------------------------------------------------------------- Klepierre(b) 20,100 1,006,845 - ------------------------------------------------------------------------------- Orco Property Group(a) 5,200 303,661 - ------------------------------------------------------------------------------- Societe Immobiliere de Location pour I'Industrie et le Commerce(b) 3,900 488,169 - ------------------------------------------------------------------------------- Unibail-Rodamco(b) 25,400 5,864,025 =============================================================================== 8,556,339 =============================================================================== HONG KONG-12.61% China Overseas Land & Investment Ltd. 952,000 1,504,192 - ------------------------------------------------------------------------------- China Overseas Land & Investment Ltd.-Wts., expiring 08/27/08(c) 57,833 8,159 - ------------------------------------------------------------------------------- China Resources Land Ltd. 159,800 221,338 - ------------------------------------------------------------------------------- Hang Lung Properties Ltd. 898,000 2,879,202 - ------------------------------------------------------------------------------- Hongkong Land Holdings Ltd. 352,000 1,492,480 - ------------------------------------------------------------------------------- Kerry Properties Ltd. 235,400 1,236,278 - ------------------------------------------------------------------------------- Link REIT (The) 885,000 2,015,775 - ------------------------------------------------------------------------------- New World Development Co., Ltd.(b) 1,042,400 2,117,430 - ------------------------------------------------------------------------------- Sino Land Co. Ltd.(b) 526,000 1,043,163 - ------------------------------------------------------------------------------- Sino-Ocean Land Holdings Ltd. 332,500 187,629 - ------------------------------------------------------------------------------- Sun Hung Kai Properties Ltd.(b) 361,000 4,887,306 =============================================================================== 17,592,952 =============================================================================== ITALY-0.38% Beni Stabili S.p.A.(a) 534,700 530,371 =============================================================================== JAPAN-12.56% AEON Mall Co., Ltd.(a)(b) 16,800 495,350 - ------------------------------------------------------------------------------- Japan Real Estate Investment Corp.(b) 158 1,670,339 - -------------------------------------------------------------------------------
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. GLOBAL REAL ESTATE FUND
SHARES VALUE - ------------------------------------------------------------------------------- JAPAN-(CONTINUED) Mitsubishi Estate Co. Ltd.(a)(b) 271,000 $6,188,166 - ------------------------------------------------------------------------------- Mitsui Fudosan Co., Ltd.(b) 246,000 5,244,814 - ------------------------------------------------------------------------------- Nippon Building Fund Inc.(b) 194 2,277,988 - ------------------------------------------------------------------------------- Nomura Real Estate Office Fund, Inc.(b) 75 562,557 - ------------------------------------------------------------------------------- NTT Urban Development Corp. 533 697,815 - ------------------------------------------------------------------------------- TOKYU REIT, Inc.(b) 47 381,146 =============================================================================== 17,518,175 =============================================================================== LUXEMBOURG-0.49% ProLogis European Properties(b) 47,900 681,981 =============================================================================== NETHERLANDS-2.14% Corio N.V.(b) 26,500 2,058,032 - ------------------------------------------------------------------------------- Plaza Centers N.V. 110,200 351,212 - ------------------------------------------------------------------------------- Wereldhave N.V.(b) 5,400 568,572 =============================================================================== 2,977,816 =============================================================================== NEW ZEALAND-0.27% Goodman Property Trust(a)(b) 413,300 379,586 =============================================================================== NORWAY-0.00% Norwegian Property A.S.A.(c) 21,513 338 =============================================================================== SINGAPORE-2.98% Ascendas Real Estate Investment Trust 410,000 666,005 - ------------------------------------------------------------------------------- Capitaland Ltd.(b) 319,000 1,339,900 - ------------------------------------------------------------------------------- CapitaMall Trust 979,000 2,151,569 =============================================================================== 4,157,474 =============================================================================== SWEDEN-0.84% Fabege A.B.(b) 76,400 507,525 - ------------------------------------------------------------------------------- Hufvudstaden A.B.(a)(b) 69,700 668,887 =============================================================================== 1,176,412 =============================================================================== UNITED KINGDOM-6.83% British Land Co. PLC(b) 149,200 2,091,587 - ------------------------------------------------------------------------------- Capital & Regional PLC 28,800 108,997 - ------------------------------------------------------------------------------- Derwent London PLC(b) 78,800 1,579,527 - ------------------------------------------------------------------------------- Land Securities Group PLC(b) 116,000 2,828,787 - ------------------------------------------------------------------------------- Quintain Estates & Development PLC 63,700 238,859 - ------------------------------------------------------------------------------- Segro PLC(b) 130,700 1,017,239 - ------------------------------------------------------------------------------- Shaftesbury PLC 97,600 757,711 - ------------------------------------------------------------------------------- Unite Group PLC(b) 155,200 718,169 - ------------------------------------------------------------------------------- Workspace Group PLC(b) 63,300 182,128 =============================================================================== 9,523,004 =============================================================================== UNITED STATES-36.37% Alexandria Real Estate Equities, Inc.(a) 14,500 1,411,430 - ------------------------------------------------------------------------------- AMB Property Corp.(a) 21,300 1,073,094 - ------------------------------------------------------------------------------- Boston Properties, Inc.(a) 14,000 1,263,080 - ------------------------------------------------------------------------------- BRE Properties, Inc.(a) 30,500 1,320,040 - ------------------------------------------------------------------------------- Camden Property Trust(a) 30,700 1,358,782 - ------------------------------------------------------------------------------- CBL & Associates Properties, Inc.(a) 29,700 678,348 - ------------------------------------------------------------------------------- DCT Industrial Trust Inc.(a) 62,000 513,360 - ------------------------------------------------------------------------------- Developers Diversified Realty Corp.(a) 45,800 1,589,718 - ------------------------------------------------------------------------------- Digital Realty Trust, Inc.(a) 34,000 1,390,940 - ------------------------------------------------------------------------------- Douglas Emmett, Inc.(a) 37,300 819,481 - ------------------------------------------------------------------------------- Equity Residential(a) 80,900 3,096,043 - ------------------------------------------------------------------------------- Essex Property Trust, Inc.(a) 18,700 1,991,550 - ------------------------------------------------------------------------------- Federal Realty Investment Trust(a) 28,200 1,945,800 - ------------------------------------------------------------------------------- General Growth Properties, Inc.(a) 77,800 2,725,334 - ------------------------------------------------------------------------------- HCP, Inc.(a) 46,700 1,485,527 - ------------------------------------------------------------------------------- Health Care REIT, Inc.(a) 40,000 1,780,000 - ------------------------------------------------------------------------------- Host Hotels & Resorts Inc.(a) 165,189 2,254,830 - ------------------------------------------------------------------------------- Kimco Realty Corp.(a) 56,900 1,964,188 - ------------------------------------------------------------------------------- Macerich Co. (The)(a) 13,900 863,607 - ------------------------------------------------------------------------------- Mack-Cali Realty Corp. 18,500 632,145 - ------------------------------------------------------------------------------- Mid-America Apartment Communities, Inc.(a) 15,700 801,328 - ------------------------------------------------------------------------------- Nationwide Health Properties, Inc.(a) 36,600 1,152,534 - ------------------------------------------------------------------------------- ProLogis(a) 54,714 2,973,706 - ------------------------------------------------------------------------------- Public Storage(a) 31,400 2,536,806 - ------------------------------------------------------------------------------- Senior Housing Properties Trust(a) 29,700 580,041 - ------------------------------------------------------------------------------- Simon Property Group, Inc.(a) 46,300 4,161,907 - ------------------------------------------------------------------------------- SL Green Realty Corp.(a) 34,600 2,862,112 - ------------------------------------------------------------------------------- Starwood Hotels & Resorts Worldwide, Inc.(a) 6,600 264,462 - ------------------------------------------------------------------------------- Ventas, Inc.(a) 50,000 2,128,500 - ------------------------------------------------------------------------------- Vornado Realty Trust(a) 23,100 2,032,800 - ------------------------------------------------------------------------------- Washington Real Estate Investment Trust(a) 35,800 1,075,790 =============================================================================== 50,727,283 =============================================================================== Total Foreign Common Stocks & Other Equity Interests (Cost $136,323,557) 135,478,188 =============================================================================== MONEY MARKET FUNDS-3.26% Liquid Assets Portfolio-Institutional Class(e) 2,276,598 2,276,598 - ------------------------------------------------------------------------------- Premier Portfolio-Institutional Class(e) 2,276,598 2,276,598 =============================================================================== Total Money Market Funds (Cost $4,553,196) 4,553,196 =============================================================================== TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)-100.39% (Cost $140,876,753) 140,031,384 ===============================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. GLOBAL REAL ESTATE FUND
SHARES VALUE - ------------------------------------------------------------------------------- INVESTMENTS PURCHASED WITH CASH COLLATERAL FROM SECURITIES ON LOAN MONEY MARKET FUNDS-28.27% Liquid Assets Portfolio-Institutional Class (Cost $39,440,121)(e)(f) 39,440,121 $ 39,440,121 =============================================================================== TOTAL INVESTMENTS-128.66% (Cost $180,316,874) 179,471,505 =============================================================================== OTHER ASSETS LESS LIABILITIES-(28.66)% (39,982,933) =============================================================================== NET ASSETS-100.00% 139,488,572 _______________________________________________________________________________ ===============================================================================
Investment Abbreviations: ADR - American Depositary Receipt REIT - Real Estate Investment Trust Wts. - Warrants
Notes to Schedule of Investments: (a) All or a portion of this security was out on loan at June 30, 2008. (b) In accordance with the procedures established by the Board of Trustees, the foreign security is fair valued using adjusted closing market prices. The aggregate value of these securities at June 30, 2008 was $54,169,015, which represented 38.83% of the Fund's Net Assets. See Note 1A. (c) Non-income producing security. (d) Non-income producing security acquired as part of a unit with or in exchange for other securities. (e) The money market fund and the Fund are affiliated by having the same investment advisor. (f) 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 1J. 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 June 30, 2008 (Unaudited) ASSETS: Investments, at value (Cost $136,323,557)* $135,478,188 - ------------------------------------------------------ Investments in affiliated money market funds (Cost $43,993,317) 43,993,317 ====================================================== Total investments (Cost $180,316,874) 179,471,505 ====================================================== Foreign currencies, at value (Cost $710,384) 468,973 - ------------------------------------------------------ Receivables for: Investments sold 86,958 - ------------------------------------------------------ Fund shares sold 73,104 - ------------------------------------------------------ Dividends 865,716 - ------------------------------------------------------ Investment for trustee deferred compensation and retirement plans 13,948 - ------------------------------------------------------ Other assets 2,474 ====================================================== Total assets 180,982,678 ______________________________________________________ ====================================================== LIABILITIES: Payables for: Investments purchased 1,733,706 - ------------------------------------------------------ Fund shares reacquired 143,857 - ------------------------------------------------------ Collateral upon return of securities loaned 39,440,121 - ------------------------------------------------------ Accrued fees to affiliates 83,697 - ------------------------------------------------------ Accrued other operating expenses 71,685 - ------------------------------------------------------ Trustee deferred compensation and retirement plans 21,040 ====================================================== Total liabilities 41,494,106 ====================================================== Net assets applicable to shares outstanding $139,488,572 ______________________________________________________ ====================================================== NET ASSETS CONSIST OF: Shares of beneficial interest $132,246,572 - ------------------------------------------------------ Undistributed net investment income 1,513,285 - ------------------------------------------------------ Undistributed net realized gain 6,565,113 - ------------------------------------------------------ Unrealized appreciation (depreciation) (836,398) ====================================================== $139,488,572 ______________________________________________________ ====================================================== NET ASSETS: Series I $136,262,918 ______________________________________________________ ====================================================== Series II $ 3,225,654 ______________________________________________________ ====================================================== SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED NUMBER OF SHARES AUTHORIZED: Series I 7,266,808 ______________________________________________________ ====================================================== Series II 173,952 ______________________________________________________ ====================================================== Series I: Net asset value per share $ 18.75 ______________________________________________________ ====================================================== Series II: Net asset value per share $ 18.54 ______________________________________________________ ======================================================
* At June 30, 2008, securities with an aggregate value of $38,256,789 were on loan to brokers. STATEMENT OF OPERATIONS For the six months ended June 30, 2008 (Unaudited) INVESTMENT INCOME: Dividends (net of foreign withholding taxes of $187,200) $ 2,400,929 - ------------------------------------------------------ Dividends from affiliated money market funds (includes securities lending income of $93,977) 139,560 ====================================================== Total investment income 2,540,489 ====================================================== EXPENSES: Advisory fees 496,918 - ------------------------------------------------------ Administrative services fees 178,205 - ------------------------------------------------------ Custodian fees 37,737 - ------------------------------------------------------ Distribution fees -- Series II 3,683 - ------------------------------------------------------ Transfer agent fees 11,146 - ------------------------------------------------------ Trustees' and officer's fees and benefits 9,917 - ------------------------------------------------------ Other 46,102 ====================================================== Total expenses 783,708 ====================================================== Less: Fees waived and expense offset arrangement(s) (1,947) ====================================================== Net expenses 781,761 ====================================================== Net investment income 1,758,728 ====================================================== REALIZED AND UNREALIZED GAIN (LOSS) FROM: Net realized gain (loss) from: Investment securities (4,134,636) - ------------------------------------------------------ Foreign currencies (69,190) ====================================================== (4,203,826) ====================================================== Change in net unrealized appreciation (depreciation) of: Investment securities (19,029,183) - ------------------------------------------------------ Foreign currencies 5,993 ====================================================== (19,023,190) ====================================================== Net realized and unrealized gain (loss) (23,227,016) ====================================================== Net increase (decrease) in net assets resulting from operations $(21,468,288) ______________________________________________________ ======================================================
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 six months ended June 30, 2008 and the year ended December 31, 2007 (Unaudited)
JUNE 30, DECEMBER 31, 2008 2007 - ------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income $ 1,758,728 $ 2,427,957 - ------------------------------------------------------------------------------------------------------- Net realized gain (loss) (4,203,826) 15,127,356 - ------------------------------------------------------------------------------------------------------- Change in net unrealized appreciation (depreciation) (19,023,190) (26,948,462) ======================================================================================================= Net increase (decrease) in net assets resulting from operations (21,468,288) (9,393,149) ======================================================================================================= Distributions to shareholders from net investment income: Series I -- (9,098,630) - ------------------------------------------------------------------------------------------------------- Series II -- (158,255) ======================================================================================================= Total distributions from net investment income -- (9,256,885) ======================================================================================================= Distributions to shareholders from net realized gains: Series I -- (21,716,323) - ------------------------------------------------------------------------------------------------------- Series II -- (378,839) ======================================================================================================= Total distributions from net realized gains -- (22,095,162) ======================================================================================================= Share transactions-net: Series I 13,473,014 (8,779,766) - ------------------------------------------------------------------------------------------------------- Series II 1,064,732 3,015,866 ======================================================================================================= Net increase (decrease) in net assets resulting from share transactions 14,537,746 (5,763,900) ======================================================================================================= Net increase (decrease) in net assets (6,930,542) (46,509,096) _______________________________________________________________________________________________________ ======================================================================================================= NET ASSETS: Beginning of period 146,419,114 192,928,210 ======================================================================================================= End of period (including undistributed net investment income of $1,513,285 and $(245,443), respectively) 139,488,572 146,419,114 _______________________________________________________________________________________________________ =======================================================================================================
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 June 30, 2008 (Unaudited) NOTE 1--SIGNIFICANT ACCOUNTING POLICIES AIM V.I. Global Real Estate Fund (the "Fund") is a series portfolio of AIM Variable Insurance Funds (the "Trust"). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of twenty separate portfolios, (each constituting a "Fund"). 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 Fund or class will be voted on exclusively by the shareholders of such Fund 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 Fund 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 high total return through growth of capital and current income. 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 prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. 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, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. 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, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. 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. Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer's assets, general economic conditions, interest rates, investor perceptions and market liquidity. 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. AIM V.I. GLOBAL REAL ESTATE FUND The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds as received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized and unrealized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized and unrealized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund's net asset value and, accordingly, they reduce the Fund's total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the advisor. The Fund allocates income and realized and unrealized capital gains and losses to a class based on the relative net assets of each class. The Fund recharacterizes distributions received from REIT investments based on information provided by the REIT into the following categories: ordinary income, long-term and short-term capital gains, and return of capital. If information is not available 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, the investment advisor 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. The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. 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 by a significant amount. 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. OTHER RISKS -- The Fund's investments are concentrated in a comparatively narrow segment of the economy. Consequently, the Fund may tend to be more volatile than other mutual funds, and the value of the Fund's investments may tend to rise and fall more rapidly. The Fund concentrates its assets in the real estate industry, an investment in the fund will be closely linked to the performance of the real estate markets. Property values may fall due to increasing vacancies or declining rents resulting from economic, legal, cultural or technological developments. J. SECURITIES LENDING -- 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 by the securities lending provider. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its sponsored agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds and is shown as such on the Schedule of Investments. 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. Dividends received on cash collateral investments for securities lending transactions, which are net of compensation to counterparties, is included in AIM V.I. GLOBAL REAL ESTATE FUND Dividends from affiliates on the Statement of Operations. The aggregate value of securities out on loan is shown as a footnote on the Statement of Assets and Liabilities. 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. 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. L. 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 Invesco Aim Advisors, Inc. (the "Advisor" or "Invesco Aim"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Advisor based on the annual rate of the Fund's average daily net assets as follows:
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% ___________________________________________________________________ ===================================================================
Under the terms of a master sub-advisory agreement between Invesco Aim and Invesco Institutional (N.A.), Inc. ("Invesco Real Estate"), Invesco Aim pays Invesco Real Estate 40% of the amount of Invesco Aim's compensation on the sub advised assets. Under the terms of a master sub-advisory agreement approved by shareholders of the Fund on February 29, 2008, effective May 1, 2008, between the Advisor and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Global Asset Management (N.A.), Inc., Invesco Hong Kong Limited, Invesco Institutional (N.A.), Inc., Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the "Affiliated Sub-Advisors") the Advisor, not the Fund, may pay 40% of the fees paid to the Advisor to any such Affiliated Sub- Advisor(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Advisor(s). The Advisor 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, 2010. 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 Invesco Ltd. ("Invesco") 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. These credits are used to pay certain expenses incurred by the Fund. The Advisor did not waive fees and/or reimburse expenses during the period under this expense limitation. Further, the Advisor has contractually agreed, through at least April 30, 2010, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Advisor receives from the affiliated money market funds on investments by the Fund of uninvested cash (but not cash collateral from securities lending) in such affiliated money market funds. AIM V.I. GLOBAL REAL ESTATE FUND For the six months ended June 30, 2008, the Advisor waived advisory fees of $1,720. At the request of the Trustees of the Trust, Invesco agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the six months ended June 30, 2008, Invesco did not reimburse any expenses. The Trust has entered into a master administrative services agreement with Invesco Aim pursuant to which the Fund has agreed to pay Invesco Aim a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco Aim for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants' accounts. Pursuant to such agreement, for the six months ended June 30, 2008, Invesco Aim was paid $24,863 for accounting and fund administrative services and reimbursed $153,342 for services provided by insurance companies. The Trust has entered into a transfer agency and service agreement with Invesco Aim Investment Services, Inc. ("IAIS") pursuant to which the Fund has agreed to pay IAIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IAIS for certain expenses incurred by IAIS in the course of providing such services. For the six months ended June 30, 2008, 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 Invesco Aim Distributors, Inc. ("IADI") 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 IADI 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 six months ended June 30, 2008, expenses incurred under the Plan are detailed in the Statement of Operations as distribution fees. Certain officers and trustees of the Trust are officers and directors of Invesco Aim, IAIS and/or IADI. NOTE 3--SUPPLEMENTAL INFORMATION The Fund adopted the provisions of Statement of Financial Accounting Standards No. 157, "Fair Value Measurements" (SFAS 157), effective with the beginning of the Fund's fiscal year. SFAS 157 establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (level 1) and the lowest priority to unobservable inputs (level 3) market prices are not readily available or are unreliable. Based on the inputs the securities or other instruments are tiered into three levels of hierarchy under SFAS 157. Changes in valuation methods may result in transfers in or out of an investment's assigned level within the hierarchy, Level 1 -- Quoted prices in an active market for identical assets. Level 2 -- Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk and others. Level 3 -- Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund's own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. Below is a summary of the tiered input levels, as of the end of the reporting period, June 30, 2008. The inputs or methods used for valuing securities may not be an indication of the risk associated with investing in those securities.
INVESTMENTS IN INPUT LEVEL SECURITIES - -------------------------------------- Level 1 $125,302,489 - -------------------------------------- Level 2 54,169,016 - -------------------------------------- Level 3 -- ====================================== $179,471,505 ______________________________________ ======================================
NOTE 4--EXPENSE OFFSET ARRANGEMENT The expense offset arrangement is comprised of custodian credits which result from periodic overnight cash balances at the custodian. For the six months ended June 30, 2008, the Fund received credits from this arrangement, which resulted in the reduction of the Fund's total expenses of $227. 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 certain Trustees and Officers of the Fund. 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, certain 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 AIM V.I. GLOBAL REAL ESTATE FUND and receive benefits under such plan. "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund. During the six months ended June 30, 2008, the Fund paid legal fees of $1,681 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--CASH BALANCES The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The State Street Bank and Trust Company ("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 Invesco Aim, not to exceed the contractually agreed upon rate. NOTE 7--TAX INFORMATION The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund's fiscal year-end. The Fund did not have a capital loss carryforward as of December 31, 2007. 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 six months ended June 30, 2008 was $48,982,596 and $34,787,003, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period end.
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS - ------------------------------------------------------------------------------------------------ Aggregate unrealized appreciation of investment securities $ 11,729,103 - ------------------------------------------------------------------------------------------------ Aggregate unrealized (depreciation) of investment securities (21,465,948) ================================================================================================ Net unrealized appreciation (depreciation) of investment securities $ (9,736,845) ________________________________________________________________________________________________ ================================================================================================ Cost of investments for tax purposes is $189,208,350.
NOTE 9--SHARE INFORMATION
CHANGES IN SHARES OUTSTANDING - ------------------------------------------------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED JUNE 30, 2008(a) DECEMBER 31, 2007 --------------------------- ---------------------------- SHARES AMOUNT SHARES AMOUNT - ------------------------------------------------------------------------------------------------------------------------- Sold: Series I 1,887,527 $ 38,007,030 2,348,323 $ 69,998,283 - ------------------------------------------------------------------------------------------------------------------------- Series II 75,371 1,548,136 99,437 2,780,132 ========================================================================================================================= Issued as reinvestment of dividends: Series I -- -- 1,296,380 30,814,953 - ------------------------------------------------------------------------------------------------------------------------- Series II -- -- 22,826 537,094 ========================================================================================================================= Reacquired: Series I (1,192,588) (24,534,016) (3,775,973) (109,593,002) - ------------------------------------------------------------------------------------------------------------------------- Series II (23,613) (483,404) (10,949) (301,360) ========================================================================================================================= 746,697 $ 14,537,746 (19,956) $ (5,763,900) _________________________________________________________________________________________________________________________ =========================================================================================================================
(a) There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate 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, Invesco Aim and/or Invesco Aim affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco Aim and or Invesco 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. GLOBAL REAL ESTATE FUND NOTE 10--FINANCIAL HIGHLIGHTS The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
SERIES I ------------------------------------------------------------------------------ SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, --------------------------------------------------------- 2008 2007 2006 2005 2004 2003 - ----------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 21.88 $ 28.74 $ 21.06 $ 19.13 $ 14.34 $ 10.49 - ----------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income 0.24 0.38(a) 0.33(a) 0.38(a) 0.32(a) 0.20 - ----------------------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) (3.37) (1.52) 8.61 2.34 4.92 3.87 ============================================================================================================================= Total from investment operations (3.13) (1.14) 8.94 2.72 5.24 4.07 ============================================================================================================================= Less distributions: Dividends from net investment income -- (1.69) (0.28) (0.22) (0.14) (0.22) - ----------------------------------------------------------------------------------------------------------------------------- Distributions from net realized gains -- (4.03) (0.98) (0.57) (0.31) -- ============================================================================================================================= Total distributions -- (5.72) (1.26) (0.79) (0.45) (0.22) ============================================================================================================================= Net asset value, end of period $ 18.75 $ 21.88 $ 28.74 $ 21.06 $ 19.13 $ 14.34 _____________________________________________________________________________________________________________________________ ============================================================================================================================= Total return(b) (14.31)% (5.54)% 42.60% 14.24% 36.58% 38.82% _____________________________________________________________________________________________________________________________ ============================================================================================================================= Ratios/supplemental data: Net assets, end of period (000s omitted) $136,263 $143,773 $192,617 $99,977 $79,391 $26,087 _____________________________________________________________________________________________________________________________ ============================================================================================================================= Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 1.17%(c) 1.13% 1.15% 1.21% 1.31% 1.35% - ----------------------------------------------------------------------------------------------------------------------------- Without fee waivers and/or expense reimbursements 1.17%(c) 1.22% 1.30% 1.36% 1.42% 1.62% ============================================================================================================================= Ratio of net investment income to average net assets 2.66%(c) 1.31% 1.32% 1.91% 1.96% 3.02% _____________________________________________________________________________________________________________________________ ============================================================================================================================= Portfolio turnover rate(d) 26% 57% 84% 51% 34% 126% _____________________________________________________________________________________________________________________________ =============================================================================================================================
(a) Calculated using average shares outstanding. (b) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. (c) Ratios are annualized and based on average daily net assets of $130,277,406. (d) Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year. AIM V.I. GLOBAL REAL ESTATE FUND NOTE 10--FINANCIAL HIGHLIGHTS--(CONTINUED)
SERIES II ------------------------------------------------------------------------- APRIL 30, 2004 SIX MONTHS ENDED YEAR ENDED DECEMBER 31, (COMMENCEMENT DATE) JUNE 30, ---------------------------- TO DECEMBER 31, 2008 2007 2006 2005 2004 - ------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $ 21.66 $28.57 $20.98 $19.12 $13.96 - ------------------------------------------------------------------------------------------------------------------------ Income from investment operations: Net investment income 0.21 0.29(a) 0.27(a) 0.34(a) 0.20(a) - ------------------------------------------------------------------------------------------------------------------------ Net gains (losses) on securities (both realized and unrealized) (3.33) (1.49) 8.58 2.31 5.41 ======================================================================================================================== Total from investment operations (3.12) (1.20) 8.85 2.65 5.61 ======================================================================================================================== Less distributions: Dividends from net investment income -- (1.68) (0.28) (0.22) (0.14) - ------------------------------------------------------------------------------------------------------------------------ Distributions from net realized gains -- (4.03) (0.98) (0.57) (0.31) ======================================================================================================================== Total distributions -- (5.71) (1.26) (0.79) (0.45) ======================================================================================================================== Net asset value, end of period $ 18.54 $21.66 $28.57 $20.98 $19.12 ________________________________________________________________________________________________________________________ ======================================================================================================================== Total return(b) (14.40)% (5.76)% 42.30% 13.85% 40.23% ________________________________________________________________________________________________________________________ ======================================================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $ 3,226 $2,646 $ 311 $ 62 $ 14 ________________________________________________________________________________________________________________________ ======================================================================================================================== Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 1.42%(c) 1.38% 1.40% 1.45% 1.45%(d) - ------------------------------------------------------------------------------------------------------------------------ Without fee waivers and/or expense reimbursements 1.42%(c) 1.47% 1.55% 1.61% 1.66%(d) ======================================================================================================================== Ratio of net investment income to average net assets 2.41%(c) 1.06% 1.07% 1.67% 1.82%(d) ________________________________________________________________________________________________________________________ ======================================================================================================================== Portfolio turnover rate(e) 26% 57% 84% 51% 34% ________________________________________________________________________________________________________________________ ========================================================================================================================
(a) Calculated using average shares outstanding. (b) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. (c) Ratios are annualized and based on average daily net assets of $2,962,277. (d) Annualized. (e) Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year. NOTE 11--LEGAL PROCEEDINGS Terms used in the Legal Proceedings Note are defined terms solely for the purpose of this note. 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 Invesco Aim and IADI (Order No. 05- 1318). The WVASC makes findings of fact that Invesco Aim and IADI 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 Invesco Aim and IADI violated the West Virginia securities laws. The WVASC orders Invesco Aim and IADI 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. By agreement with the Commissioner of Securities, Invesco Aim's time to respond to that Order has been indefinitely suspended. Civil lawsuits, including purported class action and shareholder derivative suits, have been filed against certain of the AIM Funds, Invesco Funds Group, Inc. ("IFG"), Invesco Aim, IADI 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; and - that certain AIM Funds inadequately employed fair value pricing. The case pending in Illinois State Court was dismissed with prejudice on May 6, 2008. These lawsuits allege as theories of recovery, depending on the lawsuit, violations of various provisions of the Federal and state securities laws Employee Retirement Income Security Act of 1974, as amended ("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. 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 Invesco 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 ERISA purportedly brought on behalf of participants in the Invesco 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 AIM V.I. GLOBAL REAL ESTATE FUND NOTE 11--LEGAL PROCEEDINGS--(CONTINUED) remain nominal defendants in the Consolidated Amended Fund Derivative Complaint. On September 15, 2006, the MDL Court granted the Invesco 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, Invesco Aim, IADI 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 Invesco 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, Invesco Aim and IADI 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, Invesco Aim and/or related entities and individuals in the future. At the present time, management of Invesco 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 Invesco Aim, IADI or the Fund. AIM V.I. GLOBAL REAL ESTATE FUND NOTE 11--LEGAL PROCEEDINGS--(CONTINUED) CALCULATING YOUR ONGOING FUND EXPENSES EXAMPLE As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2008, through June 30, 2008. The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower. ACTUAL EXPENSES The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled "Actual Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
- --------------------------------------------------------------------------------------------------- HYPOTHETICAL (5% ANNUAL RETURN BEFORE ACTUAL EXPENSES) ------------------------------------------------------ BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE CLASS (01/01/08) (06/30/08)(1) PERIOD(2) (06/30/08) PERIOD(2) RATIO - --------------------------------------------------------------------------------------------------- Series I $1,000.00 $856.90 $5.40 $1,019.05 $5.87 1.17% - --------------------------------------------------------------------------------------------------- Series II 1,000.00 856.00 6.55 1,017.80 7.12 1.42 - ---------------------------------------------------------------------------------------------------
((1) The actual ending account value is based on the actual total return of the Fund for the period January 1, 2008, through June 30, 2008, 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 182/366 to reflect the most recent fiscal half year. AIM V.I. GLOBAL REAL ESTATE FUND APPROVAL OF INVESTMENT ADVISORY AGREEMENT The Board of Trustees (the Board) of AIM an independent company, Lipper, Inc. the result of years of review and Variable Insurance Funds is required under (Lipper), under the direction and negotiation between the Trustees and the Investment Company Act of 1940 to supervision of the independent Senior Invesco Aim, that the Trustees may focus approve annually the renewal of the AIM Officer who also prepares a separate to a greater extent on certain aspects of V.I. Global Real Estate Funds (the Fund) analysis of this information for the these arrangements in some years than in investment advisory agreement with Invesco Trustees. Each Sub-Committee then makes others, and that the Trustees' Aim Advisors, Inc. (Invesco Aim). During recommendations to the Investments deliberations and conclusions in a contract renewal meetings held on June Committee regarding the performance, fees particular year may be based in part on 18-19, 2008, the Board as a whole and the and expenses of their assigned funds. The their deliberations and conclusions of disinterested or "independent" Trustees, Investments Committee considers each these same arrangements throughout the voting separately, approved the Sub-Committee's recommendations and makes year and in prior years. continuance of the Fund's investment its own recommendations regarding the advisory agreement for another year, performance, fees and expenses of the AIM FACTORS AND CONCLUSIONS AND SUMMARY OF effective July 1, 2008. In doing so, the Funds to the full Board. The Investments INDEPENDENT WRITTEN FEE EVALUATION Board determined that the Fund's Committee also considers each The discussion below serves as a summary investment advisory agreement is in the Sub-Committee's recommendations in making of the Senior Officer's independent best interests of the Fund and its its annual recommendation to the Board written evaluation with respect to the shareholders and that the compensation to whether to approve the continuance of each Fund's investment advisory agreement as Invesco Aim under the Fund's investment AIM Fund's investment advisory agreement well as a discussion of the material advisory agreement is fair and reasonable. and sub-advisory agreements for another factors and related conclusions that The independent Trustees met separately year. formed the basis for the Board's approval during their evaluation of the Fund's The independent Trustees are assisted of the Fund's investment advisory investment advisory agreement with in their annual evaluation of the Fund's agreement and sub-advisory agreements. independent legal counsel from whom they investment advisory agreement by the Unless otherwise stated, information set received independent legal advice, and the independent Senior Officer. One forth below is as of June 19, 2008 and independent Trustees also received responsibility of the Senior Officer is to does not reflect any changes that may have assistance during their deliberations from manage the process by which the AIM Funds' occurred since that date, including but the independent Senior Officer, a proposed management fees are negotiated not limited to changes to the Fund's full-time officer of the AIM Funds who during the annual contract renewal process performance, advisory fees, expense reports directly to the independent to ensure that they are negotiated in a limitations and/or fee waivers. Trustees. manner that is at arms' length and reasonable. Accordingly, the Senior I. Investment Advisory Agreement THE BOARD'S FUND EVALUATION PROCESS Officer must either supervise a A. Nature, Extent and Quality of The Board's Investments Committee has competitive bidding process or prepare an Services Provided by Invesco Aim established three Sub-Committees that are independent written evaluation. The Senior The Board reviewed the advisory services responsible for overseeing the management Officer has recommended that an provided to the Fund by Invesco Aim under of a number of the series portfolios of independent written evaluation be provided the Fund's investment advisory agreement, the AIM Funds. This Sub-Committee and, at the direction of the Board, has the performance of Invesco Aim in structure permits the Trustees to focus on prepared an independent written providing these services, and the the performance of the AIM Funds that have evaluation. credentials and experience of the officers been assigned to them. The Sub-Committees During the annual contract renewal and employees of Invesco Aim who provide meet throughout the year to review the process, the Board considered the factors these services. The Board's review of the performance of their assigned funds, and discussed below under the heading "Factors qualifications of Invesco Aim to provide the Sub-Committees review monthly and and Conclusions and Summary of Independent these services included the Board's quarterly comparative performance Written Fee Evaluation" in evaluating the consideration of Invesco Aim's portfolio information and periodic asset flow data fairness and reasonableness of the Fund's and product review process, various back for their assigned funds. These materials investment advisory agreement and office support functions provided by are prepared under the direction and sub-advisory agreements at the contract Invesco Aim and its affiliates, and supervision of the independent Senior renewal meetings and at their meetings Invesco Aim's equity and fixed income Officer. Over the course of each year, the throughout the year as part of their trading operations. The Board concluded Sub-Committees meet with portfolio ongoing oversight of the Fund. The Fund's that the nature, extent and quality of the managers for their assigned funds and investment advisory agreement and advisory services provided to the Fund by other members of management and review sub-advisory agreements were considered Invesco Aim were appropriate and that with these individuals the performance, separately, although the Board also Invesco Aim currently is providing investment objective(s), policies, considered the common interests of all of satisfactory advisory services in strategies and limitations of these funds. the AIM Funds in their deliberations. The accordance with the terms of the Fund's In addition to their meetings Board considered all of the information investment advisory agreement. In throughout the year, the Sub-Committees provided to them and did not identify any addition, based on their ongoing meetings meet at designated contract renewal particular factor that was controlling. throughout the year with the Fund's meetings each year to conduct an in-depth Each Trustee may have evaluated the portfolio manager or managers, the Board review of the performance, fees and information provided differently from one concluded that these individuals are expenses of their assigned funds. During another and attributed different weight to competent and able to continue to carry the contract renewal process, the Trustees the various factors. The Trustees out their responsibilities under the receive comparative performance and fee recognized that the advisory arrangements Fund's investment advisory agreement. data regarding the AIM Funds prepared by and resulting advisory fees for the Fund In determining whether to continue the and the other AIM Funds are Fund's investment advisory agreement, the Board considered the prior relationship between Invesco Aim and the Fund, as well as the Board's knowledge continued
AIM V.I. GLOBAL REAL ESTATE FUND of Invesco Aim's operations, and concluded effective fee rate (the advisory fee after economies of scale through contractual that it was beneficial to maintain the any advisory fee waivers and before any breakpoints in the Fund's advisory fee current relationship, in part, because of expense limitations/waivers) to the schedule or through advisory fee waivers such knowledge. The Board also considered advisory fee rates of other clients of or expense limitations. The Board noted the steps that Invesco Aim and its Invesco Aim and its affiliates with that the Fund's contractual advisory fee affiliates have taken over the last investment strategies comparable to those schedule includes seven breakpoints, but several years to improve the quality and of the Fund, including three mutual funds that due to the Fund's asset level at the efficiency of the services they provide to advised by Invesco Aim and four mutual end of the past calendar year, the Fund is the AIM Funds in the areas of investment funds advised or sub-advised by an Invesco not currently benefiting from the performance, product line diversification, Aim affiliate. The Board noted that the breakpoints. Based on this information, distribution, fund operations, shareholder Fund's rate was: (i) above the rates for the Board concluded that the Fund's services and compliance. The Board two of the mutual funds advised by Invesco advisory fees would reflect economies of concluded that the quality and efficiency Aim and at the same rate for the third scale at higher asset levels. The Board of the services Invesco Aim and its mutual fund advised by Invesco Aim; and also noted that the Fund shares directly affiliates provide to the AIM Funds in (ii) above the advisory or sub-advisory in economies of scale through lower fees each of these areas have generally fee rates for the mutual funds advised or charged by third party service providers improved, and support the Board's approval subadvised by Invesco Aim affiliates. None based on the combined size of all of the of the continuance of the Fund's of the funds advised or sub-advised by AIM Funds and affiliates. investment advisory agreement. Invesco Aim affiliates are in the Fund's Lipper expense group and the Board E. Profitability and Financial B. Fund Performance determined that comparing contractual fees Resources of Invesco Aim The Board compared the Fund's performance to funds in the Lipper expense group was The Board reviewed information from during the past one, three and five appropriate. Invesco Aim concerning the costs of the calendar years to the performance of funds Additionally, the Board compared the advisory and other services that Invesco in the Fund's performance group that are Fund's effective fee rate to the total Aim and its affiliates provide to the Fund not managed by Invesco Aim, and against advisory fees paid by numerous separately and the profitability of Invesco Aim and the performance of all funds in the Lipper managed accounts/wrap accounts advised by its affiliates in providing these Variable Annuity Underlying Funds -- Real Invesco Aim affiliates. The Board noted services. The Board also reviewed Estate Index. The Board noted that the that the Fund's rate was above the rates information concerning the financial Fund's performance was in the first for the separately managed accounts/wrap condition of Invesco Aim and its quintile of its performance group for the accounts. The Board considered that affiliates. The Board also reviewed with one, three and five year periods (the management of the separately managed Invesco Aim the methodology used to first quintile being the best performing accounts/wrap accounts by the Invesco Aim prepare the profitability information. The funds and the fifth quintile being the affiliates involves different levels of Board considered the overall profitability worst performing funds). The Board noted services and different operational and of Invesco Aim, as well as the that the Fund's performance was above the regulatory requirements than Invesco Aim's profitability of Invesco Aim in connection performance of the Index for the one, management of the Fund. The Board with managing the Fund. The Board noted three and five year periods. The Board concluded that these differences are that Invesco Aim continues to operate at a also considered the steps Invesco Aim has appropriately reflected in the fee net profit, although increased expenses in taken over the last several years to structure for the Fund. recent years have reduced the improve the quality and efficiency of the The Board noted that Invesco Aim has profitability of Invesco Aim and its services that Invesco Aim provides to the contractually agreed to waive fees and/or affiliates. The Board concluded that the AIM Funds. The Board concluded that limit expenses of the Fund through at Fund's fees were fair and reasonable, and Invesco Aim continues to be responsive to least April 30, 2010 in an amount that the level of profits realized by the Board's focus on fund performance. necessary to limit total annual operating Invesco Aim and its affiliates from Although the independent written expenses to a specified percentage of providing services to the Fund was not evaluation of the Fund's Senior Officer average daily net assets for each class of excessive in light of the nature, quality only considered Fund performance through the Fund. The Board considered the and extent of the services provided. The the most recent calendar year, the Board contractual nature of this fee waiver and Board considered whether Invesco Aim is also reviewed more recent Fund performance noted that it remains in effect until at financially sound and has the resources and this review did not change their least April 30, 2010. The Board also necessary to perform its obligations under conclusions. considered the effect this fee waiver the Fund's investment advisory agreement, would have on the Fund's total estimated and concluded that Invesco Aim has the C. Advisory Fees and Fee Waivers expenses. financial resources necessary to fulfill The Board compared the Fund's contractual After taking account of the Fund's these obligations. advisory fee rate to the contractual contractual advisory fee rate, as well as advisory fee rates of funds in the Fund's the comparative advisory fee information F. Independent Written Evaluation of Lipper expense group that are not managed and the expense limitation discussed the Fund's Senior Officer by Invesco Aim, at a common asset level above, the Board concluded that the Fund's The Board noted that, at their direction, and as of the end of the past calendar advisory fees were fair and reasonable. the Senior Officer of the Fund, who is year. The Board noted that the Fund's independent of Invesco Aim and Invesco contractual advisory fee rate was below D. Economies of Scale and Breakpoints Aim's affiliates, had prepared an the median contractual advisory fee rate The Board considered the extent to which independent written evaluation to assist of funds in its expense group. The Board there are economies of scale in Invesco the Board in determining the also reviewed the methodology used by Aim's provision of advisory services to reasonableness of the proposed management Lipper in determining contractual fee the Fund. The Board also considered fees of the AIM Funds, including the Fund. rates. whether the Fund benefits from such The Board noted that they had relied upon The Board also compared the Fund's the Senior Officer's written evaluation continued
AIM V.I. GLOBAL REAL ESTATE FUND instead of a competitive bidding process. tually agreed to waive through at least commenced managing a portion of the Fund's In determining whether to continue the April 30, 2010, the advisory fees payable assets. The Board compared the Fund's Fund's investment advisory agreement, the by the Fund in an amount equal to 100% of performance during the past one, three and Board considered the Senior Officer's the net advisory fees Invesco Aim receives five calendar years to the performance of written evaluation. from the affiliated money market funds funds in the Fund's performance group that with respect to the Fund's investment of are not managed by Invesco Aim, and G. Collateral Benefits to Invesco Aim uninvested cash, but not cash collateral. against the performance of all funds in and its Affiliates The Board considered the contractual the Lipper Variable Annuity Underlying The Board considered various other nature of this fee waiver and noted that Funds -- Real Estate Index. The Board also benefits received by Invesco Aim and its it remains in effect until at least April reviewed the criteria used by Invesco Aim affiliates resulting from Invesco Aim's 30, 2010. The Board concluded that the to identify the funds in the Fund's relationship with the Fund, including the Fund's investment of uninvested cash and performance group for inclusion in the fees received by Invesco Aim and its cash collateral from any securities Lipper reports. The Board noted that the affiliates for their provision of lending arrangements in the affiliated Fund's performance was in the first administrative, transfer agency and money market funds is in the best quintile of its performance group for the distribution services to the Fund. The interests of the Fund and its one, three and five year periods (the Board considered the performance of shareholders. first quintile being the best performing Invesco Aim and its affiliates in funds and the fifth quintile being the providing these services and the II. Sub-Advisory Agreements worst performing funds). The Board noted organizational structure employed by A. Nature, Extent and Quality of that the Fund's performance was above the Invesco Aim and its affiliates to provide Services Provided by Affiliated performance of the Index for the one, these services. The Board also considered Sub-Advisers three and five year periods. The Board that these services are provided to the The Board reviewed the services to be also considered the steps Invesco Aim has Fund pursuant to written contracts which provided by Invesco Trimark Ltd., Invesco taken over the last several years to are reviewed and approved on an annual Asset Management Deutschland, GmbH, improve the quality and efficiency of the basis by the Board. The Board concluded Invesco Asset Management Limited, Invesco services that Invesco Aim provides to the that Invesco Aim and its affiliates were Asset Management (Japan) Limited, Invesco AIM Funds. The Board concluded that providing these services in a satisfactory Australia Limited, Invesco Global Asset Invesco Aim continues to be responsive to manner and in accordance with the terms of Management (N.A.), Inc., Invesco Hong Kong the Board's focus on fund performance. The their contracts, and were qualified to Limited, Invesco Institutional (N.A.), Board also reviewed more recent Fund continue to provide these services to the Inc. and Invesco Senior Secured performance and this review did not change Fund. Management, Inc. (collectively, the their conclusions. The Board considered the benefits "Affiliated Sub-Advisers") under the realized by Invesco Aim as a result of sub-advisory agreements and the C. Sub-Advisory Fees portfolio brokerage transactions executed credentials and experience of the officers The Board considered the services to be through "soft dollar" arrangements. Under and employees of the Affiliated provided by the Affiliated Sub-Advisers these arrangements, portfolio brokerage Sub-Advisers who will provide these pursuant to the sub-advisory agreements commissions paid by the Fund and/or other services. The Board concluded that the and the services to be provided by Invesco funds advised by Invesco Aim are used to nature, extent and quality of the services Aim pursuant to the Fund's investment pay for research and execution services. to be provided by the Affiliated advisory agreement, as well as the The Board noted that soft dollar Sub-Advisers were appropriate. The Board allocation of fees between Invesco Aim and arrangements shift the payment obligation noted that the Affiliated Sub-Advisers, the Affiliated Sub-Advisers pursuant to for the research and execution services which have offices and personnel that are the sub-advisory agreements. The Board from Invesco Aim to the funds and geographically dispersed in financial noted that the sub-advisory fees have no therefore may reduce Invesco Aim's centers around the world, have been formed direct effect on the Fund or its expenses. The Board also noted that in part for the purpose of researching and shareholders, as they are paid by Invesco research obtained through soft dollar compiling information and making Aim to the Affiliated Sub-Advisers, and arrangements may be used by Invesco Aim in recommendations on the markets and that Invesco Aim and the Affiliated making investment decisions for the Fund economies of various countries and Sub-Advisers are affiliates. After taking and may therefore benefit Fund securities of companies located in such account of the Fund's contractual shareholders. The Board concluded that countries or on various types of sub-advisory fee rate, as well as other Invesco Aim's soft dollar arrangements investments and investment techniques, and relevant factors, the Board concluded that were appropriate. The Board also concluded providing investment advisory services. the Fund's sub-advisory fees were fair and that, based on their review and The Board concluded that the sub-advisory reasonable. representations made by Invesco Aim, these agreements will benefit the Fund and its arrangements were consistent with shareholders by permitting Invesco Aim to D. Financial Resources of the regulatory requirements. utilize the additional resources and Affiliated Sub-Advisers The Board considered the fact that the talent of the Affiliated Sub-Advisers in The Board considered whether each Fund's uninvested cash and cash collateral managing the Fund. Affiliated Sub-Adviser is financially from any securities lending arrangements sound and has the resources necessary to may be invested in money market funds B. Fund Performance perform its obligations under its advised by Invesco Aim pursuant to The Board did view Fund performance as a respective sub-advisory agreement, and procedures approved by the Board. The relevant factor in considering whether to concluded that each Affiliated Sub-Adviser Board noted that Invesco Aim will receive approve the sub-advisory agreements for has the financial resources necessary to advisory fees from these affiliated money the Fund, as one of the Affiliated fulfill these obligations. market funds attributable to such Sub-Advisers managed all of the Fund's investments, although Invesco Aim has assets from inception through May 1, 2008, contrac- when an additional Affiliated Sub-Adviser
AIM V.I. GLOBAL REAL ESTATE FUND NOTE 11--LEGAL PROCEEDINGS--(CONTINUED) PROXY RESULTS A Special Meeting ("Meeting") of Shareholders of AIM V.I. Global Real Estate Fund, an investment portfolio of AIM Variable Insurance Funds, a Delaware statutory trust ("Trust"), was held on February 29, 2008. The Meeting was held for the following purposes: (1) Elect 13 trustees to the Board of Trustees of the Trust, each of whom will serve until his or her successor is elected and qualified. (2) Approve an amendment to the Trust's Agreement and Declaration of Trust that would permit the Board of Trustees of the Trust to terminate the Trust, the Fund, and each other series portfolio of the Trust, or a share class without a shareholder vote. (3) Approve a new sub-advisory agreement between Invesco Aim Advisors, Inc. and each of AIM Funds Management, Inc.; Invesco Asset Management Deutschland, GmbH; Invesco Asset Management Limited; Invesco Asset Management (Japan) Limited; Invesco Australia Limited; Invesco Global Asset Management (N.A.), Inc.; Invesco Hong Kong Limited; Invesco Institutional (N.A.), Inc.; and Invesco Senior Secured Management, Inc. The results of the voting on the above matters were as follows:
WITHHELD/ MATTERS VOTES FOR ABSTENTIONS** - ----------------------------------------------------------------------------------------------------------- (1)* Bob R. Baker...................................................... 474,883,590 19,741,622 Frank S. Bayley................................................... 474,653,109 19,972,103 James T. Bunch.................................................... 475,597,417 19,027,795 Bruce L. Crockett................................................. 474,900,579 19,724,633 Albert R. Dowden.................................................. 474,749,929 19,875,283 Jack M. Fields.................................................... 475,205,840 19,419,372 Martin L. Flanagan................................................ 475,248,336 19,376,876 Carl Frischling................................................... 474,453,674 20,171,538 Prema Mathai-Davis................................................ 473,569,192 21,056,020 Lewis F. Pennock.................................................. 475,072,501 19,552,711 Larry Soll, Ph.D. ................................................ 475,170,544 19,454,668 Raymond Stickel, Jr. ............................................. 475,420,825 19,204,387 Philip A. Taylor.................................................. 475,640,570 18,984,642
VOTES WITHHELD/ VOTES FOR AGAINST ABSTENTIONS - ------------------------------------------------------------------------------------------------------------------- (2)* Approve an amendment to the Trust's Agreement and Declaration of Trust that would permit the Board of Trustees of the Trust to terminate the Trust, the Fund, and each other series portfolio of the Trust, or a share class without a shareholder vote.......................... 438,131,484 35,586,925 20,906,803 (3) Approve a new sub-advisory agreement between Invesco Aim Advisors, Inc. and each of AIM Funds Management, Inc.; Invesco Asset Management Deutschland, GmbH; Invesco Asset Management Limited; Invesco Asset Management (Japan) Limited; Invesco Australia Limited; Invesco Global Asset Management (N.A.), Inc.; Invesco Hong Kong Limited; Invesco Institutional (N.A.), Inc.; and Invesco Senior Secured Management, Inc. ................................. 4,729,132 173,898 242,160
* Proposals 1 and 2 required approval by a combined vote of all of the portfolios of AIM Variable Insurance Funds. ** Includes Broker Non-Votes. AIM V.I. GLOBAL REAL ESTATE FUND [INVESCO AIM LOGO] AIM V.I. GOVERNMENT SECURITIES FUND - SERVICE MARK - Semiannual Report to Shareholders - June 30, 2008 AIM Investments [MOUNTAIN GRAPHIC] became INVESCO AIM on March 31, 2008. For more details, go to invescoaim.com 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 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 Invesco Aim Web site, invescoaim.com. On the home page, scroll down and click on 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, 2008, is available at our Web site. Go to invescoaim.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 noted, all data provided by Invesco Aim. THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND PROSPECTUS AND VARIABLE PRODUCT PROSPECTUS, WHICH CONTAIN MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ EACH CAREFULLY BEFORE INVESTING. Invesco Aim Distributors, Inc. NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE FUND PERFORMANCE ======================================================================================= PERFORMANCE SUMMARY FUND VS. INDEXES Cumulative total returns, 12/31/07 to 6/30/08, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower. Series I Shares 3.07% Series II Shares 2.92 Lehman Brothers U.S. Aggregate Bond Index(TRIANGLE) (Broad Market Index) 1.13 Lehman Brothers U.S. Government Index(TRIANGLE) (Style-Specific Index) 2.06 Lipper VUF General U.S. Government Funds Index(TRIANGLE) (Peer Group Index) 1.56 (TRIANGLE)Lipper Inc. The LEHMAN BROTHERS U.S. AGGREGATE BOND INDEX covers U.S. investment-grade fixed-rate bonds with components for government and corporate securities, mortgage pass-throughs, and asset-backed securities. The unmanaged LEHMAN BROTHERS U.S. GOVERNMENT INDEX consists of securities issued by the U.S. Government including public obligations of the U.S. Treasury with a remaining maturity of one year or more or publicly issued debt of U.S. Government agencies, quasi-federal corporations and corporate or foreign debt guaranteed by the U.S. Government. The LIPPER VUF GENERAL U.S. GOVERNMENT FUNDS INDEX is an equally weighted representation of the largest variable insurance underlying funds in the Lipper General U.S. Government Funds category. These funds invest at least 65% of their assets in U.S. Government and agency issues. The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes. A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of an index of funds reflects fund expenses; performance of a market index does not. ======================================================================================= ========================================== AVERAGE ANNUAL TOTAL RETURNS GUARANTEE COMPARABLE FUTURE RESULTS; INSURANCE FUNDS, IS CURRENTLY OFFERED As of 6/30/08 CURRENT PERFORMANCE MAY BE LOWER OR THROUGH INSURANCE COMPANIES ISSUING HIGHER. PLEASE CONTACT YOUR VARIABLE VARIABLE PRODUCTS. YOU CANNOT PURCHASE SERIES I SHARES PRODUCT ISSUER OR FINANCIAL ADVISOR FOR SHARES OF THE FUND DIRECTLY. PERFORMANCE Inception (5/5/93) 4.96% THE MOST RECENT MONTH-END VARIABLE PRODUCT FIGURES GIVEN REPRESENT THE FUND AND ARE 10 Years 4.65 PERFORMANCE. PERFORMANCE FIGURES REFLECT NOT INTENDED TO REFLECT ACTUAL VARIABLE 5 Years 3.31 FUND EXPENSES, REINVESTED DISTRIBUTIONS PRODUCT VALUES. THEY DO NOT REFLECT SALES 1 Year 8.32 AND CHANGES IN NET ASSET VALUE. INVESTMENT CHARGES, EXPENSES AND FEES ASSESSED IN RETURN AND PRINCIPAL VALUE WILL FLUCTUATE CONNECTION WITH A VARIABLE PRODUCT. SALES SERIES II SHARES SO THAT YOU MAY HAVE A GAIN OR LOSS WHEN CHARGES, EXPENSES AND FEES, WHICH ARE 10 Years 4.39% YOU SELL SHARES. DETERMINED BY THE VARIABLE PRODUCT 5 Years 3.06 THE NET ANNUAL FUND OPERATING EXPENSE ISSUERS, WILL VARY AND WILL LOWER THE 1 Year 8.01 RATIO SET FORTH IN THE MOST RECENT FUND TOTAL RETURN. ========================================== PROSPECTUS AS OF THE DATE OF THIS REPORT THE MOST RECENT MONTH-END PERFORMANCE FOR SERIES I AND SERIES II SHARES WAS DATA AT THE FUND LEVEL, EXCLUDING VARIABLE SERIES II SHARES' INCEPTION DATE IS 0.73% AND 0.98%, RESPECTIVELY.(1) THE PRODUCT CHARGES, IS AVAILABLE ON THE SEPTEMBER 19, 2001. RETURNS SINCE THAT TOTAL ANNUAL FUND OPERATING EXPENSE RATIO INVESCO AIM AUTOMATED INFORMATION LINE, DATE ARE HISTORICAL. ALL OTHER RETURNS ARE SET FORTH IN THE MOST RECENT FUND 866 702 4402. AS MENTIONED ABOVE, FOR THE THE BLENDED RETURNS OF THE HISTORICAL PROSPECTUS AS OF THE DATE OF THIS REPORT MOST RECENT MONTH-END PERFORMANCE PERFORMANCE OF SERIES II SHARES SINCE FOR SERIES I AND SERIES II SHARES WAS INCLUDING VARIABLE PRODUCT CHARGES, PLEASE THEIR INCEPTION AND THE RESTATED 0.76% AND 1.01%, RESPECTIVELY. THE EXPENSE CONTACT YOUR VARIABLE PRODUCT ISSUER OR HISTORICAL PERFORMANCE OF SERIES I SHARES RATIOS PRESENTED ABOVE MAY VARY FROM THE FINANCIAL ADVISOR. (FOR PERIODS PRIOR TO INCEPTION OF SERIES EXPENSE RATIOS PRESENTED IN OTHER SECTIONS II SHARES) ADJUSTED TO REFLECT THE RULE OF THIS REPORT THAT ARE BASED ON EXPENSES (1) Total annual operating expenses less 12B-1 FEES APPLICABLE TO SERIES II SHARES. INCURRED DURING THE PERIOD COVERED BY THIS any contractual fee waivers and/or THE INCEPTION DATE OF SERIES I SHARES IS REPORT. expense reimbursements by the advisor MAY 5, 1993. THE PERFORMANCE OF THE FUND'S AIM V.I. GOVERNMENT SECURITIES FUND, A in effect through at least April 30, SERIES I AND SERIES II SHARE CLASSES WILL SERIES PORTFOLIO OF AIM VARIABLE 2010. See current prospectus for more DIFFER PRIMARILY DUE TO DIFFERENT CLASS information. EXPENSES. THE PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE AND CANNOT
AIM V.I. GOVERNMENT SECURITIES FUND PORTFOLIO COMPOSITION By security type, based on Net Assets as of June 30, 2008 - ------------------------------------------------------------------------- U.S. Sponsored Mortgage-Backed Securities 74.0% - ------------------------------------------------------------------------- U.S. Sponsored Agency Securities 13.3 - ------------------------------------------------------------------------- U.S. Treasury Securities 0.8 - ------------------------------------------------------------------------- Foreign Sovereign Debt 0.3 - ------------------------------------------------------------------------- Money Market Funds Plus Other Assets Less Liabilities 11.6 _________________________________________________________________________ =========================================================================
SCHEDULE OF INVESTMENTS June 30, 2008 (Unaudited)
PRINCIPAL AMOUNT VALUE - ----------------------------------------------------------------------------------- U.S. GOVERNMENT SPONSORED MORTGAGE-BACKED SECURITIES-74.04%(a) COLLATERALIZED MORTGAGE OBLIGATIONS-52.15% Fannie Mae REMICS, 3.50%, 04/25/13 to 09/25/16 $ 558,741 $ 558,117 - ----------------------------------------------------------------------------------- 4.50%,() 05/25/15 33,777,000 33,937,789 - ----------------------------------------------------------------------------------- 5.00%, 12/25/15 to 04/25/24 14,784,766 14,925,445 - ----------------------------------------------------------------------------------- 4.00%,() 03/25/16 527,286 527,214 - ----------------------------------------------------------------------------------- 6.50%,() 06/25/20 253,152 255,577 - ----------------------------------------------------------------------------------- 6.00%, 02/25/21 to 10/25/30 56,829,064 57,884,593 - ----------------------------------------------------------------------------------- 5.50%, 02/25/24 to 03/01/38 59,842,642 60,549,667 - ----------------------------------------------------------------------------------- Fannie Mae Whole Loans, 5.50%, 07/25/34 3,571,938 3,530,264 - ----------------------------------------------------------------------------------- Federal Home Loan Banks (FHLB), 4.75%, 10/25/10 18,558,491 18,655,367 - ----------------------------------------------------------------------------------- Freddie Mac REMICS, 5.50%, 07/15/10 to 05/15/31 152,053,108 154,644,724 - ----------------------------------------------------------------------------------- 6.75%,() 06/15/11 912,227 932,335 - ----------------------------------------------------------------------------------- 5.25%,() 08/15/11 8,171,461 8,290,277 - ----------------------------------------------------------------------------------- 5.38%, 08/15/11 to 09/15/11 10,121,324 10,292,248 - ----------------------------------------------------------------------------------- 4.50%, 03/15/14 to 08/15/27 5,328,751 5,350,583 - ----------------------------------------------------------------------------------- 5.00%, 06/15/14 to 10/15/25 88,462,512 89,381,154 - ----------------------------------------------------------------------------------- 4.00%,() 09/15/14 162,878 162,909 - ----------------------------------------------------------------------------------- 5.13%,() 10/15/15 1,743,823 1,751,857 - ----------------------------------------------------------------------------------- 7.50%,() 01/15/16 3,019,232 3,147,387 - ----------------------------------------------------------------------------------- 6.00%, 09/15/16 to 06/15/31 160,015,330 163,833,912 - ----------------------------------------------------------------------------------- 5.75%,() 12/15/18 35,834,559 36,574,087 - ----------------------------------------------------------------------------------- 3.50%,() 12/15/21 494,120 493,611 - ----------------------------------------------------------------------------------- Government National Mortgage Association (GNMA) REMICS, 4.25%, 01/20/27 52,899 52,882 - ----------------------------------------------------------------------------------- 4.75%, 10/16/29 to 12/20/29 25,688,003 25,898,770 =================================================================================== 691,630,769 =================================================================================== FEDERAL HOME LOAN MORTGAGE CORP. (FHLMC)-5.07% Pass Through Ctfs., 6.00%, 11/01/08 to 02/01/34 7,221,547 7,399,461 - ----------------------------------------------------------------------------------- 6.50%, 12/01/08 to 12/01/35 11,992,883 12,506,726 - ----------------------------------------------------------------------------------- 8.00%, 02/01/09 to 09/01/36 20,208,521 22,058,898 - ----------------------------------------------------------------------------------- 7.00%, 11/01/10 to 12/01/37 12,026,038 12,693,564 - ----------------------------------------------------------------------------------- 7.50%, 03/01/16 to 08/01/36 8,559,167 9,121,078 - ----------------------------------------------------------------------------------- 10.50%,() 08/01/19 8,073 9,082 - ----------------------------------------------------------------------------------- 8.50%, 09/01/20 to 08/01/31 1,572,905 1,737,143 - ----------------------------------------------------------------------------------- 10.00%,() 03/01/21 133,929 151,919 - ----------------------------------------------------------------------------------- 9.00%, 06/01/21 to 06/01/22 1,043,218 1,144,728 - ----------------------------------------------------------------------------------- 7.05%,() 05/20/27(a) 415,909 438,848 =================================================================================== 67,261,447 =================================================================================== FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)-10.77% Pass Through Ctfs., 6.00%, 05/01/09 to 03/01/37 7,605,580 7,765,435 - ----------------------------------------------------------------------------------- 6.50%, 10/01/10 to 11/01/37 14,648,753 15,235,315 - ----------------------------------------------------------------------------------- 7.00%, 12/01/10 to 06/01/36 41,408,123 43,518,998 - ----------------------------------------------------------------------------------- 7.50%, 08/01/11 to 07/01/37 26,657,035 28,600,505 - ----------------------------------------------------------------------------------- 8.50%, 06/01/12 to 08/01/37 10,461,511 11,423,012 - ----------------------------------------------------------------------------------- 8.00%, 06/01/12 to 11/01/37 29,952,547 32,172,454 - ----------------------------------------------------------------------------------- 10.00%, 09/01/13 to 03/01/16 68,948 74,041 - ----------------------------------------------------------------------------------- 5.00%, 11/01/17 to 12/01/33 2,050,850 2,038,687 - ----------------------------------------------------------------------------------- 5.50%,() 03/01/21 999 1,008 - ----------------------------------------------------------------------------------- 6.75%,() 07/01/24 1,640,215 1,729,649 - ----------------------------------------------------------------------------------- 6.95%, 10/01/25 to 09/01/26 234,663 249,197 =================================================================================== 142,808,301 ===================================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. GOVERNMENT SECURITIES FUND
PRINCIPAL AMOUNT VALUE - ----------------------------------------------------------------------------------- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA)-6.05% Pass Through Ctfs., 9.00%, 09/15/08 to 12/20/16 $ 170,700 $ 185,433 - ----------------------------------------------------------------------------------- 7.50%, 09/15/08 to 05/15/37 13,890,776 14,871,110 - ----------------------------------------------------------------------------------- 6.50%, 09/20/08 to 01/15/37 33,706,550 35,121,842 - ----------------------------------------------------------------------------------- 9.38%, 06/15/09 to 12/15/09 191,568 197,375 - ----------------------------------------------------------------------------------- 8.00%, 07/15/12 to 01/15/37 7,000,668 7,637,877 - ----------------------------------------------------------------------------------- 6.75%,() 08/15/13 112,264 117,023 - ----------------------------------------------------------------------------------- 11.00%,() 10/15/15 2,513 2,847 - ----------------------------------------------------------------------------------- 9.50%,() 09/15/16 3,550 3,910 - ----------------------------------------------------------------------------------- 7.00%, 04/15/17 to 03/15/37 11,589,997 12,307,471 - ----------------------------------------------------------------------------------- 10.50%, 09/15/17 to 11/15/19 4,559 5,150 - ----------------------------------------------------------------------------------- 8.50%, 12/15/17 to 01/15/37 1,710,378 1,863,384 - ----------------------------------------------------------------------------------- 10.00%,() 06/15/19 55,474 62,054 - ----------------------------------------------------------------------------------- 6.00%, 06/20/20 to 08/15/33 4,884,222 5,004,796 - ----------------------------------------------------------------------------------- 6.95%, 08/20/25 to 08/20/27 1,521,290 1,618,467 - ----------------------------------------------------------------------------------- 6.25%,() 06/15/27 195,885 201,849 - ----------------------------------------------------------------------------------- 6.38%, 10/20/27 to 09/20/28 1,086,614 1,122,345 =================================================================================== 80,322,933 =================================================================================== Total U.S. Government Sponsored Mortgage- Backed Securities (Cost $980,148,300) 982,023,450 =================================================================================== U.S. GOVERNMENT SPONSORED AGENCY SECURITIES-13.25% FEDERAL AGRICULTURAL MORTGAGE CORP.-0.84% Medium-Term Notes, 5.60%, 01/09/17(a) 11,000,000 11,199,540 =================================================================================== FEDERAL FARM CREDIT BANK (FFCB)-5.69% Bonds, 5.75%, 01/18/11(a) 2,000,000 2,106,800 - ----------------------------------------------------------------------------------- 5.59%, 10/04/21(a) 10,075,000 10,271,866 - ----------------------------------------------------------------------------------- 5.75%, 01/18/22(a) 2,775,000 2,822,813 - ----------------------------------------------------------------------------------- Disc. Notes, 2.05%, 07/08/08(b) 57,000,000 56,977,279 - ----------------------------------------------------------------------------------- Medium-Term Notes, 5.75%, 12/07/28(a) 3,100,000 3,277,444 =================================================================================== 75,456,202 =================================================================================== FEDERAL HOME LOAN BANK (FHLB)-5.29% Unsec. Bonds, 5.60%, 06/09/20(a) 2,150,000 2,153,246 - ----------------------------------------------------------------------------------- Unsec. Disc. Notes, 2.05%, 07/07/08(b) 68,000,000 67,976,767 =================================================================================== 70,130,013 =================================================================================== FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA)-0.50%(A) Sr. Unsec. Global Bonds, 6.63%,() 11/15/30(c) 700,000 830,963 - ----------------------------------------------------------------------------------- Sr. Unsec. Notes, 6.50%,() 11/25/25 4,762,000 4,773,429 - ----------------------------------------------------------------------------------- Unsec. Sub. Disc. Deb., 6.74%, 10/09/19(b) 1,000,000 549,630 - ----------------------------------------------------------------------------------- 7.37%, 10/09/19(b) 800,000 439,704 =================================================================================== 6,593,726 =================================================================================== PRIVATE EXPORT FUNDING CORP.-0.52%(A) Series G, Sec. Gtd. Notes, 6.67%, 9/15/09 6,601,000 6,875,734 =================================================================================== TENNESSEE VALLEY AUTHORITY-0.41%(A) Series A, Bonds, 6.79%, 05/23/12 5,000,000 5,505,350 =================================================================================== Total U.S. Government Sponsored Agency Securities (Cost $174,412,655) 175,760,565 =================================================================================== U.S. TREASURY SECURITIES-0.79%(A) U.S. TREASURY BILLS-0.19% 1.60%, 10/23/08(b)(c) 2,000,000 1,988,500 - ----------------------------------------------------------------------------------- 2.20%, 12/11/08(b)(c) 546,000 540,862 =================================================================================== 2,529,362 =================================================================================== U.S. TREASURY BONDS-0.39% 7.50%, 11/15/24(c) 2,815,000 3,786,625 - ----------------------------------------------------------------------------------- 7.63%, 02/15/25(c) 550,000 748,946 - ----------------------------------------------------------------------------------- 6.88%, 08/15/25(c) 500,000 637,265 =================================================================================== 5,172,836 =================================================================================== U.S. TREASURY STRIPS-0.21% 4.78%, 11/15/18(b)(c) 1,400,000 886,816 - ----------------------------------------------------------------------------------- 4.94%, 11/15/18(b)(c) 2,100,000 1,330,224 - ----------------------------------------------------------------------------------- 6.37%, 11/15/18(b)(c) 405,000 256,543 - ----------------------------------------------------------------------------------- 6.79%, 11/15/18(b)(c) 250,000 158,360 - ----------------------------------------------------------------------------------- 6.85%, 11/15/18(b)(c) 250,000 158,360 =================================================================================== 2,790,303 =================================================================================== Total U.S. Treasury Securities (Cost $9,658,982) 10,492,501 =================================================================================== FOREIGN SOVEREIGN BONDS-0.30% SOVEREIGN DEBT-0.30%(A) Israel Government Agency for International Development (AID) Bond (Israel), Gtd. Global Bonds, 5.13%, 11/01/24 (Cost $3,833,463) 3,800,000 3,948,618 ===================================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. GOVERNMENT SECURITIES FUND
SHARES VALUE - ----------------------------------------------------------------------------------- MONEY MARKET FUNDS-11.19% Government & Agency Portfolio-Institutional Class (Cost $148,357,119)(d) 148,357,119 $ 148,357,119 =================================================================================== TOTAL INVESTMENTS-99.57% (Cost $1,316,410,519) 1,320,582,253 =================================================================================== OTHER ASSETS LESS LIABILITIES-0.43% 5,688,780 =================================================================================== NET ASSETS-100.00% $1,326,271,033 ___________________________________________________________________________________ ===================================================================================
Investment Abbreviations: Ctfs. - Certificates Deb. - Debentures Disc. - Discounted Gtd. - Guaranteed REMICS - Real Estate Mortgage Investment Conduits Sec. - Secured Sr. - Senior STRIPS - Separately Traded Registered Interest and Principal Security Sub. - Subordinated Unsec. - Unsecured
Notes to Schedule of Investments: (a) In accordance with the procedures established by the Board of Trustees, security fair valued based on an evaluated quote provided by an independent pricing service. The aggregate value of these securities at June 30, 2008 was $1,047,271,089, which represented 78.96% of the Fund's Net Assets. See Note 1A. (b) Security traded on a discount basis. The interest rate shown represents the discount rate at the time of purchase by the Fund. (c) All or a portion of the value was pledged as collateral to cover margin requirements for open futures contracts. See Note 1N and Note 8. (d) The money market fund and the Fund are affiliated by having the same investment advisor. See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. GOVERNMENT SECURITIES FUND STATEMENT OF ASSETS AND LIABILITIES June 30, 2008 (Unaudited) ASSETS: Investments, at value (Cost $1,168,053,400) $1,172,225,134 - ------------------------------------------------------- Investments in affiliated money market funds (Cost $148,357,119) 148,357,119 ======================================================= Total investments (Cost $1,316,410,519) 1,320,582,253 ======================================================= Receivables for: Forward commitments -- Sales 18,470,156 - ------------------------------------------------------- Variation margin 209,899 - ------------------------------------------------------- Fund shares sold 932,044 - ------------------------------------------------------- Dividends and Interest 5,711,897 - ------------------------------------------------------- Fund expenses absorbed 33,733 - ------------------------------------------------------- Investment for trustee deferred compensation and retirement plans 50,596 - ------------------------------------------------------- Other assets 382 ======================================================= Total assets 1,345,990,960 _______________________________________________________ ======================================================= LIABILITIES: Payables for: Forward commitments, at value 18,593,442 - ------------------------------------------------------- Fund shares reacquired 93,837 - ------------------------------------------------------- Accrued fees to affiliates 823,979 - ------------------------------------------------------- Accrued other operating expenses 97,717 - ------------------------------------------------------- Trustee deferred compensation and retirement plans 110,952 ======================================================= Total liabilities 19,719,927 ======================================================= Net assets applicable to shares outstanding $1,326,271,033 _______________________________________________________ ======================================================= NET ASSETS CONSIST OF: Shares of beneficial interest $1,282,070,564 - ------------------------------------------------------- Undistributed net investment income 85,206,279 - ------------------------------------------------------- Undistributed net realized gain (loss) (50,019,904) - ------------------------------------------------------- Unrealized appreciation 9,014,094 ======================================================= $1,326,271,033 _______________________________________________________ ======================================================= NET ASSETS: Series I $1,308,375,428 _______________________________________________________ ======================================================= Series II $ 17,895,605 _______________________________________________________ ======================================================= SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED NUMBER OF SHARES AUTHORIZED: Series I 105,380,807 _______________________________________________________ ======================================================= Series II 1,450,797 _______________________________________________________ ======================================================= Series I: Net asset value per share $ 12.42 _______________________________________________________ ======================================================= Series II: Net asset value per share $ 12.34 _______________________________________________________ =======================================================
STATEMENT OF OPERATIONS For the six months ended June 30, 2008 (Unaudited) INVESTMENT INCOME: Interest $32,869,522 - ------------------------------------------------------ Dividends from affiliated money market funds 408,769 ====================================================== Total investment income 33,278,291 ====================================================== EXPENSES: Advisory fees 2,987,259 - ------------------------------------------------------ Administrative services fees 1,760,167 - ------------------------------------------------------ Custodian fees 110,843 - ------------------------------------------------------ Distribution fees -- Series II 24,013 - ------------------------------------------------------ Transfer agent fees 8,306 - ------------------------------------------------------ Trustees' and officer's fees and benefits 24,484 - ------------------------------------------------------ Other 65,420 ====================================================== Total expenses 4,980,492 ====================================================== Less: Fees waived and expense offset arrangement(s) (215,034) - ------------------------------------------------------ Net expenses 4,765,458 ====================================================== Net investment income 28,512,833 ====================================================== REALIZED AND UNREALIZED GAIN (LOSS) FROM: Net realized gain from: Investment securities 178,930 - ------------------------------------------------------ Futures contracts 4,474,035 ====================================================== 4,652,965 ====================================================== Change in net unrealized appreciation (depreciation) of: Investment securities (1,650,066) - ------------------------------------------------------ Futures contracts 4,786,789 ====================================================== 3,136,723 ====================================================== Net realized and unrealized gain 7,789,688 ====================================================== Net increase in net assets resulting from operations $36,302,521 ______________________________________________________ ======================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. GOVERNMENT SECURITIES FUND STATEMENT OF CHANGES IN NET ASSETS For the six months ended June 30, 2008 and the year ended December 31, 2007 (Unaudited)
JUNE 30, DECEMBER 31, 2008 2007 - ---------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income $ 28,512,833 $ 52,094,836 - ---------------------------------------------------------------------------------------------------------- Net realized gain 4,652,965 4,286,420 - ---------------------------------------------------------------------------------------------------------- Change in net unrealized appreciation 3,136,723 11,480,413 ========================================================================================================== Net increase in net assets resulting from operations 36,302,521 67,861,669 ========================================================================================================== Distributions to shareholders from net investment income: Series I -- (45,822,129) - ---------------------------------------------------------------------------------------------------------- Series II -- (650,568) ========================================================================================================== Total distributions from net investment income -- (46,472,697) ========================================================================================================== Share transactions-net: Series I 102,643,399 241,536,480 - ---------------------------------------------------------------------------------------------------------- Series II (1,429,766) 2,208,083 ========================================================================================================== Net increase in net assets resulting from share transactions 101,213,633 243,744,563 ========================================================================================================== Net increase in net assets 137,516,154 265,133,535 __________________________________________________________________________________________________________ ========================================================================================================== NET ASSETS: Beginning of period 1,188,754,879 923,621,344 ========================================================================================================== End of period (including undistributed net investment income of $85,206,279 and $56,693,446, respectively) $1,326,271,033 $1,188,754,879 __________________________________________________________________________________________________________ ==========================================================================================================
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 June 30, 2008 (Unaudited) NOTE 1--SIGNIFICANT ACCOUNTING POLICIES AIM V.I. Government Securities Fund (the "Fund") is a series portfolio of AIM Variable Insurance Funds (the "Trust"). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of twenty separate portfolios, (each constituting a "Fund"). 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 Fund or class will be voted on exclusively by the shareholders of such Fund 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 Fund 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 a high level of current income consistent with reasonable concern for safety of principal. 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, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. 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 prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. 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, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. 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. Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer's assets, general economic conditions, interest rates, investor perceptions and market liquidity. 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. AIM V.I. GOVERNMENT SECURITIES FUND The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds as received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. 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, the investment advisor 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. The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. 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 by a significant amount. 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. OTHER RISKS -- The Funds may invest in obligations issued by agencies and instrumentalities of the U.S. government that may vary in the level of support they receive from the government. The government may choose not to provide financial support to government sponsored agencies or instrumentalities if it is not legally obligated to do so. In this case, if the issuer defaulted, the underlying fund holding securities of such issuer might not be able to recover its investment from the U.S. Government. Many securities purchased by the Fund are not guaranteed by the U.S. Government. J. DOLLAR ROLL AND FORWARD COMMITMENT TRANSACTIONS -- The Fund may engage in dollar roll and forward commitment transactions with respect to mortgage- backed securities issued by GNMA, FNMA and FHLMC. These transactions are often conducted on a to be announced ("TBA") basis. In a TBA mortgage- backed transaction, the seller does not specify the particular securities to be delivered. Rather, a Fund agrees to accept any security that meets specified terms, such as an agreed upon issuer, coupon rate and terms of the underlying mortgages. TBA mortgage-backed transactions generally settle once a month on a specific date. 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 coupon 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. Forward commitment transactions involve commitments by the Fund to acquire or sell TBA mortgage-backed securities from/to a financial institution, such as a bank or broker-dealer at a specified future date and amount. The TBA mortgage-backed security is marked to market until settlement and the unrealized appreciation or depreciation is recorded in the statement of operations. AIM V.I. GOVERNMENT SECURITIES FUND At the time the Fund enters into the dollar roll or forward commitment transaction, mortgage-backed securities or other liquid assets held by the Fund having a dollar value equal to the purchase price or in an amount sufficient to honor the forward commitment will be segregated. 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. Forward commitment transactions involve the risk that a counter-party to the transaction may fail to complete the transaction. If this occurs, the Fund may lose the opportunity to purchase or sell the security at the agreed upon price. Settlement dates of forward commitment transactions may be a month or more after entering into these transactions and as a result the market values of the securities may vary from the purchase or sale prices. Therefore, forward commitment transactions may increase the Fund's overall interest rate exposure. K. 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 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. L. 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. M. 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. 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 recalculating the value of the contracts on a daily basis. 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. 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. AIM V.I. GOVERNMENT SECURITIES FUND NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES The Trust has entered into a master investment advisory agreement with Invesco Aim Advisors, Inc. (the "Advisor" or "Invesco Aim"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Advisor based on the annual rate of the Fund's average daily net assets as follows:
AVERAGE NET ASSETS RATE - ------------------------------------------------------------------- First $250 million 0.50% - ------------------------------------------------------------------- Over $250 million 0.45% ___________________________________________________________________ ===================================================================
Under the terms of a master sub-advisory agreement approved by shareholders of the Fund on February 29, 2008, effective May 1, 2008, between the Advisor and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Global Asset Management (N.A.), Inc., Invesco Hong Kong Limited, Invesco Institutional (N.A.), Inc., Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the "Affiliated Sub-Advisors") the Advisor, not the Fund, may pay 40% of the fees paid to the Advisor to any such Affiliated Sub- Advisor(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Advisor(s). The Advisor 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, 2010. 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 Invesco Ltd. ("Invesco") 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. These credits are used to pay certain expenses incurred by the Fund. To the extent that the annualized expense ratio does not exceed the expense limitation, AIM will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year. Further, the Advisor has contractually agreed, through at least April 30, 2010, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Advisor receives from the affiliated money market funds on investments by the Fund of uninvested cash in such affiliated money market funds. For the six months ended June 30, 2008, the Advisor waived advisory fees of $210,781. At the request of the Trustees of the Trust, Invesco agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the six months ended June 30, 2008, Invesco did not reimburse any expenses. The Trust has entered into a master administrative services agreement with Invesco Aim pursuant to which the Fund has agreed to pay Invesco Aim a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco Aim for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants' accounts. Pursuant to such agreement, for the six months ended June 30, 2008, Invesco Aim was paid $154,478 for accounting and fund administrative services and reimbursed $1,605,689 for services provided by insurance companies. The Trust has entered into a transfer agency and service agreement with Invesco Aim Investment Services, Inc. ("IAIS") pursuant to which the Fund has agreed to pay IAIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IAIS for certain expenses incurred by IAIS in the course of providing such services. For the six months ended June 30, 2008, expenses incurred under the agreement are shown in the Statement of Operations as transfer agent fees. Certain officers and trustees of the Trust are officers and directors of Invesco Aim, IAIS and/or IADI. The Trust has entered into a master distribution agreement with Invesco Aim Distributors, Inc. ("IADI") 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 IADI 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 six months ended June 30, 2008, expenses incurred under the Plan are detailed in the Statement of Operations as distribution fees. NOTE 3--SUPPLEMENTAL INFORMATION The Fund adopted the provisions of Statement of Financial Accounting Standards No. 157, "Fair Value Measurements" (SFAS 157), effective with the beginning of the Fund's fiscal year. SFAS 157 establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (level 1) and the lowest priority to unobservable inputs (level 3) market prices are not readily available or are unreliable. Based on the inputs the securities or other instruments are tiered into three levels of hierarchy under SFAS 157. Changes in valuation methods may result in transfers in or out of an investment's assigned level within the hierarchy, Level 1--Quoted prices in an active market for identical assets. Level 2--Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk and others. AIM V.I. GOVERNMENT SECURITIES FUND Level 3--Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund's own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. Below is a summary of the tiered input levels, as of the end of the reporting period, June 30, 2008. The inputs or methods used for valuing securities may not be an indication of the risk associated with investing in those securities.
INVESTMENTS OTHER INPUT LEVEL IN SECURITIES INVESTMENTS* - -------------------------------------------------------------------------------------------------------- Level 1 $ 148,357,119 $4,965,646 - -------------------------------------------------------------------------------------------------------- Level 2 1,172,225,134 (123,286) - -------------------------------------------------------------------------------------------------------- Level 3 -- -- ======================================================================================================== $1,320,582,253 $4,842,360 ________________________________________________________________________________________________________ ========================================================================================================
* Other investments include open futures contracts and unsettled forward commitments, which are included at unrealized appreciation/(depreciation). NOTE 4--EXPENSE OFFSET ARRANGEMENT The expense offset arrangement is comprised of custodian credits which result from periodic overnight cash balances at the custodian. For the six months ended June 30, 2008, the Fund received credits from this arrangement, which resulted in the reduction of the Fund's total expenses of $4,253. 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 certain Trustees and Officers of the Fund. 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, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund. During the six months ended June 30, 2008, the Fund paid legal fees of $2,898 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--CASH BALANCES The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The State Street Bank and Trust Company ("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 Invesco Aim, not to exceed the contractually agreed upon rate. NOTE 7--OPEN FORWARD COMMITMENTS -- SALES
COMMITMENT PRINCIPAL VALUE CONTRACT DATE AMOUNT 06/30/08 - ------------------------------------------------------------------------------------------------------------- GOVERNMENT NATIONAL MORTGAGE ASSOCIATION (GNMA) Pass Through Ctfs., TBA 6.50%, 07/01/38 08/20/08 $18,000,000 $18,593,442 _____________________________________________________________________________________________________________ =============================================================================================================
NOTE 8--FUTURES CONTRACTS
OPEN FUTURES CONTRACTS AT PERIOD-END - --------------------------------------------------------------------------------------------------------------------------- UNREALIZED NUMBER OF MONTH/ VALUE APPRECIATION CONTRACT CONTRACTS COMMITMENT 06/30/08 (DEPRECIATION) - --------------------------------------------------------------------------------------------------------------------------- U.S. Treasury 2 Year Notes 55 September-2008/Long $ 11,616,172 $ 10,189 - --------------------------------------------------------------------------------------------------------------------------- U.S. Treasury 5 Year Notes 1,063 September-2008/Long 117,519,634 (60,524) - --------------------------------------------------------------------------------------------------------------------------- U.S. Treasury 10 Year Notes 2,022 September-2008/Long 230,350,031 3,385,888 - --------------------------------------------------------------------------------------------------------------------------- U.S. Treasury Long Bonds 1,764 September-2008/Long 203,907,375 1,630,093 =========================================================================================================================== $563,393,212 $4,965,646 ___________________________________________________________________________________________________________________________ ===========================================================================================================================
AIM V.I. GOVERNMENT SECURITIES FUND NOTE 9--TAX INFORMATION The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund's fiscal year-end. Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions. The Fund had a capital loss carryforward as of December 31, 2007 which expires as follows:
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 - ----------------------------------------------------------------------------------------------- December 31, 2015 4,095,457 =============================================================================================== Total capital loss carryforward $54,493,981 _______________________________________________________________________________________________ ===============================================================================================
* 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 six months ended June 30, 2008 was $1,302,073,654 and $1,095,775,005, respectively. During the same period, purchases and sales of U.S. Treasury obligations were $20,449,161 and $20,674,912. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period end.
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS - ------------------------------------------------------------------------------------------------ Aggregate unrealized appreciation of investment securities $ 6,698,373 - ------------------------------------------------------------------------------------------------ Aggregate unrealized (depreciation) of investment securities (2,649,956) ================================================================================================ Net unrealized appreciation of investment securities $ 4,048,417 ________________________________________________________________________________________________ ================================================================================================ Cost of investments for tax purposes is $1,297,940,394.
NOTE 11--SHARE INFORMATION
CHANGES IN SHARES OUTSTANDING - ------------------------------------------------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED JUNE 30, 2008(a) DECEMBER 31, 2007 ----------------------------- --------------------------- SHARES AMOUNT SHARES AMOUNT - ------------------------------------------------------------------------------------------------------------------------- Sold: Series I 18,389,283 $ 225,998,422 23,152,709 $278,908,747 - ------------------------------------------------------------------------------------------------------------------------- Series II 362,973 4,439,909 442,120 5,311,096 ========================================================================================================================= Issued as reinvestment of dividends: Series I -- -- 3,834,488 45,822,129 - ------------------------------------------------------------------------------------------------------------------------- Series II -- -- 54,716 650,568 ========================================================================================================================= Reacquired: Series I (10,045,566) (123,355,023) (6,854,490) (83,194,396) - ------------------------------------------------------------------------------------------------------------------------- Series II (477,069) (5,869,675) (313,409) (3,753,581) ========================================================================================================================= 8,229,621 $ 101,213,633 20,316,134 $243,744,563 _________________________________________________________________________________________________________________________ =========================================================================================================================
(a) There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate they own 93% of the outstanding shares of the Fund. The Fund and the Fund's principal underwriter or advisor, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, AIM and/or AIM affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, AIM and or AIM affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. AIM V.I. GOVERNMENT SECURITIES FUND NOTE 12--NEW ACCOUNTING STANDARD In March 2008, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities. The standard is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity's financial position and financial performance. It is effective for financial statements issued for fiscal years beginning after November 15, 2008. Management is currently in the process of determining the impact of the standard on the Fund's disclosures in the financial statements. NOTE 13--FINANCIAL HIGHLIGHTS The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
SERIES I ----------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, -------------------------------------------------------------- 2008 2007 2006 2005 2004 2003 - -------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 12.06 $ 11.80 $ 11.87 $ 12.07 $ 12.23 $ 12.40 - -------------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income(a) 0.27 0.59 0.55 0.45 0.40 0.36 - -------------------------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) 0.09 0.16 (0.13) (0.25) (0.09) (0.23) ================================================================================================================================ Total from investment operations 0.36 0.75 0.42 0.20 0.31 0.13 ================================================================================================================================ Less distributions: Dividends from net investment income -- (0.49) (0.49) (0.40) (0.47) (0.30) - -------------------------------------------------------------------------------------------------------------------------------- Distributions from net realized gains -- -- -- -- -- (0.00) ================================================================================================================================ Total distributions -- (0.49) (0.49) (0.40) (0.47) (0.30) ================================================================================================================================ Net asset value, end of period $ 12.42 $ 12.06 $ 11.80 $ 11.87 $ 12.07 $ 12.23 ________________________________________________________________________________________________________________________________ ================================================================================================================================ Total return(b) 2.99% 6.43% 3.55% 1.66% 2.56% 1.07% ________________________________________________________________________________________________________________________________ ================================================================================================================================ Ratios/supplemental data: Net assets, end of period (000s omitted) $1,308,375 $1,169,985 $907,403 $812,824 $652,226 $526,482 ________________________________________________________________________________________________________________________________ ================================================================================================================================ Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 0.73%(c) 0.73% 0.71% 0.85% 0.87% 0.76% - -------------------------------------------------------------------------------------------------------------------------------- Without fee waivers and/or expense reimbursements 0.76%(c) 0.76% 0.77% 0.88% 0.87% 0.76% ================================================================================================================================ Ratio of net investment income to average net assets 4.39%(c) 4.93% 4.62% 3.68% 3.20% 2.93% ________________________________________________________________________________________________________________________________ ================================================================================================================================ Portfolio turnover rate(d) 95% 106% 89% 174% 95% 265% ________________________________________________________________________________________________________________________________ ================================================================================================================================
(a) Calculated using average shares outstanding. (b) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. (c) Ratios are annualized and based on average daily net assets of $1,287,871,269. (d) Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year. AIM V.I. GOVERNMENT SECURITIES FUND NOTE 13--FINANCIAL HIGHLIGHTS--(CONTINUED)
SERIES II ---------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ------------------------------------------------------- 2008 2007 2006 2005 2004 2003 - ---------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 11.99 $ 11.74 $ 11.81 $ 12.01 $ 12.17 $ 12.35 - ---------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income(a) 0.25 0.56 0.52 0.41 0.36 0.33 - ---------------------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) 0.10 0.15 (0.13) (0.24) (0.08) (0.22) ============================================================================================================================ Total from investment operations 0.35 0.71 0.39 0.17 0.28 0.11 ============================================================================================================================ Less distributions: Dividends from net investment income -- (0.46) (0.46) (0.37) (0.44) (0.29) - ---------------------------------------------------------------------------------------------------------------------------- Distributions from net realized gains -- -- -- -- -- (0.00) ============================================================================================================================ Total distributions -- (0.46) (0.46) (0.37) (0.44) (0.29) ============================================================================================================================ Net asset value, end of period $ 12.34 $ 11.99 $ 11.74 $ 11.81 $ 12.01 $ 12.17 ____________________________________________________________________________________________________________________________ ============================================================================================================================ Total return(b) 2.92% 6.11% 3.28% 1.41% 2.27% 0.93% ____________________________________________________________________________________________________________________________ ============================================================================================================================ Ratios/supplemental data: Net assets, end of period (000s omitted) $17,896 $18,770 $16,218 $18,863 $17,728 $22,325 ____________________________________________________________________________________________________________________________ ============================================================================================================================ Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 0.98%(c) 0.98% 0.96% 1.10% 1.12% 1.01% - ---------------------------------------------------------------------------------------------------------------------------- Without fee waivers and/or expense reimbursements 1.01%(c) 1.01% 1.02% 1.13% 1.12% 1.01% ============================================================================================================================ Ratio of net investment income to average net assets 4.14%(c) 4.68% 4.37% 3.43% 2.95% 2.68% ____________________________________________________________________________________________________________________________ ============================================================================================================================ Portfolio turnover rate(d) 95% 106% 89% 174% 95% 265% ____________________________________________________________________________________________________________________________ ============================================================================================================================
(a) Calculated using average shares outstanding. (b) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. (c) Ratios are annualized and based on average daily net assets of $19,316,330. (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. 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 Invesco Aim and IADI (Order No. 05-1318). The WVASC makes findings of fact that Invesco Aim and IADI 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 Invesco Aim and IADI violated the West Virginia securities laws. The WVASC orders Invesco Aim and IADI 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. By agreement with the Commissioner of Securities, Invesco Aim's time to respond to that Order has been indefinitely suspended. Civil lawsuits, including purported class action and shareholder derivative suits, have been filed against certain of the AIM Funds, Invesco Funds Group, Inc. ("IFG"), Invesco Aim, IADI 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; and - that certain AIM Funds inadequately employed fair value pricing. These lawsuits allege as theories of recovery, depending on the lawsuit, violations of various provisions of the Federal and state securities laws Employee Retirement Income Security Act of 1974, as amended ("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. The case pending in Illinois State Court regarding fair value pricing was dismissed with prejudice on May 6, 2008. 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 Invesco 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 ERISA purportedly brought on behalf of participants in the Invesco 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 AIM V.I. GOVERNMENT SECURITIES FUND NOTE 14--LEGAL PROCEEDINGS--(CONTINUED) remain nominal defendants in the Consolidated Amended Fund Derivative Complaint. On September 15, 2006, the MDL Court granted the Invesco defendants' motion to dismiss the Amended Class Action Complaint for Violations of ERISA and dismissed such Complaint. Plaintiff appealed this ruling. On June 16, 2008, the Fourth Court of Appeals reversed the dismissal and remanded this lawsuit back to the MDL Court for further proceedings. IFG, Invesco Aim, IADI 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, Invesco Aim and IADI 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, Invesco Aim and/or related entities and individuals in the future. At the present time, management of Invesco 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 Invesco Aim, IADI or the Fund. AIM V.I. GOVERNMENT SECURITIES FUND CALCULATING YOUR ONGOING FUND EXPENSES EXAMPLE As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2008, through June 30, 2008. The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower. ACTUAL EXPENSES The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled "Actual Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
- --------------------------------------------------------------------------------------------------- HYPOTHETICAL (5% ANNUAL RETURN BEFORE ACTUAL EXPENSES) ------------------------------------------------------ BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE CLASS (01/01/08) (06/30/08)(1) PERIOD(2) (06/30/08) PERIOD(2) RATIO - --------------------------------------------------------------------------------------------------- Series I $1,000.00 $1,030.70 $3.69 $1,021.23 $3.67 0.73% - --------------------------------------------------------------------------------------------------- Series II 1,000.00 1,029.20 4.94 1,019.99 4.92 0.98 - ---------------------------------------------------------------------------------------------------
(1) The actual ending account value is based on the actual total return of the Fund for the period January 1, 2008, through June 30, 2008, 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 182/366 to reflect the most recent fiscal half year. AIM V.I. GOVERNMENT SECURITIES FUND APPROVAL OF INVESTMENT ADVISORY AGREEMENT The Board of Trustees (the Board) of AIM their assigned funds. During the contract ated the information provided differently Variable Insurance Funds is required under renewal process, the Trustees receive from one another and attributed different the Investment Company Act of 1940 to comparative performance and fee data weight to the various factors. The approve annually the renewal of the AIM regarding the AIM Funds prepared by an Trustees recognized that the advisory V.I. Government Securities Fund (the Fund) independent company, Lipper, Inc. arrangements and resulting advisory fees investment advisory agreement with Invesco (Lipper), under the direction and for the Fund and the other AIM Funds are Aim Advisors, Inc. (Invesco Aim). During supervision of the independent Senior the result of years of review and contract renewal meetings held on June Officer who also prepares a separate negotiation between the Trustees and 18-19, 2008, the Board as a whole and the analysis of this information for the Invesco Aim, that the Trustees may focus disinterested or "independent" Trustees, Trustees. Each Sub-Committee then makes to a greater extent on certain aspects of voting separately, approved the recommendations to the Investments these arrangements in some years than in continuance of the Fund's investment Committee regarding the performance, fees others, and that the Trustees' advisory agreement for another year, and expenses of their assigned funds. The deliberations and conclusions in a effective July 1, 2008. In doing so, the Investments Committee considers each particular year may be based in part on Board determined that the Fund's Sub-Committee's recommendations and makes their deliberations and conclusions of investment advisory agreement is in the its own recommendations regarding the these same arrangements throughout the best interests of the Fund and its performance, fees and expenses of the AIM year and in prior years. shareholders and that the compensation to Funds to the full Board. The Investments Invesco Aim under the Fund's investment Committee also considers each FACTORS AND CONCLUSIONS AND SUMMARY OF advisory agreement is fair and reasonable. Sub-Committee's recommendations in making INDEPENDENT WRITTEN FEE EVALUATION The independent Trustees met separately its annual recommendation to the Board The discussion below serves as a summary during their evaluation of the Fund's whether to approve the continuance of each of the Senior Officer's independent investment advisory agreement with AIM Fund's investment advisory agreement written evaluation with respect to the independent legal counsel from whom they and sub-advisory agreements for another Fund's investment advisory agreement as received independent legal advice, and the year. well as a discussion of the material independent Trustees also received The independent Trustees are assisted factors and related conclusions that assistance during their deliberations from in their annual evaluation of the Fund's formed the basis for the Board's approval the independent Senior Officer, a investment advisory agreement by the of the Fund's investment advisory full-time officer of the AIM Funds who independent Senior Officer. One agreement and sub-advisory agreements. reports directly to the independent responsibility of the Senior Officer is to Unless otherwise stated, information set Trustees. manage the process by which the AIM Funds' forth below is as of June 19, 2008 and proposed management fees are negotiated does not reflect any changes that may have THE BOARD'S FUND EVALUATION PROCESS during the annual contract renewal process occurred since that date, including but The Board's Investments Committee has to ensure that they are negotiated in a not limited to changes to the Fund's established three Sub-Committees that are manner that is at arms' length and performance, advisory fees, expense responsible for overseeing the management reasonable. Accordingly, the Senior limitations and/or fee waivers. of a number of the series portfolios of Officer must either supervise a the AIM Funds. This Sub-Committee competitive bidding process or prepare an I. Investment Advisory Agreement structure permits the Trustees to focus on independent written evaluation. The Senior A. Nature, Extent and Quality of the performance of the AIM Funds that have Officer has recommended that an Services Provided by Invesco Aim been assigned to them. The Sub-Committees independent written evaluation be provided The Board reviewed the advisory services meet throughout the year to review the and, at the direction of the Board, has provided to the Fund by Invesco Aim under performance of their assigned funds, and prepared an independent written the Fund's investment advisory agreement, the Sub-Committees review monthly and evaluation. the performance of Invesco Aim in quarterly comparative performance During the annual contract renewal providing these services, and the information and periodic asset flow data process, the Board considered the factors credentials and experience of the officers for their assigned funds. These materials discussed below under the heading "Factors and employees of Invesco Aim who provide are prepared under the direction and and Conclusions and Summary of Independent these services. The Board's review of the supervision of the independent Senior Written Fee Evaluation" in evaluating the qualifications of Invesco Aim to provide Officer. Over the course of each year, the fairness and reasonableness of the Fund's these services included the Board's Sub-Committees meet with portfolio investment advisory agreement and consideration of Invesco Aim's portfolio managers for their assigned funds and sub-advisory agreements at the contract and product review process, various back other members of management and review renewal meetings and at their meetings office support functions provided by with these individuals the performance, throughout the year as part of their Invesco Aim and its affiliates, and investment objective(s), policies, ongoing oversight of the Fund. The Fund's Invesco Aim's equity and fixed income strategies and limitations of these funds. investment advisory agreement and trading operations. The Board concluded In addition to their meetings sub-advisory agreements were considered that the nature, extent and quality of the throughout the year, the Sub-Committees separately, although the Board also advisory services provided to the Fund by meet at designated contract renewal considered the common interests of all of Invesco Aim were appropriate and that meetings each year to conduct an in-depth the AIM Funds in their deliberations. The Invesco Aim currently is providing review of the performance, fees and Board considered all of the information satisfactory advisory services in expenses of provided to them and did not identify any accordance with the terms of the Fund's particular factor that was controlling. investment advisory agreement. In Each Trustee may have evalu- addition, based on their ongoing meetings throughout the year continued
AIM V.I. GOVERNMENT SECURITIES FUND with the Fund's portfolio manager or improve the quality and efficiency of the that the level of the Fund's advisory managers, the Board concluded that these services that Invesco Aim provides to the fees, as a percentage of the Fund's net individuals are competent and able to AIM Funds. The Board concluded that assets, has decreased as net assets continue to carry out their Invesco Aim continues to be responsive to increased because of the breakpoint. Based responsibilities under the Fund's the Board's focus on fund performance. on this information, the Board concluded investment advisory agreement. Although the independent written that the Fund's advisory fees In determining whether to continue the evaluation of the Fund's Senior Officer appropriately reflect economies of scale Fund's investment advisory agreement, the only considered Fund performance through at current asset levels. The Board also Board considered the prior relationship the most recent calendar year, the Board noted that the Fund shares directly in between Invesco Aim and the Fund, as well also reviewed more recent Fund performance economies of scale through lower fees as the Board's knowledge of Invesco Aim's and this review did not change their charged by third party service providers operations, and concluded that it was conclusions. based on the combined size of all of the beneficial to maintain the current AIM Funds and affiliates. relationship, in part, because of such C. Advisory Fees and Fee Waivers knowledge. The Board also considered the The Board compared the Fund's contractual E. Profitability and Financial steps that Invesco Aim and its affiliates advisory fee rate to the contractual Resources of Invesco Aim have taken over the last several years to advisory fee rates of funds in the Fund's The Board reviewed information from improve the quality and efficiency of the Lipper expense group that are not managed Invesco Aim concerning the costs of the services they provide to the AIM Funds in by Invesco Aim, at a common asset level advisory and other services that Invesco the areas of investment performance, and as of the end of the past calendar Aim and its affiliates provide to the Fund product line diversification, year. The Board noted that the Fund's and the profitability of Invesco Aim and distribution, fund operations, shareholder contractual advisory fee rate was below its affiliates in providing these services and compliance. The Board the median contractual advisory fee rate services. The Board also reviewed concluded that the quality and efficiency of funds in its expense group. The Board information concerning the financial of the services Invesco Aim and its also reviewed the methodology used by condition of Invesco Aim and its affiliates provide to the AIM Funds in Lipper in determining contractual fee affiliates. The Board also reviewed with each of these areas have generally rates. The Board noted that Invesco Aim Invesco Aim the methodology used to improved, and support the Board's approval does not serve as an advisor to other prepare the profitability information. The of the continuance of the Fund's mutual funds or other clients with Board considered the overall profitability investment advisory agreement. investment strategies comparable to those of Invesco Aim, as well as the of the Fund. profitability of Invesco Aim in connection B. Fund Performance The Board noted that Invesco Aim has with managing the Fund. The Board noted The Board compared the Fund's performance contractually agreed to waive fees and/or that Invesco Aim continues to operate at a during the past one, three and five limit expenses of the Fund through at net profit, although increased expenses in calendar years to the performance of funds least April 30, 2010 in an amount recent years have reduced the in the Fund's performance group that are necessary to limit total annual operating profitability of Invesco Aim and its not managed by Invesco Aim, and against expenses to a specified percentage of affiliates. The Board concluded that the the performance of all funds in the Lipper average daily net assets for each class of Fund's fees were fair and reasonable, and Variable Annuity Underlying Funds -- the Fund. The Board considered the that the level of profits realized by General U.S. Government Index. The Board contractual nature of this fee waiver and Invesco Aim and its affiliates from also reviewed the criteria used by Invesco noted that it remains in effect until at providing services to the Fund was not Aim to identify the funds in the Fund's least April 30, 2010. The Board also excessive in light of the nature, quality performance group for inclusion in the considered the effect this expense and extent of the services provided. The Lipper reports. The Board noted that the limitation would have on the Fund's Board considered whether Invesco Aim is Fund's performance was in the third estimated total expenses. financially sound and has the resources quintile of its performance group for the After taking account of the Fund's necessary to perform its obligations under one year period, and the fourth quintile contractual advisory fee rate, as well as the Fund's investment advisory agreement, for the three and five year periods (the the comparative advisory fee information and concluded that Invesco Aim has the first quintile being the best performing and the expense limitation discussed financial resources necessary to fulfill funds and the fifth quintile being the above, the Board concluded that the Fund's these obligations. worst performing funds). The Board noted advisory fees were fair and reasonable. that the Fund's performance was below the F. Independent Written Evaluation of performance of the Index for the one, D. Economies of Scale and Breakpoints the Fund's Senior Officer three and five year periods. The Board The Board considered the extent to which The Board noted that, at their direction, noted that Invesco Aim made changes to the there are economies of scale in Invesco the Senior Officer of the Fund, who is Fund's portfolio management team in 2007 Aim's provision of advisory services to independent of Invesco Aim and Invesco and in 2008, which need more time to be the Fund. The Board also considered Aim's affiliates, had prepared an evaluated before a conclusion can be whether the Fund benefits from such independent written evaluation to assist reached that the changes have adequately economies of scale through contractual the Board in determining the addressed the Fund's underperformance. The breakpoints in the Fund's advisory fee reasonableness of the proposed management Board also considered the steps Invesco schedule or through advisory fee waivers fees of the AIM Funds, including the Fund. Aim has taken over the last several years or expense limitations. The Board noted The Board noted that they had relied upon to that the Fund's contractual advisory fee the Senior Officer's written evaluation schedule includes one breakpoint and instead of a competitive bidding process. In determining whether to continue the continued
AIM V.I. GOVERNMENT SECURITIES FUND Fund's investment advisory agreement, the investments, although Invesco Aim has whether to approve the sub-advisory Board considered the Senior Officer's contractually agreed to waive through at agreements for the Fund, as no Affiliated written evaluation. least April 30, 2010, the advisory fees Sub-Adviser served as a sub-adviser to the payable by the Fund in an amount equal to Fund prior to May 1, 2008. G. Collateral Benefits to Invesco Aim 100% of the net advisory fees Invesco Aim and its Affiliates receives from the affiliated money market C. Sub-Advisory Fees The Board considered various other funds with respect to the Fund's The Board considered the services to be benefits received by Invesco Aim and its investment of uninvested cash, but not provided by the Affiliated Sub-Advisers affiliates resulting from Invesco Aim's cash collateral. The Board considered the pursuant to the sub-advisory agreements relationship with the Fund, including the contractual nature of this fee waiver and and the services to be provided by Invesco fees received by Invesco Aim and its noted that it remains in effect until at Aim pursuant to the Fund's investment affiliates for their provision of least April 30, 2010. The Board concluded advisory agreement, as well as the administrative, transfer agency and that the Fund's investment of uninvested allocation of fees between Invesco Aim and distribution services to the Fund. The cash and cash collateral from any the Affiliated Sub-Advisers pursuant to Board considered the performance of securities lending arrangements in the the sub-advisory agreements. The Board Invesco Aim and its affiliates in affiliated money market funds is in the noted that the sub-advisory fees have no providing these services and the best interests of the Fund and its direct effect on the Fund or its organizational structure employed by shareholders. shareholders, as they are paid by Invesco Invesco Aim and its affiliates to provide Aim to the Affiliated Sub-Advisers, and these services. The Board also considered II. Sub-Advisory Agreements that Invesco Aim and the Affiliated that these services are provided to the A. Nature, Extent and Quality of Sub-Advisers are affiliates. After taking Fund pursuant to written contracts which Services Provided by Affiliated account of the Fund's contractual are reviewed and approved on an annual Sub-Advisors sub-advisory fee rate, as well as other basis by the Board. The Board concluded The Board reviewed the services to be relevant factors, the Board concluded that that Invesco Aim and its affiliates were provided by Invesco Trimark Ltd., Invesco the Fund's sub-advisory fees were fair and providing these services in a satisfactory Asset Management Deutschland, GmbH, reasonable. manner and in accordance with the terms of Invesco Asset Management Limited, Invesco their contracts, and were qualified to Asset Management (Japan) Limited, Invesco D. Financial Resources of the continue to provide these services to the Australia Limited, Invesco Global Asset Affiliated Sub-Advisers Fund. Management (N.A.), Inc., Invesco Hong Kong The Board considered whether each The Board considered the benefits Limited, Invesco Institutional (N.A.), Affiliated Sub-Adviser is financially realized by Invesco Aim as a result of Inc. and Invesco Senior Secured sound and has the resources necessary to portfolio brokerage transactions executed Management, Inc. (collectively, the perform its obligations under its through "soft dollar" arrangements. Under "Affiliated Sub-Advisers") under the respective sub-advisory agreement, and these arrangements, portfolio brokerage sub-advisory agreements and the concluded that each Affiliated Sub-Adviser commissions paid by the Fund and/or other credentials and experience of the officers has the financial resources necessary to funds advised by Invesco Aim are used to and employees of the Affiliated fulfill these obligations. pay for research and execution services. Sub-Advisers who will provide these The Board noted that soft dollar services. The Board concluded that the arrangements shift the payment obligation nature, extent and quality of the services for the research and execution services to be provided by the Affiliated from Invesco Aim to the funds and Sub-Advisers were appropriate. The Board therefore may reduce Invesco Aim's noted that the Affiliated Sub-Advisers, expenses. The Board also noted that which have offices and personnel that are research obtained through soft dollar geographically dispersed in financial arrangements may be used by Invesco Aim in centers around the world, have been formed making investment decisions for the Fund in part for the purpose of researching and and may therefore benefit Fund compiling information and making shareholders. The Board concluded that recommendations on the markets and Invesco Aim's soft dollar arrangements economies of various countries and were appropriate. The Board also concluded securities of companies located in such that, based on their review and countries or on various types of representations made by Invesco Aim, these investments and investment techniques, and arrangements were consistent with providing investment advisory services. regulatory requirements. The Board concluded that the sub-advisory The Board considered the fact that the agreements will benefit the Fund and its Fund's uninvested cash and cash collateral shareholders by permitting Invesco Aim to from any securities lending arrangements utilize the additional resources and may be invested in money market funds talent of the Affiliated Sub-Advisers in advised by Invesco Aim pursuant to managing the Fund. procedures approved by the Board. The Board noted that Invesco Aim will receive B. Fund Performance advisory fees from these affiliated money The Board did not view Fund performance as market funds attributable to such a relevant factor in considering
AIM V.I. GOVERNMENT SECURITIES FUND PROXY RESULTS A Special Meeting ("Meeting") of Shareholders of AIM V.I. Government Securities Fund, an investment portfolio of AIM Variable Insurance Funds, a Delaware statutory trust ("Trust"), was held on February 29, 2008. The Meeting was held for the following purposes: (1) Elect 13 trustees to the Board of Trustees of the Trust, each of whom will serve until his or her successor is elected and qualified. (2) Approve an amendment to the Trust's Agreement and Declaration of Trust that would permit the Board of Trustees of the Trust to terminate the Trust, the Fund, and each other series portfolio of the Trust, or a share class without a shareholder vote. (3) Approve a new sub-advisory agreement between Invesco Aim Advisors, Inc. and each of AIM Funds Management, Inc.; Invesco Asset Management Deutschland, GmbH; Invesco Asset Management Limited; Invesco Asset Management (Japan) Limited; Invesco Australia Limited; Invesco Global Asset Management (N.A.), Inc.; Invesco Hong Kong Limited; Invesco Institutional (N.A.), Inc.; and Invesco Senior Secured Management, Inc. The results of the voting on the above matters were as follows:
WITHHELD/ MATTERS VOTES FOR ABSTENTIONS** - ----------------------------------------------------------------------------------------------------------- (1)* Bob R. Baker...................................................... 474,883,590 19,741,622 Frank S. Bayley................................................... 474,653,109 19,972,103 James T. Bunch.................................................... 475,597,417 19,027,795 Bruce L. Crockett................................................. 474,900,579 19,724,633 Albert R. Dowden.................................................. 474,749,929 19,875,283 Jack M. Fields.................................................... 475,205,840 19,419,372 Martin L. Flanagan................................................ 475,248,336 19,376,876 Carl Frischling................................................... 474,453,674 20,171,538 Prema Mathai-Davis................................................ 473,569,192 21,056,020 Lewis F. Pennock.................................................. 475,072,501 19,552,711 Larry Soll, Ph.D. ................................................ 475,170,544 19,454,668 Raymond Stickel, Jr. ............................................. 475,420,825 19,204,387 Philip A. Taylor.................................................. 475,640,570 18,984,642
WITHHELD/ VOTES FOR VOTES AGAINST ABSTENTIONS - ------------------------------------------------------------------------------------------------------------------- (2)* Approve an amendment to the Trust's Agreement and Declaration of Trust that would permit the Board of Trustees of the Trust to terminate the Trust, the Fund, and each other series portfolio of the Trust, or a share class without a shareholder vote................. 438,131,484 35,586,925 20,906,803 (3) Approve a new sub-advisory agreement between Invesco Aim Advisors, Inc. and each of AIM Funds Management, Inc.; Invesco Asset Management Deutschland, GmbH; Invesco Asset Management Limited; Invesco Asset Management (Japan) Limited; Invesco Australia Limited; Invesco Global Asset Management (N.A.), Inc.; Invesco Hong Kong Limited; Invesco Institutional (N.A.), Inc.; and Invesco Senior Secured Management, Inc. ........... 87,369,701 2,504,964 3,960,971
* Proposals 1 and 2 required approval by a combined vote of all of the portfolios of AIM Variable Insurance Funds. ** Includes Broker Non-Votes. AIM V.I. GOVERNMENT SECURITIES FUND [INVESCO AIM LOGO] AIM V.I. HIGH YIELD FUND - SERVICE MARK - Semiannual Report to Shareholders - June 30, 2008 AIM Investments [MOUNTAIN GRAPHIC] became INVESCO AIM on March 31, 2008. For more details, go to invescoaim.com 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 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 Invesco Aim Web site, invescoaim.com. On the home page, scroll down and click on 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, 2008, is available at our Web site. Go to invescoaim.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 noted, all data provided by Invesco Aim. THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND PROSPECTUS AND VARIABLE PRODUCT PROSPECTUS, WHICH CONTAIN MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ EACH CAREFULLY BEFORE INVESTING. Invesco Aim Distributors, Inc. NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE FUND PERFORMANCE ======================================================================================= PERFORMANCE SUMMARY FUND VS. INDEXES Cumulative total returns, 12/31/07 to 6/30/08, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower. Series I Shares -0.52% Series II Shares -0.52 Lehman Brothers U.S. Aggregate Bond Index(TRIANGLE) (Broad Market Index) 1.13 Lehman Brothers U.S. Corporate High Yield Index(TRIANGLE) (Style-Specific Index) -1.31 Lipper VUF High Current Yield Bond Funds Category Average(TRIANGLE) (Peer Group) -1.51 (TRIANGLE)Lipper Inc. The LEHMAN BROTHERS U.S. AGGREGATE BOND INDEX covers U.S. investment-grade fixed-rate bonds with components for government and corporate securities, mortgage pass-throughs, and asset-backed securities. The LEHMAN BROTHERS U.S. CORPORATE HIGH YIELD INDEX covers the universe of fixed rate, non-investment grade debt. Pay-in-kind bonds, Eurobonds, and debt issues from countries designated as emerging markets are excluded, but Canadian and global bonds (SEC registered) of issuers in non-emerging countries are included. The LIPPER VUF HIGH CURRENT YIELD BOND FUNDS CATEGORY AVERAGE represents an average of all of the variable insurance underlying funds in the Lipper High Current Yield Bond Funds category. These funds have no credit rating restriction, but tend to invest in fixed-income securities with lower credit ratings. The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes. A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of an index of funds reflects fund expenses; performance of a market index does not. ======================================================================================= ========================================== AVERAGE ANNUAL TOTAL RETURNS RESENT PAST PERFORMANCE AND CANNOT AIM V.I. HIGH YIELD FUND, A SERIES As of 6/30/08 GUARANTEE COMPARABLE FUTURE RESULTS; PORTFOLIO OF AIM VARIABLE INSURANCE FUNDS, CURRENT PERFORMANCE MAY BE LOWER OR IS CURRENTLY OFFERED THROUGH INSURANCE SERIES I SHARES HIGHER. PLEASE CONTACT YOUR VARIABLE COMPANIES ISSUING VARIABLE PRODUCTS. YOU Inception (5/1/98) 1.87% PRODUCT ISSUER OR FINANCIAL ADVISOR FOR CANNOT PURCHASE SHARES OF THE FUND 10 Years 1.85 THE MOST RECENT MONTH-END VARIABLE PRODUCT DIRECTLY. PERFORMANCE FIGURES GIVEN 5 Years 7.06 PERFORMANCE. PERFORMANCE FIGURES REFLECT REPRESENT THE FUND AND ARE NOT INTENDED TO 1 Year -2.47 FUND EXPENSES, REINVESTED DISTRIBUTIONS REFLECT ACTUAL VARIABLE PRODUCT VALUES. AND CHANGES IN NET ASSET VALUE. INVESTMENT THEY DO NOT REFLECT SALES CHARGES, SERIES II SHARES RETURN AND PRINCIPAL VALUE WILL FLUCTUATE EXPENSES AND FEES ASSESSED IN CONNECTION SO THAT YOU MAY HAVE A GAIN OR LOSS WHEN WITH A VARIABLE PRODUCT. SALES CHARGES, 10 Years 1.63% YOU SELL SHARES. EXPENSES AND FEES, WHICH ARE DETERMINED BY 5 Years 6.84 THE NET ANNUAL FUND OPERATING EXPENSE THE VARIABLE PRODUCT ISSUERS, WILL VARY 1 Year -2.56 RATIO SET FORTH IN THE MOST RECENT FUND AND WILL LOWER THE TOTAL RETURN. ========================================== PROSPECTUS AS OF THE DATE OF THIS REPORT THE MOST RECENT MONTH-END PERFORMANCE FOR SERIES I AND SERIES II SHARES WAS DATA AT THE FUND LEVEL, EXCLUDING VARIABLE SERIES II SHARES' INCEPTION DATE IS MARCH 0.97% AND 1.22%, RESPECTIVELY.(1) THE PRODUCT CHARGES, IS AVAILABLE ON THE 26, 2002. RETURNS SINCE THAT DATE ARE TOTAL ANNUAL FUND OPERATING EXPENSE RATIO INVESCO AIM AUTOMATED INFORMATION LINE, HISTORICAL. ALL OTHER RETURNS ARE THE SET FORTH IN THE MOST RECENT FUND 866 702 4402. AS MENTIONED ABOVE, FOR THE BLENDED RETURNS OF THE HISTORICAL PROSPECTUS AS OF THE DATE OF THIS REPORT MOST RECENT MONTH-END PERFORMANCE PERFORMANCE OF SERIES II SHARES SINCE FOR SERIES I AND SERIES II SHARES WAS INCLUDING VARIABLE PRODUCT CHARGES, PLEASE THEIR INCEPTION AND THE RESTATED 1.16% AND 1.41%, RESPECTIVELY. THE EXPENSE CONTACT YOUR VARIABLE PRODUCT ISSUER OR HISTORICAL PERFORMANCE OF SERIES I SHARES RATIOS PRESENTED ABOVE MAY VARY FROM THE FINANCIAL ADVISOR. (FOR PERIODS PRIOR TO INCEPTION OF SERIES EXPENSE RATIOS PRESENTED IN OTHER SECTIONS II SHARES) ADJUSTED TO REFLECT THE RULE OF THIS REPORT THAT ARE BASED ON EXPENSES (1) Total annual operating expenses less 12B-1 FEES APPLICABLE TO SERIES II SHARES. INCURRED DURING THE PERIOD COVERED BY THIS any contractual fee waivers and/or THE INCEPTION DATE OF SERIES I SHARES IS REPORT. expense reimbursements by the advisor MAY 1, 1998. THE PERFORMANCE OF THE FUND'S in effect through at least April 30, SERIES I AND SERIES II SHARE CLASSES WILL 2010. See current prospectus for more DIFFER PRIMARILY DUE TO DIFFERENT CLASS information. EXPENSES. THE PERFORMANCE DATA QUOTED REP-
AIM V.I. HIGH YIELD FUND PORTFOLIO COMPOSITION By credit quality, based on Net Assets, as of June 30, 2008 - ------------------------------------------------------------------------- BBB 0.6% - ------------------------------------------------------------------------- BB 32.1 - ------------------------------------------------------------------------- B 52.5 - ------------------------------------------------------------------------- CCC 12.1 - ------------------------------------------------------------------------- D 0.3 - ------------------------------------------------------------------------- NR 1.8 - ------------------------------------------------------------------------- Equity 0.9 - ------------------------------------------------------------------------- Cash Equivalent (0.3) _________________________________________________________________________ =========================================================================
SCHEDULE OF INVESTMENTS(a) June 30, 2008 (Unaudited)
PRINCIPAL AMOUNT VALUE - ------------------------------------------------------------------------------ BONDS & NOTES-96.04% ADVERTISING-0.24% Lamar Media Corp. -Series C, Sr. Unsec. Gtd. Sub. Global Notes, 6.63%, 08/15/15(b) $ 130,000 $ 118,950 ============================================================================== AEROSPACE & DEFENSE-1.64% Bombardier Inc. (Canada), Sr. Unsec. Unsub. Notes, 6.30%, 05/01/14(b)(c) 180,000 172,350 - ------------------------------------------------------------------------------ DRS Technologies, Inc., Sr. Unsec. Gtd. Notes, 6.63%, 02/01/16(b) 220,000 224,400 - ------------------------------------------------------------------------------ Esterline Technologies Corp., Sr. Unsec. Gtd. Global Notes, 6.63%, 03/01/17(b) 245,000 243,775 - ------------------------------------------------------------------------------ L-3 Communications Corp. -Series B, Sr. Unsec. Gtd. Sub. Global Notes, 6.38%, 10/15/15(b) 160,000 150,200 - ------------------------------------------------------------------------------ Moog Inc., Sr. Sub. Notes, 7.25%, 06/15/18(b)(c) 35,000 34,650 ============================================================================== 825,375 ============================================================================== AIRLINES-1.45% Continental Airlines Inc., Unsec. Unsub. Notes, 8.75%, 12/01/11(b) 185,000 126,725 - ------------------------------------------------------------------------------ Series 2000-1, Class C-1, Jr. Pass Through Ctfs., 8.50%, 05/01/11(b) 105,570 97,652 - ------------------------------------------------------------------------------ Delta Air Lines Inc., Series 2002-1, Class C, Pass Through Ctfs., 7.78%, 01/02/12(b) 342,763 298,204 - ------------------------------------------------------------------------------ Series 2007-1, Class C, Sec. Global Pass Through Ctfs., 8.95%, 08/10/14(b) 127,605 102,722 - ------------------------------------------------------------------------------ United Air Lines, Inc. -Series 2007-1, Class B, Sr. Sec. Gtd. Global Pass Through Ctfs., 7.34%, 07/02/19(b)(c) 133,656 100,910 ============================================================================== 726,213 ALTERNATIVE CARRIERS-0.37% Level 3 Financing Inc., Sr. Unsec. Gtd. Unsub. Global Notes, 9.25%, 11/01/14(b) 205,000 187,575 ============================================================================== ALUMINUM-2.10% Aleris International Inc., Sr. Unsec. Gtd. PIK Global Notes, 9.00%, 12/15/14(b) 390,000 306,150 - ------------------------------------------------------------------------------ Century Aluminum Co., Sr. Unsec. Gtd. Sub. Global Notes, 7.50%, 08/15/14(b) 228,000 226,860 - ------------------------------------------------------------------------------ Novelis Inc. (Canada), Sr. Unsec. Gtd. Global Notes, 7.25%, 02/15/15(b) 554,000 523,530 ============================================================================== 1,056,540 ============================================================================== APPAREL RETAIL-0.85% Collective Brands, Inc., Sr. Unsec. Gtd. Sub. Global Notes, 8.25%, 08/01/13(b) 485,000 426,800 ============================================================================== APPAREL, ACCESSORIES & LUXURY GOODS-2.14% American Achievement Corp., Sr. Unsec. Gtd. Sub. Global Notes, 8.25%, 04/01/12(b) 205,000 208,075 - ------------------------------------------------------------------------------ Broder Brothers Co. -Series B, Sr. Unsec. Gtd. Global Notes, 11.25%, 10/15/10(b)(d) 196,000 134,750 - ------------------------------------------------------------------------------
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. HIGH YIELD FUND
PRINCIPAL AMOUNT VALUE - ------------------------------------------------------------------------------ APPAREL, ACCESSORIES & LUXURY GOODS-(CONTINUED) Hanesbrands, Inc. -Series B, Sr. Unsec. Gtd. Floating Rate Global Notes, 6.51%, 12/15/14(b)(e) $280,000 $ 261,800 - ------------------------------------------------------------------------------ Levi Strauss & Co., Sr. Unsec. Unsub. Global Notes, 8.88%, 04/01/16(b)(d) 255,000 249,262 - ------------------------------------------------------------------------------ Perry Ellis International, Inc. -Series B, Sr. Unsec. Gtd. Sub. Global Notes, 8.88%, 09/15/13(b) 235,000 222,663 ============================================================================== 1,076,550 ============================================================================== AUTO PARTS & EQUIPMENT-0.91% Lear Corp. -Series B, Sr. Unsec. Gtd. Global Notes, 8.50%, 12/01/13(b) 255,000 212,925 - ------------------------------------------------------------------------------ Tenneco Inc., Sr. Unsec. Gtd. Sub. Global Notes, 8.63%, 11/15/14(b)(d) 160,000 142,400 - ------------------------------------------------------------------------------ Visteon Corp., Sr. Unsec. Notes, 7.00%, 03/10/14(b) 180,000 99,900 ============================================================================== 455,225 ============================================================================== AUTOMOBILE MANUFACTURERS-1.53% Ford Motor Co., Sr. Unsec. Unsub. Global Notes, 7.45%, 07/16/31(b) 350,000 203,000 - ------------------------------------------------------------------------------ General Motors Corp., Sr. Unsec. Unsub. Global Notes, 7.20%, 01/15/11(b)(d) 325,000 251,875 - ------------------------------------------------------------------------------ Sr. Unsec. Unsub. Notes, 8.38%, 07/15/33(b)(d) 525,000 312,375 ============================================================================== 767,250 ============================================================================== BIOTECHNOLOGY-0.03% RBS Global Inc./Rexnord LLC, Sr. Unsec. Gtd. Global Notes, 9.50%, 08/01/14(b) 15,000 14,625 ============================================================================== BROADCASTING & CABLE TV-3.96% Charter Communications Holdings II LLC/Charter Communications Holdings II Capital Corp., Sr. Unsec. Gtd. Notes, 10.25%, 09/15/10(b) 465,000 453,375 - ------------------------------------------------------------------------------ CSC Holdings, Inc. -Series B, Sr. Unsec. Notes, 7.63%, 04/01/11(b) 272,000 267,920 - ------------------------------------------------------------------------------ Echostar DBS Corp., Sr. Unsec. Gtd. Global Notes, 6.63%, 10/01/14(b) 260,000 241,150 - ------------------------------------------------------------------------------ Hughes Network Systems LLC/HNS Finance Corp., Sr. Unsec. Gtd. Global Notes, 9.50%, 04/15/14(b) 250,000 254,687 - ------------------------------------------------------------------------------ Rainbow National Services LLC, Sr. Unsec. Gtd. Unsub. Notes, 8.75%, 09/01/12(b)(c) 538,000 547,415 - ------------------------------------------------------------------------------ Virgin Media Finance PLC, Sr. Unsec. Gtd. Global Notes, 8.75%, 04/15/14(b) 240,000 226,800 ============================================================================== 1,991,347 BUILDING PRODUCTS-1.64% Associated Materials Inc., Sr. Unsec. Global Notes, 11.25%, 03/01/14(b)(d) 655,000 444,581 - ------------------------------------------------------------------------------ Building Materials Corp. of America, Sec. Gtd. Second Lien Global Notes, 7.75%, 08/01/14(b) 260,000 217,100 - ------------------------------------------------------------------------------ Ply Gem Industries, Inc., Sr. Sec. Gtd. First & Second Lien Notes, 11.75%, 06/15/13(b)(c) 175,000 161,000 ============================================================================== 822,681 ============================================================================== CASINOS & GAMING-1.91% Great Canadian Gaming Corp. (Canada), Sr. Unsec. Gtd. Sub. Notes, 7.25%, 02/15/15(b)(c) 190,000 185,250 - ------------------------------------------------------------------------------ MGM Mirage, Sr. Unsec. Gtd. Global Notes, 6.63%, 07/15/15(b) 273,000 221,812 - ------------------------------------------------------------------------------ Sr. Unsec. Gtd. Unsub. Notes, 7.50%, 06/01/16(b) 190,000 157,938 - ------------------------------------------------------------------------------ Pinnacle Entertainment, Inc., Sr. Unsec. Gtd. Sub. Notes, 8.75%, 10/01/13(b) 340,000 341,700 - ------------------------------------------------------------------------------ Wynn Las Vegas Capital LLC/Corp., Sr. Sec. Gtd. Global First Mortgage Notes, 6.63%, 12/01/14(b) 60,000 54,987 ============================================================================== 961,687 ============================================================================== COAL & CONSUMABLE FUELS-0.62% Massey Energy Co., Sr. Unsec. Gtd. Global Notes, 6.88%, 12/15/13(b)(d) 245,000 239,794 - ------------------------------------------------------------------------------ Peabody Energy Corp., Sr. Unsec. Gtd. Global Notes, 7.38%, 11/01/16(b) 70,000 70,350 ============================================================================== 310,144 ============================================================================== COMMERCIAL PRINTING-0.12% Quebecor World Inc. (Canada), Sr. Notes, 9.75%, 01/15/15(b)(c)(f) 105,000 58,144 ============================================================================== COMMODITY CHEMICALS-0.56% Koppers Holdings Inc., Sr. Unsec. Sub. Disc. Global Notes, 9.88%, 11/15/14(b)(g) 310,000 279,000 ==============================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. HIGH YIELD FUND
PRINCIPAL AMOUNT VALUE - ------------------------------------------------------------------------------ COMMUNICATIONS EQUIPMENT-0.72% MasTec, Inc., Sr. Unsec. Gtd. Global Notes, 7.63%, 02/01/17(b) $ 350,000 $ 299,250 - ------------------------------------------------------------------------------ Superior Essex Communications LLC/Essex Group Inc., Sr. Global Notes, 9.00%, 04/15/12(b) 60,000 61,650 ============================================================================== 360,900 ============================================================================== CONSTRUCTION & ENGINEERING-0.62% Great Lakes Dredge & Dock Corp., Sr. Unsec. Gtd. Sub. Global Notes, 7.75%, 12/15/13(b) 331,000 313,623 ============================================================================== CONSTRUCTION & FARM MACHINERY & HEAVY TRUCKS-1.53% Esco Corp., Sr. Unsec. Gtd. Notes, 8.63%, 12/15/13(b)(c) 55,000 55,550 - ------------------------------------------------------------------------------ Terex Corp., Sr. Unsec. Gtd. Sub. Global Notes, 7.38%, 01/15/14(b) 470,000 462,950 - ------------------------------------------------------------------------------ Titan International, Inc., Sr. Unsec. Gtd. Global Notes, 8.00%, 01/15/12(b) 255,000 251,175 ============================================================================== 769,675 ============================================================================== CONSTRUCTION MATERIALS-1.47% Graham Packaging Co. Inc., Sr. Unsec. Gtd. Sub. Global Notes, 9.88%, 10/15/14(b) 290,000 257,375 - ------------------------------------------------------------------------------ Texas Industries, Inc., Sr. Unsec. Global Notes, 7.25%, 07/15/13(b) 65,000 65,000 - ------------------------------------------------------------------------------ U.S. Concrete, Inc., Sr. Unsec. Gtd. Sub. Global Notes, 8.38%, 04/01/14(b) 460,000 415,150 ============================================================================== 737,525 ============================================================================== CONSUMER ELECTRONICS-0.62% NXP BV/NXP Funding LLC (Netherlands), Sr. Sec. Gtd. Global Notes, 7.88%, 10/15/14(b) 195,000 180,375 - ------------------------------------------------------------------------------ Sr. Unsec. Gtd. Unsub. Global Notes, 9.50%, 10/15/15(b) 150,000 130,500 ============================================================================== 310,875 ============================================================================== CONSUMER FINANCE-2.90% Ford Motor Credit Co. LLC, Sr. Unsec. Unsub. Global Notes, 7.00%, 10/01/13(b) 400,000 296,052 - ------------------------------------------------------------------------------ Sr. Unsec. Unsub. Notes, 8.63%, 11/01/10(b) 240,000 205,390 - ------------------------------------------------------------------------------ 9.88%, 08/10/11(b) 120,000 101,411 - ------------------------------------------------------------------------------ General Motors Acceptance Corp. LLC, Sr. Unsec. Unsub. Global Notes, 8.00%, 11/01/31(b) 575,000 375,187 - ------------------------------------------------------------------------------ Sr. Unsec. Unsub. Notes, 6.75%, 12/01/14(b) 480,000 320,222 - ------------------------------------------------------------------------------ KAR Holdings Inc., Sr. Unsec. Gtd. Unsub. Global Notes, 8.75%, 05/01/14(b) 180,000 158,400 ============================================================================== 1,456,662 ============================================================================== DATA PROCESSING & OUTSOURCED SERVICES-0.49% Iron Mountain Inc., Sr. Unsec. Gtd. Sub. Notes, 8.00%, 06/15/20(b) 150,000 148,312 - ------------------------------------------------------------------------------ Lender Processing Services, Inc., Sr. Unsec. Notes, 8.13%, 07/01/16(b)(c) 95,000 95,713 ============================================================================== 244,025 ============================================================================== DISTILLERS & VINTNERS-0.54% Constellation Brands Inc., Sr. Unsec. Gtd. Global Notes, 7.25%, 05/15/17(b) 285,000 270,038 ============================================================================== DIVERSIFIED CHEMICALS-0.30% Innophos Inc., Sr. Unsec. Gtd. Sub. Global Notes, 8.88%, 08/15/14(b) 150,000 153,000 ============================================================================== DIVERSIFIED COMMERCIAL & PROFESSIONAL SERVICES-2.13% GEO Group, Inc. (The), Sr. Unsec. Global Notes, 8.25%, 07/15/13(b) 408,000 418,200 - ------------------------------------------------------------------------------ Mobile Services Group Inc./Mobile Storage Group Inc., Sr. Unsec. Gtd. Global Notes, 9.75%, 08/01/14(b) 60,000 57,900 - ------------------------------------------------------------------------------ Travelport LLC, Sr. Unsec. Gtd. Sub. Global Notes, 11.88%, 09/01/16(b) 190,000 157,463 - ------------------------------------------------------------------------------ Sr. Unsec. Gtd. Unsub. Global Notes, 9.88%, 09/01/14(b) 485,000 436,500 ============================================================================== 1,070,063 ============================================================================== DIVERSIFIED METALS & MINING-0.91% FMG Finance Pty. Ltd. (Australia), Sr. Sec. Notes, 10.63%, 09/01/16(b)(c) 180,000 210,825 - ------------------------------------------------------------------------------ Freeport-McMoRan Copper & Gold Inc., Sr. Unsec. Notes, 8.25%, 04/01/15(b) 240,000 248,148 ============================================================================== 458,973 ==============================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. HIGH YIELD FUND
PRINCIPAL AMOUNT VALUE - ------------------------------------------------------------------------------ DRUG RETAIL-0.06% Rite Aid Corp., Sr. Sec. Gtd. Global Notes, 8.13%, 05/01/10(b) $ 30,000 $ 30,600 ============================================================================== ELECTRIC UTILITIES-2.37% Edison Mission Energy, Sr. Unsec. Global Notes, 7.00%, 05/15/17(b) 320,000 301,600 - ------------------------------------------------------------------------------ Sr. Unsec. Notes, 7.75%, 06/15/16(b) 155,000 156,162 - ------------------------------------------------------------------------------ Elwood Energy LLC, Sr. Sec. Global Notes, 8.16%, 07/05/26(b) 147,684 142,515 - ------------------------------------------------------------------------------ LSP Energy L.P./LSP Batesville Funding Corp. -Series C, Sr. Sec. Bonds, 7.16%, 01/15/14(b) 145,410 146,313 - ------------------------------------------------------------------------------ Mirant North America, LLC, Sr. Unsec. Gtd. Global Notes, 7.38%, 12/31/13(b) 85,000 85,000 - ------------------------------------------------------------------------------ Tenaska Alabama Partners L.P., Sr. Sec. Mortgage Notes, 7.00%, 06/30/21(b)(c) 376,081 360,098 ============================================================================== 1,191,688 ============================================================================== ELECTRICAL COMPONENTS & EQUIPMENT-0.42% Baldor Electric Co., Sr. Unsec. Gtd. Notes, 8.63%, 02/15/17(b) 210,000 211,575 ============================================================================== ELECTRONIC MANUFACTURING SERVICES-0.56% Sanmina-SCI Corp., Sr. Unsec. Gtd. Sub. Global Notes, 6.75%, 03/01/13(b) 310,000 282,100 ============================================================================== FOREST PRODUCTS-0.26% Millar Western Forest Products Ltd. (Canada), Sr. Unsec. Global Notes, 7.75%, 11/15/13(b) 195,000 128,700 ============================================================================== GENERAL MERCHANDISE STORES-0.74% Dollar General Corp., Sr. Unsec. Gtd. Global Notes, 10.63%, 07/15/15(b) 95,000 94,050 - ------------------------------------------------------------------------------ Pantry, Inc. (The), Sr. Gtd. Sub. Global Notes, 7.75%, 02/15/14(b) 365,000 277,400 ============================================================================== 371,450 ============================================================================== HEALTH CARE EQUIPMENT-0.65% ReAble Therapeutics Finance LLC/ReAble Therapeutics Finance Corp., Sr. Unsec. Notes, 10.88%, 11/15/14(b)(c) 185,000 185,925 - ------------------------------------------------------------------------------ Viant Holdings Inc., Sr. Unsec. Gtd. Sub. Notes, 10.13%, 07/15/17 (Acquired 06/25/07-05/06/08; Cost $155,033)(b)(c)(h) 167,000 142,785 ============================================================================== 328,710 ============================================================================== HEALTH CARE FACILITIES-3.56% Community Health Systems Inc., Sr. Unsec. Gtd. Global Notes, 8.88%, 07/15/15(b) 130,000 131,950 - ------------------------------------------------------------------------------ HCA, Inc., Sr. Sec. Gtd. Global Notes, 9.13%, 11/15/14(b) 140,000 144,200 - ------------------------------------------------------------------------------ 9.25%, 11/15/16(b) 600,000 622,500 - ------------------------------------------------------------------------------ Sr. Unsec. Bonds, 7.50%, 11/06/33(b) 165,000 127,875 - ------------------------------------------------------------------------------ Sr. Unsec. Global Notes, 6.38%, 01/15/15(b) 55,000 45,925 - ------------------------------------------------------------------------------ Healthsouth Corp., Sr. Unsec. Gtd. Floating Rate Global Notes, 9.13%, 06/15/14(b)(e) 105,000 107,494 - ------------------------------------------------------------------------------ Sr. Unsec. Gtd. Global Notes, 10.75%, 06/15/16(b)(d) 355,000 383,843 - ------------------------------------------------------------------------------ Tenet Healthcare Corp., Sr. Unsec. Unsub. Notes, 6.38%, 12/01/11(b) 229,000 222,130 ============================================================================== 1,785,917 ============================================================================== HEALTH CARE SERVICES-1.82% FMC Finance III SA, Sr. Unsec. Gtd. Global Notes, 6.88%, 07/15/17(b) 175,000 172,926 - ------------------------------------------------------------------------------ Omnicare Inc., Sr. Unsec. Gtd. Sub. Notes, 6.75%, 12/15/13(b) 110,000 103,125 - ------------------------------------------------------------------------------ 6.88%, 12/15/15(b) 110,000 102,300 - ------------------------------------------------------------------------------ Rural/Metro Corp., Sr. Gtd. Sub. Global Notes, 9.88%, 03/15/15(b) 56,000 51,660 - ------------------------------------------------------------------------------ Universal Hospital Services Inc., Sr. Sec. PIK Global Notes, 8.50%, 06/01/15(b) 190,000 190,950 - ------------------------------------------------------------------------------ US Oncology Inc., Sr. Unsec. Gtd. Global Notes, 9.00%, 08/15/12(b) 295,000 293,525 ============================================================================== 914,486 ============================================================================== HEALTH CARE SUPPLIES-0.64% Bausch & Lomb Inc., Sr. Unsec. Notes, 9.88%, 11/01/15(b)(c) 315,000 321,300 ==============================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. HIGH YIELD FUND
PRINCIPAL AMOUNT VALUE - ------------------------------------------------------------------------------ HOMEBUILDING-0.49% K. Hovnanian Enterprises Inc., Sr. Sec. Gtd. Notes, 11.50%, 05/01/13(b)(c) $ 115,000 $ 119,025 - ------------------------------------------------------------------------------ TOUSA, Inc., Sr. Unsec. Gtd. Global Notes, 9.00%, 07/01/10(b)(f) 60,000 34,200 - ------------------------------------------------------------------------------ 9.00%, 07/01/10(b)(f) 163,000 92,910 ============================================================================== 246,135 ============================================================================== HOTELS, RESORTS & CRUISE LINES-0.39% NCL Corp. Ltd., Sr. Unsec. Unsub. Global Notes, 10.63%, 07/15/14(b) 195,000 195,000 ============================================================================== HOUSEWARES & SPECIALTIES-0.50% Yankee Acquisition Corp. -Series B, Sr. Gtd. Sub. Global Notes, 8.50%, 02/15/15(b)(d) 320,000 249,600 ============================================================================== INDEPENDENT POWER PRODUCERS & ENERGY TRADERS-3.37% AES Corp. (The), Sr. Notes, 8.00%, 06/01/20(b)(c) 260,000 253,825 - ------------------------------------------------------------------------------ AES Red Oak LLC -Series A, Sr. Sec. Bonds, 8.54%, 11/30/19(b) 334,242 349,283 - ------------------------------------------------------------------------------ Dynegy Holdings Inc., Sr. Unsec. Global Notes, 7.75%, 06/01/19(b) 185,000 170,200 - ------------------------------------------------------------------------------ Energy Future Holdings Corp., Sr. Unsec. Gtd. Notes, 10.88%, 11/01/17(b)(c) 210,000 212,625 - ------------------------------------------------------------------------------ Series P, Sr. Unsec. Unsub. Global Notes, 5.55%, 11/15/14(b) 4,000 3,220 - ------------------------------------------------------------------------------ Mirant Americas Generation LLC, Sr. Unsec. Notes, 8.50%, 10/01/21(b) 185,000 174,825 - ------------------------------------------------------------------------------ NRG Energy, Inc., Sr. Unsec. Gtd. Unsub. Notes, 7.38%, 02/01/16(b) 145,000 137,750 - ------------------------------------------------------------------------------ 7.38%, 01/15/17(b) 255,000 242,250 - ------------------------------------------------------------------------------ Texas Competitive Electric Holdings Co. LLC -Series A, Sr. Unsec. Gtd. Notes, 10.25%, 11/01/15(b)(c) 150,000 146,813 ============================================================================== 1,690,791 ============================================================================== INDUSTRIAL CONGLOMERATES-0.28% Indalex Holding Corp. -Series B, Sr. Sec. Gtd. Global Notes, 11.50%, 02/01/14(b) 230,000 139,150 ============================================================================== INDUSTRIAL MACHINERY-0.78% Columbus McKinnon Corp., Sr. Gtd. Sub. Global Notes, 8.88%, 11/01/13(b) 158,000 166,295 - ------------------------------------------------------------------------------ Stewart & Stevenson LLC, Sr. Unsec. Gtd. Global Notes, 10.00%, 07/15/14(b) 225,000 227,813 ============================================================================== 394,108 ============================================================================== INTEGRATED TELECOMMUNICATION SERVICES-3.23% Citizens Communications Co., Sr. Unsec. Global Notes, 7.88%, 01/15/27(b) 325,000 292,094 - ------------------------------------------------------------------------------ Sr. Unsec. Unsub. Global Notes, 9.00%, 08/15/31(b) 335,000 304,012 - ------------------------------------------------------------------------------ Hawaiian Telcom Communications Inc. -Series B, Sr. Unsec. Gtd. Global Notes, 9.75%, 05/01/13(b)(d) 250,000 109,688 - ------------------------------------------------------------------------------ Qwest Communications International Inc., Sr. Unsec. Gtd. Global Notes, 7.25%, 02/15/11(b) 625,000 609,375 - ------------------------------------------------------------------------------ Windstream Corp., Sr. Unsec. Gtd. Unsub. Global Notes, 8.13%, 08/01/13(b) 130,000 129,025 - ------------------------------------------------------------------------------ 8.63%, 08/01/16(b) 180,000 180,450 ============================================================================== 1,624,644 ============================================================================== INVESTMENT BANKING & BROKERAGE-0.54% E*Trade Financial Corp., Sr. Unsec. Global Notes, 8.00%, 06/15/11(b) 195,000 180,375 - ------------------------------------------------------------------------------ Sr. Unsec. Notes, 7.88%, 12/01/15(b)(d) 105,000 90,300 ============================================================================== 270,675 ============================================================================== METAL & GLASS CONTAINERS-0.13% Greif Inc., Sr. Unsec. Gtd. Global Notes, 6.75%, 02/01/17(b) 70,000 67,900 ============================================================================== MOVIES & ENTERTAINMENT-0.67% AMC Entertainment Inc., Sr. Unsec. Sub. Global Notes, 8.00%, 03/01/14(b) 180,000 160,650 - ------------------------------------------------------------------------------ Marquee Holdings Inc., Sr. Unsec. Global Notes, 12.00%, 08/15/14(b) 220,000 174,900 ============================================================================== 335,550 ============================================================================== MULTI-SECTOR HOLDINGS-0.55% Leucadia National Corp., Sr. Unsec. Notes, 8.13%, 09/15/15(b) 80,000 80,791 - ------------------------------------------------------------------------------ Stena A.B. (Sweden), Sr. Unsec. Global Notes, 7.50%, 11/01/13(b) 195,000 195,975 ============================================================================== 276,766 ==============================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. HIGH YIELD FUND
PRINCIPAL AMOUNT VALUE - ------------------------------------------------------------------------------ OFFICE SERVICES & SUPPLIES-0.24% ACCO Brands Corp., Sr. Unsec. Gtd. Sub. Global Notes, 7.63%, 08/15/15(b) $ 130,000 $ 119,600 ============================================================================== OIL & GAS EQUIPMENT & SERVICES-2.48% Allis-Chalmers Energy Inc., Sr. Unsec. Gtd. Global Notes, 9.00%, 01/15/14(b) 255,000 248,625 - ------------------------------------------------------------------------------ Basic Energy Services Inc., Sr. Unsec. Gtd. Global Notes, 7.13%, 04/15/16(b) 220,000 213,950 - ------------------------------------------------------------------------------ Bristow Group, Inc., Sr. Unsec. Gtd. Global Notes, 7.50%, 09/15/17(b) 95,000 95,950 - ------------------------------------------------------------------------------ Calfrac Holdings L.P., Sr. Notes, 7.75%, 02/15/15(b)(c) 245,000 239,487 - ------------------------------------------------------------------------------ CHC Helicopter Corp. (Canada), Sr. Unsec. Gtd. Sub. Global Notes, 7.38%, 05/01/14(b) 195,000 202,800 - ------------------------------------------------------------------------------ Compagnie Generale de Geophysique-Veritas (France), Sr. Unsec. Gtd. Global Notes, 7.75%, 05/15/17(b) 245,000 246,225 ============================================================================== 1,247,037 ============================================================================== OIL & GAS EXPLORATION & PRODUCTION-7.95% Chaparral Energy Inc., Sr. Unsec. Gtd. Global Notes, 8.50%, 12/01/15(b) 140,000 122,150 - ------------------------------------------------------------------------------ 8.88%, 02/01/17(b) 305,000 266,112 - ------------------------------------------------------------------------------ Cimarex Energy Co., Sr. Unsec. Gtd. Notes, 7.13%, 05/01/17(b) 315,000 308,700 - ------------------------------------------------------------------------------ Delta Petroleum Corp., Sr. Unsec. Gtd. Global Notes, 7.00%, 04/01/15(b) 445,000 382,700 - ------------------------------------------------------------------------------ Encore Acquisition Co., Sr. Unsec. Gtd. Sub. Global Notes, 6.00%, 07/15/15(b) 145,000 137,025 - ------------------------------------------------------------------------------ Forest Oil Corp., Sr. Notes, 7.25%, 06/15/19(b)(c) 115,000 111,119 - ------------------------------------------------------------------------------ Sr. Unsec. Gtd. Global Notes, 7.25%, 06/15/19(b) 250,000 241,562 - ------------------------------------------------------------------------------ Intergen N.V. (Netherlands), Sr. Sec. Gtd. Bonds, 9.00%, 06/30/17(b)(c) 140,000 147,000 - ------------------------------------------------------------------------------ Mariner Energy Inc., Sr. Unsec. Gtd. Notes, 8.00%, 05/15/17(b) 65,000 63,131 - ------------------------------------------------------------------------------ Newfield Exploration Co., Sr. Unsec. Sub. Global Notes, 7.13%, 05/15/18(b) 215,000 205,325 - ------------------------------------------------------------------------------ Pioneer Natural Resources Co., Sr. Unsec. Notes, 6.65%, 03/15/17(b) 270,000 255,841 - ------------------------------------------------------------------------------ Plains Exploration & Production Co., Sr. Unsec. Gtd. Notes, 7.75%, 06/15/15(b) 125,000 125,938 - ------------------------------------------------------------------------------ 7.63%, 06/01/18(b) 185,000 185,463 - ------------------------------------------------------------------------------ Quicksilver Resources Inc., Sr. Unsec. Gtd. Notes, 7.75%, 08/01/15(b) 85,000 84,788 - ------------------------------------------------------------------------------ Range Resources Corp., Sr. Gtd. Sub. Notes, 7.25%, 05/01/18(b) 110,000 109,450 - ------------------------------------------------------------------------------ Sr. Unsec. Gtd. Sub. Notes, 7.50%, 05/15/16(b) 135,000 135,000 - ------------------------------------------------------------------------------ SandRidge Energy, Inc., Sr. Notes, 8.00%, 06/01/18(b)(c) 430,000 432,687 - ------------------------------------------------------------------------------ Southwestern Energy Co., Sr. Unsec. Unsub. Notes, 7.50%, 02/01/18(b)(c) 245,000 252,350 - ------------------------------------------------------------------------------ Swift Energy Co., Sr. Unsec. Gtd. Notes, 7.13%, 06/01/17(b) 285,000 264,337 - ------------------------------------------------------------------------------ Whiting Petroleum Corp., Sr. Unsec. Gtd. Sub. Global Notes, 7.00%, 02/01/14(b) 165,000 162,938 ============================================================================== 3,993,616 ============================================================================== OIL & GAS REFINING & MARKETING-0.28% United Refining Co. -Series 2, Sr. Unsec. Gtd. Global Notes, 10.50%, 08/15/12(b) 145,000 141,013 ============================================================================== OIL & GAS STORAGE & TRANSPORTATION-2.11% Copano Energy LLC, Sr. Unsec. Gtd. Global Notes, 8.13%, 03/01/16(b) 330,000 334,125 - ------------------------------------------------------------------------------ El Paso Corp., Sr. Unsec. Global Notes, 6.88%, 06/15/14(b) 330,000 330,825 - ------------------------------------------------------------------------------ Inergy L.P./Inergy Finance Corp., Sr. Unsec. Gtd. Notes, 8.25%, 03/01/16(b)(c) 135,000 135,000 - ------------------------------------------------------------------------------ MarkWest Energy Partners L.P./MarkWest Energy Finance Corp., Sr. Notes, 8.75%, 04/15/18(b)(c) 195,000 200,119 - ------------------------------------------------------------------------------ Williams Partners L.P./Williams Partners Finance Corp., Sr. Unsec. Global Notes, 7.25%, 02/01/17(b) 60,000 60,108 ============================================================================== 1,060,177 ============================================================================== OTHER DIVERSIFIED FINANCIAL SERVICES-0.82% NSG Holdings LLC/NSG Holdings Inc., Sr. Sec. Notes, 7.75%, 12/15/25(b)(c) 60,000 59,400 - ------------------------------------------------------------------------------
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. HIGH YIELD FUND
PRINCIPAL AMOUNT VALUE - ------------------------------------------------------------------------------ OTHER DIVERSIFIED FINANCIAL SERVICES-(CONTINUED) Residential Capital LLC, Jr. Sec. Gtd. Notes, 9.63%, 05/15/15(b)(c) $224,000 $ 108,640 - ------------------------------------------------------------------------------ Snoqualmie Entertainment Authority, Sr. Sec. Notes, 9.13%, 02/01/15(b)(c) 325,000 242,125 ============================================================================== 410,165 ============================================================================== PACKAGED FOODS & MEATS-0.13% Dole Food Co. Inc., Sr. Unsec. Gtd. Global Notes, 7.25%, 06/15/10(b) 72,000 65,340 ============================================================================== PAPER PACKAGING-1.53% Caraustar Industries, Inc., Sr. Unsec. Unsub. Notes, 7.38%, 06/01/09(b) 665,000 585,200 - ------------------------------------------------------------------------------ Jefferson Smurfit Corp., Sr. Unsec. Unsub. Global Notes, 7.50%, 06/01/13(b) 219,000 181,770 ============================================================================== 766,970 ============================================================================== PAPER PRODUCTS-4.80% Abitibi-Consolidated Co. of Canada (Canada), Sr. Sec. Gtd. Notes, 13.75%, 04/01/11(b)(c) 140,000 149,100 - ------------------------------------------------------------------------------ Bowater Canada Finance Corp. (Canada), Sr. Gtd. Global Notes, 7.95%, 11/15/11(b) 155,000 109,275 - ------------------------------------------------------------------------------ Cellu Tissue Holdings, Inc., Sec. Gtd. Global Notes, 9.75%, 03/15/10(b) 182,000 172,445 - ------------------------------------------------------------------------------ Domtar Corp., Sr. Unsec. Gtd. Global Notes, 5.38%, 12/01/13(b) 280,000 252,000 - ------------------------------------------------------------------------------ 7.13%, 08/15/15(b) 140,000 136,150 - ------------------------------------------------------------------------------ Exopack Holding Corp., Sr. Unsec. Gtd. Global Notes, 11.25%, 02/01/14(b) 145,000 135,938 - ------------------------------------------------------------------------------ Georgia-Pacific LLC, Sr. Unsec. Gtd. Unsub. Notes, 7.00%, 01/15/15(b)(c) 125,000 118,750 - ------------------------------------------------------------------------------ 7.13%, 01/15/17(b)(c) 140,000 132,650 - ------------------------------------------------------------------------------ Mercer International Inc., Sr. Unsec. Global Notes, 9.25%, 02/15/13(b) 577,000 545,265 - ------------------------------------------------------------------------------ Neenah Paper, Inc., Sr. Unsec. Gtd. Global Notes, 7.38%, 11/15/14(b) 179,000 158,862 - ------------------------------------------------------------------------------ Rock-Tenn Co., Sr. Unsec. Gtd. Notes, 9.25%, 03/15/16(b)(c) 245,000 260,619 - ------------------------------------------------------------------------------ Verso Paper Holdings LLC/Verso Paper Inc. -Series B, Sr. Unsec. Gtd. Sub. Global Notes, 11.38%, 08/01/16(b) 250,000 238,750 ============================================================================== 2,409,804 ============================================================================== PERSONAL PRODUCTS-0.65% NBTY, Inc., Sr. Unsec. Gtd. Sub. Global Notes, 7.13%, 10/01/15(b) 344,000 328,520 ============================================================================== PHARMACEUTICALS-0.89% Elan Finance PLC/Elan Finance Corp. (Ireland), Sr. Unsec. Gtd. Global Notes, 7.75%, 11/15/11(b) 166,000 163,925 - ------------------------------------------------------------------------------ 8.88%, 12/01/13(b) 280,000 282,800 ============================================================================== 446,725 ============================================================================== PROPERTY & CASUALTY INSURANCE-0.47% Crum & Forster Holdings Corp., Sr. Unsec. Unsub. Global Notes, 7.75%, 05/01/17(b) 255,000 238,425 ============================================================================== PUBLISHING-1.93% Dex Media Inc., Sr. Unsec. Disc. Global Notes, 9.00%, 11/15/13(b)(g) 538,000 400,810 - ------------------------------------------------------------------------------ MediMedia USA Inc., Sr. Sub. Notes, 11.38%, 11/15/14(b)(c) 30,000 30,150 - ------------------------------------------------------------------------------ Nielsen Finance LLC/Nielsen Finance Co., Sr. Unsec. Gtd. Sub. Disc. Global Notes, 12.50%, 08/01/16(b)(g) 490,000 340,550 - ------------------------------------------------------------------------------ Reader's Digest Association Inc. (The), Sr. Unsec. Sub. Notes, 9.00%, 02/15/17(b)(c) 260,000 197,600 ============================================================================== 969,110 ============================================================================== RAILROADS-0.47% Kansas City Southern Railway, Sr. Unsec. Gtd. Unsub. Notes, 8.00%, 06/01/15(b) 235,000 238,525 ============================================================================== SEMICONDUCTOR EQUIPMENT-0.39% Amkor Technology Inc., Sr. Unsec. Global Notes, 7.13%, 03/15/11(b) 205,000 197,569 ============================================================================== SEMICONDUCTORS-4.91% Avago Technologies Finance Pte./Avago Technologies U.S./Avago Technologies Wireless (Singapore), Sr. Unsec. Gtd. Global Notes, 10.13%, 12/01/13(b) 535,000 575,794 - ------------------------------------------------------------------------------ Sr. Unsec. Gtd. Sub. Global Notes, 11.88%, 12/01/15(b) 120,000 131,550 - ------------------------------------------------------------------------------ Freescale Semiconductor Inc., Sr. Unsec. Gtd. Notes, 8.88%, 12/15/14(b) 435,000 355,612 - ------------------------------------------------------------------------------ Sr. Unsec. Gtd. Sub. Notes, 10.13%, 12/15/16(b)(d) 365,000 280,138 - ------------------------------------------------------------------------------
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. HIGH YIELD FUND
PRINCIPAL AMOUNT VALUE - ------------------------------------------------------------------------------ SEMICONDUCTORS-(CONTINUED) MagnaChip Semiconductor S.A./MagnaChip Semiconductor Finance Co. (South Korea), Sr. Sec. Gtd. Global Notes, 6.88%, 12/15/11(b)(d) $360,000 $ 252,000 - ------------------------------------------------------------------------------ Spansion Inc., Sr. Sec. Floating Rate Notes, 5.81%, 06/01/13(b)(c)(e) 440,000 328,900 - ------------------------------------------------------------------------------ Viasystems Inc., Sr. Unsec. Gtd. Sub. Global Notes, 10.50%, 01/15/11(b) 545,000 543,637 ============================================================================== 2,467,631 ============================================================================== SPECIALTY CHEMICALS-1.67% JohnsonDiversey Holdings Inc. -Series B, Sr. Unsec. Sub. Global Notes, 10.67%, 05/15/13(b) 190,000 190,000 - ------------------------------------------------------------------------------ NewMarket Corp., Sr. Unsec. Gtd. Unsub. Global Notes, 7.13%, 12/15/16(b) 150,000 148,875 - ------------------------------------------------------------------------------ PolyOne Corp., Sr. Notes, 8.88%, 05/01/12(b)(c) 175,000 176,313 - ------------------------------------------------------------------------------ Sr. Unsec. Notes, 8.88%, 05/01/12(b) 120,000 120,300 - ------------------------------------------------------------------------------ Polypore Inc., Sr. Unsec. Gtd. Sub. Global Notes, 8.75%, 05/15/12(b) 205,000 205,000 ============================================================================== 840,488 ============================================================================== SPECIALTY STORES-0.90% Michaels Stores, Inc., Sr. Unsec. Gtd. Global Notes, 10.00%, 11/01/14(b)(d) 520,000 451,100 ============================================================================== STEEL-0.90% Metals USA, Inc., Sr. Sec. Gtd. Global Notes, 11.13%, 12/01/15(b) 185,000 191,475 - ------------------------------------------------------------------------------ Steel Dynamics Inc., Sr. Notes, 7.75%, 04/15/16(b)(c) 260,000 260,650 ============================================================================== 452,125 ============================================================================== THRIFTS & MORTGAGE FINANCE-0.59% Countrywide Financial Corp. -Series B, Sr. Unsec. Gtd. Floating Rate Putable Global Notes, 0.43%, 05/15/09(b)(e)(i) 315,000 297,297 ============================================================================== TIRES & RUBBER-1.73% Cooper Tire & Rubber Co., Sr. Unsec. Notes, 8.00%, 12/15/19(b) 320,000 273,600 - ------------------------------------------------------------------------------ Sr. Unsec. Unsub. Notes, 7.63%, 03/15/27(b) 260,000 213,200 - ------------------------------------------------------------------------------ Goodyear Tire & Rubber Co. (The), Sr. Unsec. Global Notes, 9.00%, 07/01/15(b) 380,000 380,000 ============================================================================== 866,800 ============================================================================== TRADING COMPANIES & DISTRIBUTORS-2.28% Ashtead Capital Inc., Sr. Sec. Gtd. Notes, 9.00%, 08/15/16(b)(c) 150,000 132,750 - ------------------------------------------------------------------------------ United Rentals North America, Inc., Sr. Unsec. Gtd. Global Notes, 6.50%, 02/15/12(b) 637,000 577,281 - ------------------------------------------------------------------------------ Sr. Unsec. Gtd. Sub. Global Notes, 7.75%, 11/15/13(b) 125,000 100,156 - ------------------------------------------------------------------------------ Wesco Distribution Inc., Sr. Unsec. Gtd. Sub. Global Notes, 7.50%, 10/15/17(b) 360,000 333,000 ============================================================================== 1,143,187 ============================================================================== TRUCKING-0.52% Hertz Corp. (The), Sr. Unsec. Gtd. Global Notes, 8.88%, 01/01/14(b) 285,000 262,556 ============================================================================== WIRELESS TELECOMMUNICATION SERVICES-3.09% Centennial Cellular Operating Co./Centennial Communications Corp., Sr. Unsec. Gtd. Global Notes, 10.13%, 06/15/13(b) 348,000 359,310 - ------------------------------------------------------------------------------ Cricket Communications Inc., Sr. Gtd. Notes, 10.00%, 07/15/15(b)(c) 210,000 207,375 - ------------------------------------------------------------------------------ Digicel Group Ltd. (Bermuda), Sr. Unsec. Notes, 8.88%, 01/15/15(b)(c) 615,000 586,556 - ------------------------------------------------------------------------------ iPCS Inc., Sr. Sec. Gtd. Floating Rate First Lien Global Notes, 5.00%, 05/01/13(b)(e) 90,000 82,350 - ------------------------------------------------------------------------------ Sprint Capital Corp., Sr. Unsec. Gtd. Global Notes, 8.38%, 03/15/12(b) 315,000 315,536 ============================================================================== 1,551,127 ============================================================================== Total Bonds & Notes (Cost $51,468,698) 48,245,217 ============================================================================== SHARES COMMON STOCKS & OTHER EQUITY INTERESTS-0.83% BROADCASTING & CABLE TV-0.62% Adelphia Communications Corp., Sr. Notes, 10.88%, 10/01/10(j) -- 29,110 - ------------------------------------------------------------------------------ Adelphia Recovery Trust -Series ACC-1(j) 318,570 16,725 - ------------------------------------------------------------------------------ Adelphia Recovery Trust -Series ARAHOVA(j) 109,170 45,306 - ------------------------------------------------------------------------------
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. HIGH YIELD FUND
SHARES VALUE - ------------------------------------------------------------------------------ BROADCASTING & CABLE TV-(CONTINUED) Time Warner Cable, Inc. -Class A 6,227 $ 164,891 - ------------------------------------------------------------------------------ Virgin Media Inc. 4,129 56,196 - ------------------------------------------------------------------------------ XM Satellite Radio Holdings Inc. -Wts., expiring 03/15/10(k) 182 136 ============================================================================== 312,364 ============================================================================== CONSTRUCTION MATERIALS-0.00% Dayton Superior Corp. -Wts., expiring 06/15/09 (Acquired 08/07/00; Cost $0)(c)(h)(k)(l) 175 0 ============================================================================== INTEGRATED TELECOMMUNICATION SERVICES-0.00% XO Holdings Inc.(m) 33 14 - ------------------------------------------------------------------------------ XO Holdings Inc. -Class A-Wts., expiring 01/16/10(k) 1,533 46 - ------------------------------------------------------------------------------ XO Holdings Inc. -Class B-Wts., expiring 01/16/10(k) 1,148 11 - ------------------------------------------------------------------------------ XO Holdings Inc. -Class C-Wts., expiring 01/16/10(k) 1,148 11 ============================================================================== 82 ============================================================================== WIRELESS TELECOMMUNICATION SERVICES-0.21% iPCS, Inc.(m) 3,489 103,379 ============================================================================== Total Common Stocks & Other Equity Interests (Cost $501,449) 415,825 ============================================================================== PRINCIPAL AMOUNT VALUE - ------------------------------------------------------------------------------ ASSET-BACKED SECURITIES-0.28% ELECTRIC UTILITIES-0.28% Reliant Energy Mid-Atlantic Power Holdings, LLC -Series B, Sr. Unsec. Pass Through Ctfs., 9.24%, 07/02/17 (Cost $132,960)(b) $ 132,444 $ 142,377 ============================================================================== SENIOR SECURED FLOATING RATE INTEREST LOANS-0.17% AIRLINES-0.17% Evergreen International Aviation, Inc. First Lien Term Loan 9.00%, 10/31/11 (Cost $96,761)(b)(e) 96,761 85,875 ============================================================================== TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)-97.32% (Cost $52,199,868) 48,889,294 ============================================================================== SHARES INVESTMENTS PURCHASED WITH CASH COLLATERAL FROM SECURITIES ON LOAN MONEY MARKET FUNDS-5.08% Liquid Assets Portfolio-Institutional Class (Investments Purchased with Cash Collateral from Securities on Loan) (Cost $2,551,268)(n)(o) 2,551,268 2,551,268 ============================================================================== TOTAL INVESTMENTS-102.40% (Cost $54,751,136) 51,440,562 ============================================================================== OTHER ASSETS LESS LIABILITIES-(2.40)% (1,207,463) ============================================================================== NET ASSETS-100.00% $50,233,099 ______________________________________________________________________________ ==============================================================================
Investment Abbreviations: Ctfs. - Certificates Disc. - Discounted Gtd. - Guaranteed Jr. - Junior PIK - Payment in Kind Sec. - Secured Sr. - Senior Sub. - Subordinated Unsec. - Unsecured Unsub. - Unsubordinated Wts. - Warrants
Notes to Schedule of Investments: (a) Industry and/or sector 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 MSCI Inc. and Standard & Poor's. (b) In accordance with the procedures established by the Board of Trustees, security fair valued based on an evaluated quote provided by an independent pricing service. The aggregate value of these securities at June 30, 2008 was $48,473,469, which represented 96.50% of the Fund's Net Assets. See Note 1A. (c) Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended. The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at June 30, 2008 was $7,873,543, which represented 15.67% of the Fund's Net Assets. Unless otherwise indicated, these securities are not considered to be illiquid. (d) All or a portion of this security was out on loan at June 30, 2008. (e) Interest or dividend rate is redetermined periodically. Rate shown is the rate in effect on June 30, 2008. (f) Defaulted security. Currently, the issuer is partially or fully in default with respect to interest payments. The aggregate market value of these securities at June 30, 2008 was $185,254, which represented 0.37% of the Fund's Net Assets. (g) Step coupon bond issued at discount. The interest rate represents the coupon rate at which the bond will accrue at a specified future date. (h) Security considered to be illiquid. The Fund is limited to investing 15% of net assets in illiquid securities at the time of purchase. The aggregate value of these securities considered illiquid at June 30, 2008 was $142,785, which represented 0.28% of the Fund's Net Assets. (i) Security has an irrevocable call by the issuer or mandatory put by the holder. Maturity date reflects such call or put. (j) Non-income producing security acquired as part of the Adelphia Communications bankruptcy reorganization. (k) Non-income producing security acquired as part of a unit with or in exchange for other securities. (l) Security fair valued in good faith in accordance with the procedures established by the Board of Trustees. The value of this security at June 30, 2008 represented less than 0.01% of the Fund's Net Assets. See Note 1A. (m) Non-income producing security. (n) The money market fund and the Fund are affiliated by having the same investment advisor. (o) 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 1J. See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. HIGH YIELD FUND STATEMENT OF ASSETS AND LIABILITIES June 30, 2008 (Unaudited) ASSETS: Investments, at value (Cost $52,199,868)* $ 48,889,294 - ------------------------------------------------------ Investments in affiliated money market funds (Cost $2,551,268) 2,551,268 ====================================================== Total investments (Cost $54,751,136) 51,440,562 ====================================================== Receivables for: Investments sold 330,942 - ------------------------------------------------------ Fund shares sold 1,739,271 - ------------------------------------------------------ Dividends and Interest 1,055,887 - ------------------------------------------------------ Investment for trustee deferred compensation and retirement plans 37,491 - ------------------------------------------------------ Other assets 214 ====================================================== Total assets 54,604,367 ______________________________________________________ ====================================================== LIABILITIES: Payables for: Investments purchased 629,186 - ------------------------------------------------------ Fund shares reacquired 206,307 - ------------------------------------------------------ Amount due custodian 806,728 - ------------------------------------------------------ Collateral upon return of securities loaned 2,551,268 - ------------------------------------------------------ Accrued fees to affiliates 32,632 - ------------------------------------------------------ Accrued other operating expenses 44,789 - ------------------------------------------------------ Trustee deferred compensation and retirement plans 42,207 - ------------------------------------------------------ Unrealized depreciation on swap agreements 50,064 - ------------------------------------------------------ Premiums received on swap agreements 8,087 ====================================================== Total liabilities 4,371,268 ====================================================== Net assets applicable to shares outstanding $ 50,233,099 ______________________________________________________ ====================================================== NET ASSETS CONSIST OF: Shares of beneficial interest $ 58,886,970 - ------------------------------------------------------ Undistributed net investment income 6,454,565 - ------------------------------------------------------ Undistributed net realized gain (loss) (11,747,797) - ------------------------------------------------------ Unrealized appreciation (depreciation) (3,360,639) ====================================================== $ 50,233,099 ______________________________________________________ ====================================================== NET ASSETS: Series I $ 49,636,312 ______________________________________________________ ====================================================== Series II $ 596,787 ______________________________________________________ ====================================================== SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED NUMBER OF SHARES AUTHORIZED: Series I 8,688,290 ______________________________________________________ ====================================================== Series II 104,923 ______________________________________________________ ====================================================== Series I: Net asset value per share $ 5.71 ______________________________________________________ ====================================================== Series II: Net asset value per share $ 5.69 ______________________________________________________ ======================================================
* At June 30, 2008, securities with an aggregate value of $2,496,416 were on loan to brokers. STATEMENT OF OPERATIONS For the six months ended June 30, 2008 (Unaudited) INVESTMENT INCOME: Interest $ 2,247,626 - ------------------------------------------------------ Dividends from affiliated money market funds (includes securities lending income of $70,000) 102,946 - ------------------------------------------------------ Dividends 18,930 ====================================================== Total investment income 2,369,502 ====================================================== EXPENSES: Advisory fees 161,008 - ------------------------------------------------------ Administrative services fees 85,583 - ------------------------------------------------------ Custodian fees 4,098 - ------------------------------------------------------ Distribution fees -- Series II 755 - ------------------------------------------------------ Transfer agent fees 6,253 - ------------------------------------------------------ Trustees' and officer's fees and benefits 8,765 - ------------------------------------------------------ Professional services fees 27,178 - ------------------------------------------------------ Other 9,787 ====================================================== Total expenses 303,427 ====================================================== Less: Fees waived (59,173) ====================================================== Net expenses 244,254 ====================================================== Net investment income 2,125,248 ====================================================== REALIZED AND UNREALIZED GAIN (LOSS) FROM: Net realized gain (loss) from: Investment securities (1,266,209) - ------------------------------------------------------ Foreign currencies 1,616 - ------------------------------------------------------ Swap agreements 83,891 ====================================================== (1,180,702) ====================================================== Change in net unrealized appreciation (depreciation) of: Investment securities (1,115,546) - ------------------------------------------------------ Swap agreements (3,968) ====================================================== (1,119,514) ====================================================== Net realized and unrealized gain (loss) (2,300,216) ====================================================== Net increase (decrease) in net assets resulting from operations $ (174,968) ______________________________________________________ ======================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. HIGH YIELD FUND STATEMENT OF CHANGES IN NET ASSETS For the six months ended June 30, 2008 and the year ended December 31, 2007 (Unaudited)
JUNE 30, DECEMBER 31, 2008 2007 - ------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income $ 2,125,248 $ 4,335,824 - ------------------------------------------------------------------------------------------------------- Net realized gain (loss) (1,180,702) 773,036 - ------------------------------------------------------------------------------------------------------- Change in net unrealized appreciation (depreciation) (1,119,514) (4,039,148) ======================================================================================================= Net increase (decrease) in net assets resulting from operations (174,968) 1,069,712 ======================================================================================================= Distributions to shareholders from net investment income: Series I -- (3,849,927) - ------------------------------------------------------------------------------------------------------- Series II -- (46,750) ======================================================================================================= Total distributions from net investment income -- (3,896,677) ======================================================================================================= Share transactions-net: Series I (1,418,874) (4,318,662) - ------------------------------------------------------------------------------------------------------- Series II (63,833) (218,532) ======================================================================================================= Net increase (decrease) in net assets resulting from share transactions (1,482,707) (4,537,194) ======================================================================================================= Net increase (decrease) in net assets (1,657,675) (7,364,159) ======================================================================================================= NET ASSETS: Beginning of period 51,890,774 59,254,933 - ------------------------------------------------------------------------------------------------------- End of period (including undistributed net investment income of $6,454,565 and $4,329,317, respectively) $50,233,099 $51,890,774 _______________________________________________________________________________________________________ =======================================================================================================
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 June 30, 2008 (Unaudited) NOTE 1--SIGNIFICANT ACCOUNTING POLICIES AIM V.I. High Yield Fund (the "Fund") is a series portfolio of AIM Variable Insurance Funds (the "Trust"). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of twenty separate portfolios, (each constituting a "Fund"). 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 Fund or class will be voted on exclusively by the shareholders of such Fund 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 Fund 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 a high level of current income. 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, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. 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 prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. 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, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. 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. Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer's assets, general economic conditions, interest rates, investor perceptions and market liquidity. AIM V.I. HIGH YIELD FUND B. SECURITIES TRANSACTIONS AND INVESTMENT INCOME -- Securities transactions are accounted for on a trade date basis. Realized gains or losses on sales are computed on the basis of specific identification of the securities sold. Interest income is recorded on the accrual basis from settlement date. Dividend income is recorded on the ex-dividend date. Bond premiums and discounts are amortized and/or accreted for financial reporting purposes. The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds as received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. 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, the investment advisor 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. The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. 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 by a significant amount. 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. 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. J. SECURITIES LENDING -- 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 by the securities lending provider. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its sponsored agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds and is shown as such on the Schedule of Investments. 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. Dividends received on cash collateral investments for securities lending transactions, which are net of compensation to counterparties, is included in Dividends from affiliates on the Statement of Operations. The aggregate value of securities out on loan is shown as a footnote on the Statement of Assets and Liabilities. 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 AIM V.I. HIGH YIELD FUND 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. L. 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. M. 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 an upfront payment and/or 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 an upfront payment and/or a fixed payment over the life of the agreement. 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. Payments received or paid at the beginning of the agreement are reflected as such on the Statement of Assets and Liabilities and may be referred to as upfront payments. The Fund amortizes upfront payments and/or accrues for the fixed payment stream 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. N. COLLATERAL -- To the extent the Fund has pledged or segregated a security as collateral and that security is subsequently sold, it is the Fund's practice to replace such collateral no later than the next business day. 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 Invesco Aim Advisors, Inc. (the "Advisor" or "Invesco Aim"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Advisor based on the annual rate of the Fund's average daily net assets as follows:
AVERAGE NET ASSETS RATE - ------------------------------------------------------------------- First $200 million 0.625% - ------------------------------------------------------------------- Next $300 million 0.55% - ------------------------------------------------------------------- Next $500 million 0.50% - ------------------------------------------------------------------- Over $1 billion 0.45% ___________________________________________________________________ ===================================================================
Under the terms of a master sub-advisory agreement approved by shareholders of the Fund on February 29, 2008, effective May 1, 2008, between the Advisor and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Global Asset Management (N.A.), Inc., Invesco Hong Kong Limited, Invesco Institutional (N.A.), Inc., Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the "Affiliated Sub-Advisors") the Advisor, not the Fund, may pay 40% of the fees paid to the Advisor to any such Affiliated Sub- Advisor(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Advisor(s). AIM V.I. HIGH YIELD FUND The Advisor 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, 2010. 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 Invesco Ltd. ("Invesco") 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. These credits are used to pay certain expenses incurred by the Fund. To the extent that the annualized expense ratio does not exceed the expense limitation, AIM will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year. Further, the Advisor has contractually agreed, through at least April 30, 2010, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Advisor receives from the affiliated money market funds on investments by the Fund of uninvested cash (but not cash collateral from securities lending) in such affiliated money market funds. For the six months ended June 30, 2008, the Advisor waived advisory fees of $59,173. At the request of the Trustees of the Trust, Invesco agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the six months ended June 30, 2008, Invesco did not reimburse any expenses. The Trust has entered into a master administrative services agreement with Invesco Aim pursuant to which the Fund has agreed to pay Invesco Aim a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco Aim for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants' accounts. Pursuant to such agreement, for the six months ended June 30, 2008, Invesco Aim was paid $24,863 for accounting and fund administrative services and reimbursed $60,720 for services provided by insurance companies. The Trust has entered into a transfer agency and service agreement with Invesco Aim Investment Services, Inc. ("IAIS") pursuant to which the Fund has agreed to pay IAIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IAIS for certain expenses incurred by IAIS in the course of providing such services. For the six months ended June 30, 2008, 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 Invesco Aim Distributors, Inc. ("IADI") 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 IADI 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 six months ended June 30, 2008, expenses incurred under the Plan are detailed in the Statement of Operations as distribution fees. Certain officers and trustees of the Trust are officers and directors of Invesco Aim, IAIS and/or IADI. NOTE 3--SUPPLEMENTAL INFORMATION The Fund adopted the provisions of Statement of Financial Accounting Standards No. 157, "Fair Value Measurements" (SFAS 157), effective with the beginning of the Fund's fiscal year. SFAS 157 establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (level 1) and the lowest priority to unobservable inputs (level 3) market prices are not readily available or are unreliable. Based on the inputs the securities or other instruments are tiered into three levels of hierarchy under SFAS 157. Changes in valuation methods may result in transfers in or out of an investment's assigned level within the hierarchy, Level 1 -- Quoted prices in an active market for identical assets. Level 2 -- Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk and others. Level 3 -- Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund's own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. Below is a summary of the tiered input levels, as of the end of the reporting period, June 30, 2008. The inputs or methods used for valuing securities may not be an indication of the risk associated with investing in those securities.
INVESTMENTS OTHER INPUT LEVEL IN SECURITIES INVESTMENTS* - ---------------------------------------------------- Level 1 $ 2,872,358 -- - ---------------------------------------------------- Level 2 48,568,204 (50,064) - ---------------------------------------------------- Level 3 -- -- ==================================================== $51,440,562 (50,064) ____________________________________________________ ====================================================
* Other investments include swap contracts, which are included at the unrealized appreciation/depreciation. AIM V.I. HIGH YIELD FUND NOTE 4--TRUSTEES' AND OFFICER'S FEES AND BENEFITS "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. 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, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund. During the six months ended June 30, 2008, the Fund paid legal fees of $1,563 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust. NOTE 5--CASH BALANCES The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The State Street Bank and Trust Company ("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 Invesco Aim, not to exceed the contractually agreed upon rate. NOTE 6--CREDIT DEFAULT SWAP AGREEMENTS
OPEN CREDIT DEFAULT SWAP AGREEMENTS AT PERIOD-END - ----------------------------------------------------------------------------------------------------------------------- NOTIONAL BUY/SELL (PAY)/RECEIVE EXPIRATION AMOUNT COUNTERPARTY REFERENCE ENTITY PROTECTION FIXED RATE DATE (000) - ----------------------------------------------------------------------------------------------------------------------- Lehman Brothers Special Financing Inc. Dole Foods Co., Inc. Sell 6.15% 09/20/12 $ 120 - ----------------------------------------------------------------------------------------------------------------------- Lehman Brothers Special Financing Inc. Tenet Healthcare Corp. Sell 3.70% 03/20/09 180 - ----------------------------------------------------------------------------------------------------------------------- Lehman Brothers Special Financing Inc. Tenet Healthcare Corp. Sell 3.75% 12/20/08 360 - ----------------------------------------------------------------------------------------------------------------------- Lehman Brothers Special Financing Inc. Visteon Corp. Sell 5.00%(a) 03/20/09 180 - ----------------------------------------------------------------------------------------------------------------------- Merrill Lynch International MBIA Inc. Sell 6.25% 12/20/08 310 - ----------------------------------------------------------------------------------------------------------------------- UBS A.G. Pulte Homes, Inc. Sell 4.20% 12/20/08 210 - ----------------------------------------------------------------------------------------------------------------------- UBS A.G. Pulte Homes, Inc. Sell 4.40% 12/20/08 180 ======================================================================================================================= Total Credit Default Swap Agreements $1,540 _______________________________________________________________________________________________________________________ ======================================================================================================================= OPEN CREDIT DEFAULT SWAP AGREEMENTS AT PERIOD-END - -------------------------------------------------- UNREALIZED APPRECIATION COUNTERPARTY (DEPRECIATION) - -------------------------------------------------- Lehman Brothers Special Financing Inc. $(18,428) - -------------------------------------------------- Lehman Brothers Special Financing Inc. 2,060 - -------------------------------------------------- Lehman Brothers Special Financing Inc. 2,866 - -------------------------------------------------- Lehman Brothers Special Financing Inc. (2,331) - -------------------------------------------------- Merrill Lynch International (35,473) - -------------------------------------------------- UBS A.G. 577 - -------------------------------------------------- UBS A.G. 665 ================================================== Total Credit Default Swap Agreements $(50,064) __________________________________________________ ==================================================
(a) Unamortized premium at period-end of $8,087. NOTE 7--TAX INFORMATION The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund's fiscal year-end. Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions. Under these limitation rules, the Fund is limited to utilizing $5,421,323 of capital loss carryforward in the fiscal year ended December 31, 2008. The Fund had a capital loss carryforward as of December 31, 2007 which expires as follows:
CAPITAL LOSS EXPIRATION CARRYFORWARD* - ----------------------------------------------------------------------------------------------- December 31, 2010 $10,225,025 _______________________________________________________________________________________________ ===============================================================================================
* Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. AIM V.I. HIGH YIELD FUND NOTE 8--INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2008 was $22,276,783 and $20,980,302, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period end.
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS - ------------------------------------------------------------------------------------------------ Aggregate unrealized appreciation of investment securities $ 378,898 - ------------------------------------------------------------------------------------------------ Aggregate unrealized (depreciation) of investment securities (3,809,464) ================================================================================================ Net unrealized appreciation (depreciation) of investment securities $(3,430,566) ________________________________________________________________________________________________ ================================================================================================ Cost of investments for tax purposes is $54,871,128.
NOTE 9--SHARE INFORMATION
CHANGES IN SHARES OUTSTANDING - ------------------------------------------------------------------------------------------------------------------------ SIX MONTHS ENDED YEAR ENDED JUNE 30, 2008(a) DECEMBER 31, 2007 --------------------------- --------------------------- SHARES AMOUNT SHARES AMOUNT - ------------------------------------------------------------------------------------------------------------------------ Sold: Series I 2,749,446 $ 15,615,103 4,258,577 $ 26,501,855 - ------------------------------------------------------------------------------------------------------------------------ Series II 1,042 5,829 6,878 42,592 - ------------------------------------------------------------------------------------------------------------------------ Issued as reinvestment of dividends: Series I -- -- 669,553 3,849,927 - ------------------------------------------------------------------------------------------------------------------------ Series II -- -- 8,159 46,750 - ------------------------------------------------------------------------------------------------------------------------ Reacquired: Series I (2,985,799) (17,033,977) (5,538,034) (34,670,444) - ------------------------------------------------------------------------------------------------------------------------ Series II (12,523) (69,662) (49,587) (307,874) ======================================================================================================================== (247,834) $ (1,482,707) (644,454) $ (4,537,194) ________________________________________________________________________________________________________________________ ========================================================================================================================
(a) There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate 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, Invesco Aim and/or Invesco Aim affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco Aim and or Invesco Aim affiliates including but not limited to services such as, securities brokerage, third party record keeping and account servicing and administrative services. The Trust has no knowledge as to whether all or any portion of the shares owned of record by these entities are also owned beneficially. NOTE 10--NEW ACCOUNTING STANDARD In March 2008, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities. The standard is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity's financial position and financial performance. It is effective for financial statements issued for fiscal years beginning after November 15, 2008. Management is currently in the process of determining the impact of the standard on the Fund's disclosures in the financial statements. AIM V.I. HIGH YIELD FUND NOTE 11--FINANCIAL HIGHLIGHTS The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
SERIES I ---------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ------------------------------------------------------- 2008 2007 2006 2005 2004 2003 - ---------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 5.74 $ 6.12 $ 6.03 $ 6.45 $ 5.97 $ 5.00 - ---------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income 0.25 0.46(a) 0.45(a) 0.43(a) 0.42(a) 0.49(a) - ---------------------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) (0.28) (0.38) 0.19 (0.26) 0.23 0.91 - ---------------------------------------------------------------------------------------------------------------------------- Net increase from payments by affiliates -- -- -- -- 0.02 -- ============================================================================================================================ Total from investment operations (0.03) 0.08 0.64 0.17 0.67 1.40 ============================================================================================================================ Less dividends from net investment income -- (0.46) (0.55) (0.59) (0.19) (0.43) ============================================================================================================================ Net asset value, end of period $ 5.71 $ 5.74 $ 6.12 $ 6.03 $ 6.45 $ 5.97 ____________________________________________________________________________________________________________________________ ============================================================================================================================ Total return(b) (0.52)% 1.24% 10.74% 2.72% 11.25%(c) 28.04% ____________________________________________________________________________________________________________________________ ============================================================================================================================ Ratios/supplemental data: Net assets, end of period (000s omitted) $49,636 $51,225 $58,336 $54,731 $96,602 $37,267 ____________________________________________________________________________________________________________________________ ============================================================================================================================ Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 0.95%(d) 0.96% 0.96% 1.01% 1.04% 1.20% - ---------------------------------------------------------------------------------------------------------------------------- Without fee waivers and/or expense reimbursements 1.18%(d) 1.15% 1.18% 1.16% 1.04% 1.20% ============================================================================================================================ Ratio of net investment income to average net assets 8.25%(d) 7.42% 7.22% 6.58% 6.79% 8.54% ____________________________________________________________________________________________________________________________ ============================================================================================================================ Portfolio turnover rate(e) 49% 113% 135% 69% 131% 101% ____________________________________________________________________________________________________________________________ ============================================================================================================================
(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 10.90% (d) Ratios are annualized and based on average daily net assets of $51,198,506. (e) Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year.
SERIES II ----------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, -------------------------------------------------- 2008 2007 2006 2005 2004 2003 - -------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 5.72 $ 6.09 $ 6.00 $ 6.43 $ 5.95 $ 4.99 - -------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income 0.28 0.44(a) 0.43(a) 0.41(a) 0.41(a) 0.49(a) - -------------------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) (0.31) (0.38) 0.19 (0.26) 0.24 0.90 - -------------------------------------------------------------------------------------------------------------------------- Net increase from payments by affiliates -- -- -- -- 0.01 -- ========================================================================================================================== Total from investment operations (0.03) 0.06 0.62 0.15 0.66 1.39 ========================================================================================================================== Less dividends from net investment income -- (0.43) (0.53) (0.58) (0.18) (0.43) ========================================================================================================================== Net asset value, end of period $ 5.69 $ 5.72 $ 6.09 $ 6.00 $ 6.43 $ 5.95 __________________________________________________________________________________________________________________________ ========================================================================================================================== Total return(b) (0.52)% 1.01% 10.41% 2.43% 11.14%(c) 27.89% __________________________________________________________________________________________________________________________ ========================================================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $ 597 $ 666 $ 919 $1,556 $1,072 $1,251 __________________________________________________________________________________________________________________________ ========================================================================================================================== Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 1.20%(d) 1.21% 1.21% 1.22% 1.24% 1.45% - -------------------------------------------------------------------------------------------------------------------------- Without fee waivers and/or expense reimbursements 1.43%(d) 1.40% 1.43% 1.41% 1.29% 1.45% ========================================================================================================================== Ratio of net investment income to average net assets 8.00%(d) 7.17% 6.97% 6.37% 6.59% 8.29% __________________________________________________________________________________________________________________________ ========================================================================================================================== Portfolio turnover rate(e) 49% 113% 135% 69% 131% 101% __________________________________________________________________________________________________________________________ ==========================================================================================================================
(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 annualized and based on average daily net assets of $607,168. (e) Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year. AIM V.I. HIGH YIELD FUND NOTE 12--LEGAL PROCEEDINGS Terms used in the Legal Proceedings Note are defined terms solely for the purpose of this note. 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 Invesco Aim and IADI (Order No. 05- 1318). The WVASC makes findings of fact that Invesco Aim and IADI 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 Invesco Aim and IADI violated the West Virginia securities laws. The WVASC orders Invesco Aim and IADI 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. By agreement with the Commissioner of Securities, Invesco Aim's time to respond to that Order has been indefinitely suspended. Civil lawsuits, including purported class action and shareholder derivative suits, have been filed against certain of the AIM Funds, Invesco Funds Group, Inc. ("IFG"), Invesco Aim, IADI 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; and - that certain AIM Funds inadequately employed fair value pricing. These lawsuits allege as theories of recovery, depending on the lawsuit, violations of various provisions of the Federal and state securities laws Employee Retirement Income Security Act of 1974, as amended ("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. The case pending in Illinois State Court regarding fair value pricing was dismissed with prejudice on May 6, 2008. 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 Invesco 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 ERISA purportedly brought on behalf of participants in the Invesco 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 Invesco defendants' motion to dismiss the Amended Class Action Complaint for Violations of ERISA and dismissed such Complaint. Plaintiff appealed this ruling. On June 16, 2008, the Fourth Court of Appeals reversed the dismissal and remanded this lawsuit back to the MDL Court for further proceedings. IFG, Invesco Aim, IADI 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, Invesco Aim and IADI 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, Invesco Aim and/or related entities and individuals in the future. At the present time, management of Invesco 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 Invesco Aim, IADI or the Fund. AIM V.I. HIGH YIELD FUND NOTE 12--LEGAL PROCEEDINGS--(CONTINUED) CALCULATING YOUR ONGOING FUND EXPENSES EXAMPLE As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2008, through June 30, 2008. The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower. ACTUAL EXPENSES The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled "Actual Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
- --------------------------------------------------------------------------------------------------- HYPOTHETICAL (5% ANNUAL RETURN BEFORE ACTUAL EXPENSES) ------------------------------------------------------ BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE CLASS (01/01/08) (06/30/08)(1) PERIOD(2) (06/30/08) PERIOD(2) RATIO - --------------------------------------------------------------------------------------------------- Series I $1,000.00 $994.80 $4.71 $1,020.14 $4.77 0.95% - --------------------------------------------------------------------------------------------------- Series II 1,000.00 994.80 5.95 1,018.90 6.02 1.20 - ---------------------------------------------------------------------------------------------------
(1) The actual ending account value is based on the actual total return of the Fund for the period January 1, 2008, through June 30, 2008, 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 182/366 to reflect the most recent fiscal half year. AIM V.I. HIGH YIELD FUND APPROVAL OF INVESTMENT ADVISORY AGREEMENT The Board of Trustees (the Board) of AIM their assigned funds. During the contract ated the information provided differently Variable Insurance Funds is required under renewal process, the Trustees receive from one another and attributed different the Investment Company Act of 1940 to comparative performance and fee data weight to the various factors. The approve annually the renewal of the AIM regarding all the AIM Funds prepared by an Trustees recognized that the advisory V.I. High Yield Fund (the Fund) investment independent company, Lipper, Inc. arrangements and resulting advisory fees advisory agreement with Invesco Aim (Lipper), under the direction and for the Fund and the other AIM Funds are Advisors, Inc. (Invesco Aim). During supervision of the independent Senior the result of years of review and contract renewal meetings held on June Officer who also prepares a separate negotiation between the Trustees and 18-19, 2008, the Board as a whole and the analysis of this information for the Invesco Aim, that the Trustees may focus disinterested or "independent" Trustees, Trustees. Each Sub-Committee then makes to a greater extent on certain aspects of voting separately, approved the recommendations to the Investments these arrangements in some years than in continuance of the Fund's investment Committee regarding the performance, fees others, and that the Trustees' advisory agreement for another year, and expenses of their assigned funds. The deliberations and conclusions in a effective July 1, 2008. In doing so, the Investments Committee considers each particular year may be based in part on Board determined that the Fund's Sub-Committee's recommendations and makes their deliberations and conclusions of investment advisory agreement is in the its own recommendations regarding the these same arrangements throughout the best interests of the Fund and its performance, fees and expenses of the AIM year and in prior years. shareholders and that the compensation to Funds to the full Board. The Investments Invesco Aim under the Fund's investment Committee also considers each FACTORS AND CONCLUSIONS AND SUMMARY OF advisory agreement is fair and reasonable. Sub-Committee's recommendations in making INDEPENDENT WRITTEN FEE EVALUATION The independent Trustees met separately its annual recommendation to the Board The discussion below serves as a summary during their evaluation of the Fund's whether to approve the continuance of each of the Senior Officer's independent investment advisory agreement with AIM Fund's investment advisory agreement written evaluation with respect to the independent legal counsel from whom they and sub-advisory agreements for another Fund's investment advisory agreement as received independent legal advice, and the year. well as a discussion of the material independent Trustees also received The independent Trustees are assisted factors and related conclusions that assistance during their deliberations from in their annual evaluation of the Fund's formed the basis for the Board's approval the independent Senior Officer, a investment advisory agreement by the of the Fund's investment advisory full-time officer of the AIM Funds who independent Senior Officer. One agreement and sub-advisory agreements. reports directly to the independent responsibility of the Senior Officer is to Unless otherwise stated, information set Trustees. manage the process by which the AIM Funds' forth below is as of June 19, 2008 and proposed management fees are negotiated does not reflect any changes that may have THE BOARD'S FUND EVALUATION PROCESS during the annual contract renewal process occurred since that date, including but The Board's Investments Committee has to ensure that they are negotiated in a not limited to changes to the Fund's established three Sub-Committees that are manner that is at arms' length and performance, advisory fees, expense responsible for overseeing the management reasonable. Accordingly, the Senior limitations and/or fee waivers. of a number of the series portfolios of Officer must either supervise a the AIM Funds. This Sub-Committee competitive bidding process or prepare an I. Investment Advisory Agreement structure permits the Trustees to focus on independent written evaluation. The Senior A.Nature, Extent and Quality of the performance of the AIM Funds that have Officer has recommended that an Services Provided by Invesco Aim been assigned to them. The Sub-Committees independent written evaluation be provided The Board reviewed the advisory services meet throughout the year to review the and, at the direction of the Board, has provided to the Fund by Invesco Aim under performance of their assigned funds, and prepared an independent written the Fund's investment advisory agreement, the Sub-Committees review monthly and evaluation. the performance of Invesco Aim in quarterly comparative performance During the annual contract renewal providing these services, and the information and periodic asset flow data process, the Board considered the factors credentials and experience of the officers for their assigned funds. These materials discussed below under the heading "Factors and employees of Invesco Aim who provide are prepared under the direction and and Conclusions and Summary of Independent these services. The Board's review of the supervision of the independent Senior Written Fee Evaluation" in evaluating the qualifications of Invesco Aim to provide Officer. Over the course of each year, the fairness and reasonableness of the Fund's these services included the Board's Sub-Committees meet with portfolio investment advisory agreement and consideration of Invesco Aim's portfolio managers for their assigned funds and sub-advisory agreements at the contract and product review process, various back other members of management and review renewal meetings and at their meetings office support functions provided by with these individuals the performance, throughout the year as part of their Invesco Aim and its affiliates, and investment objective(s), policies, ongoing oversight of the Fund. The Fund's Invesco Aim's equity and fixed income strategies and limitations of these funds. investment advisory agreement and trading operations. The Board concluded In addition to their meetings sub-advisory agreements were considered that the nature, extent and quality of the throughout the year, the Sub-Committees separately, although the Board also advisory services provided to the Fund by meet at designated contract renewal considered the common interests of all of Invesco Aim were appropriate and that meetings each year to conduct an in-depth the AIM Funds in their deliberations. The Invesco Aim currently is providing review of the performance, fees and Board considered all of the information satisfactory advisory services in expenses of provided to them and did not identify any accordance with the terms of the Fund's particular factor that was controlling. investment advisory agreement. In Each Trustee may have evalu- addition, based on their ongoing meetings throughout the year continued
AIM V.I. HIGH YIELD FUND with the Fund's portfolio manager or quality and efficiency of the services D. Economies of Scale and Breakpoints managers, the Board concluded that these that Invesco Aim provides to the AIM The Board considered the extent to which individuals are competent and able to Funds. The Board concluded that Invesco there are economies of scale in Invesco continue to carry out their Aim continues to be responsive to the Aim's provision of advisory services to responsibilities under the Fund's Board's focus on fund performance. the Fund. The Board also considered investment advisory agreement. However, due to the Fund's whether the Fund benefits from such In determining whether to continue the underperformance, the Board also concluded economies of scale through contractual Fund's investment advisory agreement, the that it would be appropriate for the Board breakpoints in the Fund's advisory fee Board considered the prior relationship to continue to monitor more closely the schedule or through advisory fee waivers between Invesco Aim and the Fund, as well performance of the Fund. Although the or expense limitations. The Board noted as the Board's knowledge of Invesco Aim's independent written evaluation of the that the Fund's contractual advisory fee operations, and concluded that it was Fund's Senior Officer only considered Fund schedule includes three breakpoints but beneficial to maintain the current performance through the most recent that, due to the Fund's asset level at the relationship, in part, because of such calendar year, the Board also reviewed end of the past calendar year and the way knowledge. The Board also considered the more recent Fund performance and this in which the breakpoints have been steps that Invesco Aim and its affiliates review did not change their conclusions. structured, the Fund has yet to benefit have taken over the last several years to from the breakpoints. Based on this improve the quality and efficiency of the C. Advisory Fees and Fee Waivers information, the Board concluded that the services they provide to the AIM Funds in The Board compared the Fund's contractual Fund's advisory fees would reflect the areas of investment performance, advisory fee rate to the contractual economies of scale at higher asset levels. product line diversification, advisory fee rates of funds in the Fund's The Board also noted that the Fund shares distribution, fund operations, shareholder Lipper expense group that are not managed directly in economies of scale through services and compliance. The Board by Invesco Aim, at a common asset level lower fees charged by third party service concluded that the quality and efficiency and as of the end of the past calendar providers based on the combined size of of the services Invesco Aim and its year. The Board noted that the Fund's all of the AIM Funds and affiliates. affiliates provide to the AIM Funds in contractual advisory fee rate was below each of these areas have generally the median contractual advisory fee rate E. Profitability and Financial improved, and support the Board's approval of funds in its expense group. The Board Resources of Invesco Aim of the continuance of the Fund's also reviewed the methodology used by The Board reviewed information from investment advisory agreement. Lipper in determining contractual fee Invesco Aim concerning the costs of the rates. advisory and other services that Invesco B. Fund Performance The Board also compared the Fund's Aim and its affiliates provide to the Fund The Board compared the Fund's performance effective fee rate (the advisory fee after and the profitability of Invesco Aim and during the past one, three and five any advisory fee waivers and before any its affiliates in providing these calendar years to the performance of funds expense limitations/waivers) to the services. The Board also reviewed in the Fund's performance group that are advisory fee rates of other clients of information concerning the financial not managed by Invesco Aim, and against Invesco Aim and its affiliates with condition of Invesco Aim and its the performance of all funds in the Lipper investment strategies comparable to those affiliates. The Board also reviewed with Variable Annuity Underlying Funds - High of the Fund, including one mutual fund Invesco Aim the methodology used to Current Yield Index. The Board also advised by Invesco Aim. The Board noted prepare the profitability information. The reviewed the criteria used by Invesco Aim that the Fund's rate was above the rate Board considered the overall profitability to identify the Fund's performance group for the other mutual fund. of Invesco Aim, as well as the for inclusion in the Lipper reports. The The Board noted that Invesco Aim has profitability of Invesco Aim in connection Board noted that the Fund's performance contractually agreed to waive fees and/or with managing the Fund. The Board noted was in the fifth quintile of its limit expenses of the Fund through at that Invesco Aim continues to operate at a performance group for the one year period, least April 30, 2010 in an amount net profit, although increased expenses in the fourth quintile for the three year necessary to limit total annual operating recent years have reduced the period, and the second quintile for the expenses to a specified percentage of profitability of Invesco Aim and its five year period (the first quintile being average daily net assets for each class of affiliates. The Board concluded that the the best performing funds and the fifth the Fund. The Board considered the Fund's fees were fair and reasonable, and quintile being the worst performing contractual nature of this fee waiver and that the level of profits realized by funds). The Board noted that the Fund's noted that it remains in effect until at Invesco Aim and its affiliates from performance was below the performance of least April 30, 2010. The Board also providing services to the Fund was not the Index for the one and three year considered the effect this expense excessive in light of the nature, quality periods, and above the performance of the limitation would have on the Fund's and extent of the services provided. The Index for the five year period. The Board estimated total expenses. Board considered whether Invesco Aim is noted that Invesco Aim acknowledges the After taking account of the Fund's financially sound and has the resources Fund's underperformance because of shorter contractual advisory fee rate, as well as necessary to perform its obligations under term performance results and continues to the comparative advisory fee information the Fund's investment advisory agreement, monitor the Fund. The Board also and the expense limitation discussed and concluded that Invesco Aim has the considered the steps Invesco Aim has taken above, the Board concluded that the Fund's financial resources necessary to fulfill over the last several years to improve the advisory fees were fair and reasonable. these obligations. continued
AIM V.I. HIGH YIELD FUND F. Independent Written Evaluation of were appropriate. The Board also concluded countries and securities of companies the Fund's Senior Officer that, based on their review and located in such countries or on various The Board noted that, at their direction, representations made by Invesco Aim, these types of investments and investment the Senior Officer of the Fund, who is arrangements were consistent with techniques, and providing investment independent of Invesco Aim and Invesco regulatory requirements. advisory services. The Board concluded Aim's affiliates, had prepared an The Board considered the fact that the that the sub-advisory agreements will independent written evaluation to assist Fund's uninvested cash and cash collateral benefit the Fund and its shareholders by the Board in determining the from any securities lending arrangements permitting Invesco Aim to utilize the reasonableness of the proposed management may be invested in money market funds additional resources and talent of the fees of the AIM Funds, including the Fund. advised by Invesco Aim pursuant to Affiliated Sub-Advisers in managing the The Board noted that they had relied upon procedures approved by the Board. The Fund. the Senior Officer's written evaluation Board noted that Invesco Aim will receive instead of a competitive bidding process. advisory fees from these affiliated money B. Fund Performance In determining whether to continue the market funds attributable to such The Board did not view Fund performance as Fund's investment advisory agreement, the investments, although Invesco Aim has a relevant factor in considering whether Board considered the Senior Officer's contractually agreed to waive through at to approve the sub-advisory agreements for written evaluation. least April 30, 2010, the advisory fees the Fund, as no Affiliated Sub-Adviser payable by the Fund in an amount equal to served as a sub-adviser to the Fund prior G. Collateral Benefits to Invesco Aim 100% of the net advisory fees Invesco Aim to May 1, 2008. and its Affiliates receives from the affiliated money market The Board considered various other funds with respect to the Fund's C. Sub-Advisory Fees benefits received by Invesco Aim and its investment of uninvested cash, but not The Board considered the services to be affiliates resulting from Invesco Aim's cash collateral. The Board considered the provided by the Affiliated Sub-Advisers relationship with the Fund, including the contractual nature of this fee waiver and pursuant to the sub-advisory agreements fees received by Invesco Aim and its noted that it remains in effect until at and the services to be provided by Invesco affiliates for their provision of least April 30, 2010. The Board concluded Aim pursuant to the Fund's investment administrative, transfer agency and that the Fund's investment of uninvested advisory agreement, as well as the distribution services to the Fund. The cash and cash collateral from any allocation of fees between Invesco Aim and Board considered the performance of securities lending arrangements in the the Affiliated Sub-Advisers pursuant to Invesco Aim and its affiliates in affiliated money market funds is in the the sub-advisory agreements. The Board providing these services and the best interests of the Fund and its noted that the sub-advisory fees have no organizational structure employed by shareholders. direct effect on the Fund or its Invesco Aim and its affiliates to provide shareholders, as they are paid by Invesco these services. The Board also considered II. Sub-Advisory Agreements Aim to the Affiliated Sub-Advisers, and that these services are provided to the A. Nature, Extent and Quality of that Invesco Aim and the Affiliated Fund pursuant to written contracts which Services Provided by Affiliated Sub-Advisers are affiliates. After taking are reviewed and approved on an annual Sub-Advisors account of the Fund's contractual basis by the Board. The Board concluded The Board reviewed the services to be sub-advisory fee rate, as well as other that Invesco Aim and its affiliates were provided by Invesco Trimark Ltd., Invesco relevant factors, the Board concluded that providing these services in a satisfactory Asset Management Deutschland, GmbH, the Fund's sub-advisory fees were fair and manner and in accordance with the terms of Invesco Asset Management Limited, Invesco reasonable. their contracts, and were qualified to Asset Management (Japan) Limited, Invesco continue to provide these services to the Australia Limited, Invesco Global Asset D. Financial Resources of the Fund. Management (N.A.), Inc., Invesco Hong Kong Affiliated Sub-Advisers The Board considered the benefits Limited, Invesco Institutional (N.A.), The Board considered whether each realized by Invesco Aim as a result of Inc. and Invesco Senior Secured Affiliated Sub-Adviser is financially portfolio brokerage transactions executed Management, Inc. (collectively, the sound and has the resources necessary to through "soft dollar" arrangements. Under "Affiliated Sub-Advisers") under the perform its obligations under its these arrangements, portfolio brokerage sub-advisory agreements and the respective sub-advisory agreement, and commissions paid by the Fund and/or other credentials and experience of the officers concluded that each Affiliated Sub-Adviser funds advised by Invesco Aim are used to and employees of the Affiliated has the financial resources necessary to pay for research and execution services. Sub-Advisers who will provide these fulfill these obligations. The Board noted that soft dollar services. The Board concluded that the arrangements shift the payment obligation nature, extent and quality of the services for the research and execution services to be provided by the Affiliated from Invesco Aim to the funds and Sub-Advisers were appropriate. The Board therefore may reduce Invesco Aim's noted that the Affiliated Sub-Advisers, expenses. The Board also noted that which have offices and personnel that are research obtained through soft dollar geographically dispersed in financial arrangements may be used by Invesco Aim in centers around the world, have been formed making investment decisions for the Fund in part for the purpose of researching and and may therefore benefit Fund compiling information and making shareholders. The Board concluded that recommendations on the markets and Invesco Aim's soft dollar arrangements economies of various
AIM V.I. HIGH YIELD FUND NOTE 12--LEGAL PROCEEDINGS--(CONTINUED) PROXY RESULTS A Special Meeting ("Meeting") of Shareholders of AIM V.I. High Yield Fund, an investment portfolio of AIM Variable Insurance Funds, a Delaware statutory trust ("Trust"), was held on February 29, 2008. The Meeting was held for the following purposes: (1) Elect 13 trustees to the Board of Trustees of the Trust, each of whom will serve until his or her successor is elected and qualified. (2) Approve an amendment to the Trust's Agreement and Declaration of Trust that would permit the Board of Trustees of the Trust to terminate the Trust, the Fund, and each other series portfolio of the Trust, or a share class without a shareholder vote. (3) Approve a new sub-advisory agreement between Invesco Aim Advisors, Inc. and each of AIM Funds Management, Inc.; Invesco Asset Management Deutschland, GmbH; Invesco Asset Management Limited; Invesco Asset Management (Japan) Limited; Invesco Australia Limited; Invesco Global Asset Management (N.A.), Inc.; Invesco Hong Kong Limited; Invesco Institutional (N.A.), Inc.; and Invesco Senior Secured Management, Inc. The results of the voting on the above matters were as follows:
WITHHELD/ MATTERS VOTES FOR ABSTENTIONS** - ----------------------------------------------------------------------------------------------------------- (1)* Bob R. Baker...................................................... 474,883,590 19,741,622 Frank S. Bayley................................................... 474,653,109 19,972,103 James T. Bunch.................................................... 475,597,417 19,027,795 Bruce L. Crockett................................................. 474,900,579 19,724,633 Albert R. Dowden.................................................. 474,749,929 19,875,283 Jack M. Fields.................................................... 475,205,840 19,419,372 Martin L. Flanagan................................................ 475,248,336 19,376,876 Carl Frischling................................................... 474,453,674 20,171,538 Prema Mathai-Davis................................................ 473,569,192 21,056,020 Lewis F. Pennock.................................................. 475,072,501 19,552,711 Larry Soll, Ph.D. ................................................ 475,170,544 19,454,668 Raymond Stickel, Jr. ............................................. 475,420,825 19,204,387 Philip A. Taylor.................................................. 475,640,570 18,984,642
VOTES WITHHELD/ VOTES FOR AGAINST ABSTENTIONS - ------------------------------------------------------------------------------------------------------------------- (2)* Approve an amendment to the Trust's Agreement and Declaration of Trust that would permit the Board of Trustees of the Trust to terminate the Trust, the Fund, and each other series portfolio of the Trust, or a share class without a shareholder vote.......................... 438,131,484 35,586,925 20,906,803 (3) Approve a new sub-advisory agreement between Invesco Aim Advisors, Inc. and each of AIM Funds Management, Inc.; Invesco Asset Management Deutschland, GmbH; Invesco Asset Management Limited; Invesco Asset Management (Japan) Limited; Invesco Australia Limited; Invesco Global Asset Management (N.A.), Inc.; Invesco Hong Kong Limited; Invesco Institutional (N.A.), Inc.; and Invesco Senior Secured Management, Inc................................... 7,157,448 393,593 727,624
* Proposals 1 and 2 required approval by a combined vote of all of the portfolios of AIM Variable Insurance Funds. ** Includes Broker Non-Votes. AIM V.I. HIGH YIELD FUND [INVESCO AIM LOGO] AIM V.I. INTERNATIONAL GROWTH FUND - SERVICE MARK - Semiannual Report to Shareholders - June 30, 2008 AIM Investments [MOUNTAIN GRAPHIC] became INVESCO AIM on March 31, 2008. For more details, go to invescoaim.com 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 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 Invesco Aim Web site, invescoaim.com. On the home page, scroll down and click on 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, 2008, is available at our Web site. Go to invescoaim.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 noted, all data provided by Invesco Aim. THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND PROSPECTUS AND VARIABLE PRODUCT PROSPECTUS, WHICH CONTAIN MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ EACH CAREFULLY BEFORE INVESTING. Invesco Aim Distributors, Inc. NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE FUND PERFORMANCE ======================================================================================= PERFORMANCE SUMMARY FUND VS. INDEXES Cumulative total returns, 12/31/07 to 6/30/08, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower. Series I Shares -12.01% Series II Shares -12.12 MSCI EAFE Index(TRIANGLE) (Broad Market Index) -10.96 MSCI EAFE Growth Index(TRIANGLE) (Style-Specific Index) -8.14 Lipper VUF International Growth Funds Index(TRIANGLE) (Peer Group Index) -10.98 (TRIANGLE)Lipper Inc. The MSCI EAFE--REGISTERED TRADEMARK-- INDEX is a free float-adjusted market capitalization index that is designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI EAFE--REGISTERED TRADEMARK-- GROWTH INDEX is an unmanaged index considered representative of growth stocks of Europe, Australasia and the Far East. The LIPPER VUF INTERNATIONAL GROWTH FUNDS INDEX is an equally weighted representation of the largest variable insurance underlying funds in the Lipper International Growth Funds category. These funds invest at least 75% of their equity assets in companies strictly outside the U.S. and typically have an above-average price-to-cash flow ratio, price-to-book ratio, and three-year sales-per-share growth value compared to the S&P/Citigroup World ex-U.S. BMI. The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes. A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of an index of funds reflects fund expenses; performance of a market index does not. ======================================================================================= ========================================== AVERAGE ANNUAL TOTAL RETURNS THE PERFORMANCE DATA QUOTED REPRESENT AIM V.I. INTERNATIONAL GROWTH FUND, A As of 6/30/08 PAST PERFORMANCE AND CANNOT GUARANTEE SERIES PORTFOLIO OF AIM VARIABLE INSURANCE COMPARABLE FUTURE RESULTS; CURRENT FUNDS, IS CURRENTLY OFFERED THROUGH SERIES I SHARES PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE INSURANCE COMPANIES ISSUING VARIABLE Inception (5/5/93) 8.93% CONTACT YOUR VARIABLE PRODUCT ISSUER OR PRODUCTS. YOU CANNOT PURCHASE SHARES OF 10 Years 5.74 FINANCIAL ADVISOR FOR THE MOST RECENT THE FUND DIRECTLY. PERFORMANCE FIGURES 5 Years 17.77 MONTH-END VARIABLE PRODUCT PERFORMANCE. GIVEN REPRESENT THE FUND AND ARE NOT 1 Year -10.63 PERFORMANCE FIGURES REFLECT FUND EXPENSES, INTENDED TO REFLECT ACTUAL VARIABLE REINVESTED DISTRIBUTIONS AND CHANGES IN PRODUCT VALUES. THEY DO NOT REFLECT SALES SERIES II SHARES NET ASSET VALUE. INVESTMENT RETURN AND CHARGES, EXPENSES AND FEES ASSESSED IN 10 Years 5.47% PRINCIPAL VALUE WILL FLUCTUATE SO THAT YOU CONNECTION WITH A VARIABLE PRODUCT. SALES 5 Years 17.46 MAY HAVE A GAIN OR LOSS WHEN YOU SELL CHARGES, EXPENSES AND FEES, WHICH ARE 1 Year -10.84 SHARES. DETERMINED BY THE VARIABLE PRODUCT ========================================== ISSUERS, WILL VARY AND WILL LOWER THE THE NET ANNUAL FUND OPERATING EXPENSE TOTAL RETURN. SERIES II SHARES' INCEPTION DATE IS RATIO SET FORTH IN THE MOST RECENT FUND SEPTEMBER 19, 2001. RETURNS SINCE THAT PROSPECTUS AS OF THE DATE OF THIS REPORT THE MOST RECENT MONTH-END PERFORMANCE DATE ARE HISTORICAL. ALL OTHER RETURNS ARE FOR SERIES I AND SERIES II SHARES WAS DATA AT THE FUND LEVEL, EXCLUDING VARIABLE THE BLENDED RETURNS OF THE HISTORICAL 1.07% AND 1.32%, RESPECTIVELY.(1) THE PRODUCT CHARGES, IS AVAILABLE ON THE PERFORMANCE OF SERIES II SHARES SINCE TOTAL ANNUAL FUND OPERATING EXPENSE RATIO INVESCO AIM AUTOMATED INFORMATION LINE, THEIR INCEPTION AND THE RESTATED SET FORTH IN THE MOST RECENT FUND 866 702 4402. AS MENTIONED ABOVE, FOR THE HISTORICAL PERFORMANCE OF SERIES I SHARES PROSPECTUS AS OF THE DATE OF THIS REPORT MOST RECENT MONTH-END PERFORMANCE (FOR PERIODS PRIOR TO INCEPTION OF SERIES FOR SERIES I AND SERIES II SHARES WAS INCLUDING VARIABLE PRODUCT CHARGES, PLEASE II SHARES) ADJUSTED TO REFLECT THE RULE 1.08% AND 1.33%, RESPECTIVELY. THE EXPENSE CONTACT YOUR VARIABLE PRODUCT ISSUER OR 12B-1 FEES APPLICABLE TO SERIES II SHARES. RATIOS PRESENTED ABOVE MAY VARY FROM THE FINANCIAL ADVISOR. THE INCEPTION DATE OF SERIES I SHARES IS EXPENSE RATIOS PRESENTED IN OTHER SECTIONS MAY 5, 1993. THE PERFORMANCE OF THE FUND'S OF THIS REPORT THAT ARE BASED ON EXPENSES (1) Total annual operating expenses less SERIES I AND SERIES II SHARE CLASSES WILL INCURRED DURING THE PERIOD COVERED BY THIS any contractual fee waivers and/or DIFFER PRIMARILY DUE TO DIFFERENT CLASS REPORT. expense reimbursements by the advisor EXPENSES. in effect through at least April 30, 2010. See current prospectus for more information.
AIM V.I. INTERNATIONAL GROWTH FUND PORTFOLIO COMPOSITION By sector, based on Net Assets as of June 30, 2008 - ------------------------------------------------------------------------- Consumer Discretionary 18.0% - ------------------------------------------------------------------------- Industrials 11.6 - ------------------------------------------------------------------------- Consumer Staples 10.3 - ------------------------------------------------------------------------- Health Care 10.2 - ------------------------------------------------------------------------- Financials 8.7 - ------------------------------------------------------------------------- Energy 8.2 - ------------------------------------------------------------------------- Information Technology 7.4 - ------------------------------------------------------------------------- Materials 7.1 - ------------------------------------------------------------------------- Telecommunication Services 6.8 - ------------------------------------------------------------------------- Utilities 1.2 - ------------------------------------------------------------------------- Money Market Funds Plus Other Assets Less Liabilities 10.5 _________________________________________________________________________ =========================================================================
SCHEDULE OF INVESTMENTS(a) June 30, 2008 (Unaudited)
SHARES VALUE - --------------------------------------------------------------------------------- COMMON STOCKS & OTHER EQUITY INTERESTS-85.26% AUSTRALIA-2.60% BHP Billiton Ltd.(b) 694,803 $ 29,582,806 - --------------------------------------------------------------------------------- Cochlear Ltd. 249,170 10,423,002 ================================================================================= 40,005,808 ================================================================================= BELGIUM-2.05% InBev N.V.(b) 300,227 20,752,019 - --------------------------------------------------------------------------------- KBC Groep N.V.(b) 98,334 10,844,215 ================================================================================= 31,596,234 ================================================================================= CANADA-3.93% Canadian National Railway Co. 235,320 11,302,372 - --------------------------------------------------------------------------------- Canadian Natural Resources Ltd. 185,353 18,562,552 - --------------------------------------------------------------------------------- Manulife Financial Corp. 226,695 7,868,330 - --------------------------------------------------------------------------------- Suncor Energy, Inc. 394,050 22,819,520 ================================================================================= 60,552,774 ================================================================================= CHINA-1.26% China Mobile Ltd.(b) 1,452,809 19,442,314 ================================================================================= DENMARK-1.32% Novo Nordisk A.S.-Class B(b) 307,736 20,274,465 ================================================================================= FINLAND-0.54% Nokia Oyj(b) 341,655 8,369,232 ================================================================================= FRANCE-5.14% Axa(b) 519,286 15,305,700 - --------------------------------------------------------------------------------- BNP Paribas(b) 256,562 22,985,966 - --------------------------------------------------------------------------------- Cap Gemini S.A.(b) 232,561 13,669,057 - --------------------------------------------------------------------------------- Total S.A. 318,341 27,165,690 ================================================================================= 79,126,413 ================================================================================= GERMANY-8.54% Bayer A.G.(b) 418,359 35,139,510 - --------------------------------------------------------------------------------- Continental A.G.(b) 97,215 9,959,546 - --------------------------------------------------------------------------------- Daimler A.G.(b) 255,782 15,788,818 - --------------------------------------------------------------------------------- Deutsche Boerse A.G.(b) 68,241 7,656,590 - --------------------------------------------------------------------------------- Merck KGaA(b) 181,640 25,791,926 - --------------------------------------------------------------------------------- Puma A.G. Rudolf Dassler Sport(b) 55,427 18,560,100 - --------------------------------------------------------------------------------- Siemens A.G.(b) 167,928 18,595,505 ================================================================================= 131,491,995 ================================================================================= GREECE-0.75% OPAP S.A.(b) 330,690 11,506,690 ================================================================================= HONG KONG-3.45% Esprit Holdings Ltd. 2,103,600 21,852,641 - --------------------------------------------------------------------------------- Hutchison Whampoa Ltd.(b) 2,083,000 21,064,019 - --------------------------------------------------------------------------------- Li & Fung Ltd. 3,380,000 10,186,860 ================================================================================= 53,103,520 ================================================================================= INDIA-2.46% Bharat Heavy Electricals Ltd.(b) 261,611 8,441,072 - --------------------------------------------------------------------------------- Infosys Technologies Ltd. 729,357 29,421,606 ================================================================================= 37,862,678 =================================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. INTERNATIONAL GROWTH FUND
SHARES VALUE - --------------------------------------------------------------------------------- INDONESIA-1.55% PT Astra International Tbk(b) 3,259,500 $ 6,829,153 - --------------------------------------------------------------------------------- PT Telekomunikasi Indonesia-Series B(b) 21,470,500 17,017,041 ================================================================================= 23,846,194 ================================================================================= IRELAND-0.78% Anglo Irish Bank Corp. PLC(b) 143,797 1,333,895 - --------------------------------------------------------------------------------- CRH PLC(b) 368,379 10,721,481 ================================================================================= 12,055,376 ================================================================================= ISRAEL-1.94% Teva Pharmaceutical Industries Ltd.-ADR 652,425 29,881,065 ================================================================================= ITALY-2.43% Eni S.p.A.(b) 641,872 23,901,651 - --------------------------------------------------------------------------------- Finmeccanica S.p.A.(b) 520,191 13,593,502 ================================================================================= 37,495,153 ================================================================================= JAPAN-8.32% Denso Corp.(b) 479,600 16,418,456 - --------------------------------------------------------------------------------- Fanuc Ltd.(b) 244,300 23,807,337 - --------------------------------------------------------------------------------- Keyence Corp. 75,500 17,984,318 - --------------------------------------------------------------------------------- Komatsu Ltd.(b) 823,000 22,888,070 - --------------------------------------------------------------------------------- Nidec Corp.(b) 184,600 12,269,253 - --------------------------------------------------------------------------------- Suzuki Motor Corp. 690,600 16,326,702 - --------------------------------------------------------------------------------- Toyota Motor Corp.(b) 391,600 18,422,626 ================================================================================= 128,116,762 ================================================================================= MEXICO-3.04% America Movil SAB de C.V.-Series L-ADR 475,589 25,087,320 - --------------------------------------------------------------------------------- Desarrolladora Homex S.A. de C.V.-ADR(c) 165,959 9,721,878 - --------------------------------------------------------------------------------- Grupo Televisa S.A.-ADR 282,588 6,674,729 - --------------------------------------------------------------------------------- Urbi, Desarrollos Urbanos, S.A. de C.V.(c) 1,567,600 5,419,198 ================================================================================= 46,903,125 ================================================================================= NETHERLANDS-2.46% Heineken Holding N.V.(b) 336,656 15,384,126 - --------------------------------------------------------------------------------- TNT N.V.(b) 664,354 22,565,915 ================================================================================= 37,950,041 ================================================================================= NORWAY-1.02% Petroleum Geo-Services A.S.A.(b)(c) 640,863 15,655,079 ================================================================================= SINGAPORE-2.89% Keppel Corp. Ltd.(b) 2,726,000 22,477,656 - --------------------------------------------------------------------------------- United Overseas Bank Ltd.(b) 1,608,000 22,076,908 ================================================================================= 44,554,564 ================================================================================= SOUTH AFRICA-0.55% Standard Bank Group Ltd.(b) 868,755 8,430,250 ================================================================================= SOUTH KOREA-0.91% Hana Financial Group Inc. 366,590 14,094,228 ================================================================================= SPAIN-2.24% Banco Santander S.A.(b) 412,496 7,526,457 - --------------------------------------------------------------------------------- Telefonica S.A.(b) 1,020,306 26,965,589 ================================================================================= 34,492,046 ================================================================================= SWITZERLAND-8.84% Compagnie Financiere Richemont S.A.-Class A(b)(d) 307,868 17,005,207 - --------------------------------------------------------------------------------- Nestle S.A.(b) 694,330 31,303,335 - --------------------------------------------------------------------------------- Roche Holding A.G.(b) 222,316 39,899,992 - --------------------------------------------------------------------------------- Sonova Holding A.G.(b) 163,114 13,431,391 - --------------------------------------------------------------------------------- Syngenta A.G.(b) 106,768 34,558,867 ================================================================================= 136,198,792 ================================================================================= TAIWAN-2.12% Hon Hai Precision Industry Co., Ltd. 4,254,141 20,948,422 - --------------------------------------------------------------------------------- Taiwan Semiconductor Manufacturing Co. Ltd.-ADR 1,075,311 11,731,643 ================================================================================= 32,680,065 ================================================================================= TURKEY-0.42% Akbank T.A.S 1,848,868 6,402,745 ================================================================================= UNITED KINGDOM-13.71% Aviva PLC(b) 985,992 9,770,189 - --------------------------------------------------------------------------------- Capita Group PLC(b) 993,573 13,586,067 - --------------------------------------------------------------------------------- Compass Group PLC(b) 2,027,594 15,233,738 - --------------------------------------------------------------------------------- Imperial Tobacco Group PLC 929,720 34,649,222 - --------------------------------------------------------------------------------- Informa PLC 1,574,916 12,956,120 - --------------------------------------------------------------------------------- International Power PLC(b) 2,106,877 18,027,678 - --------------------------------------------------------------------------------- Reckitt Benckiser Group PLC(b) 391,797 19,839,376 - --------------------------------------------------------------------------------- Reed Elsevier PLC(b) 1,039,952 11,890,288 - --------------------------------------------------------------------------------- Shire Ltd. 1,043,977 17,124,664 - --------------------------------------------------------------------------------- Tesco PLC(b) 2,943,942 21,618,948 - --------------------------------------------------------------------------------- Vodafone Group PLC(b) 5,334,417 15,718,261 - --------------------------------------------------------------------------------- WPP Group PLC(b) 2,154,215 20,739,054 ================================================================================= 211,153,605 ================================================================================= Total Common Stocks & Other Equity Interests (Cost $1,211,658,683) 1,313,241,213 ================================================================================= PREFERRED STOCKS-4.21% BRAZIL-1.14% Petroleo Brasileiro S.A.-Pfd.-ADR 303,406 17,582,378 ================================================================================= GERMANY-3.07% Henkel A.G. & Co. KGaA-Pfd.(b) 402,156 15,970,214 - --------------------------------------------------------------------------------- Porsche Automobil Holding S.E.-Pfd.(b) 203,588 31,295,240 ================================================================================= 47,265,454 ================================================================================= Total Preferred Stocks (Cost $53,427,742) 64,847,832 =================================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. INTERNATIONAL GROWTH FUND
SHARES VALUE - --------------------------------------------------------------------------------- MONEY MARKET FUNDS-9.57% Liquid Assets Portfolio-Institutional Class(e) 73,675,601 $ 73,675,601 - --------------------------------------------------------------------------------- Premier Portfolio-Institutional Class(e) 73,675,601 73,675,601 ================================================================================= Total Money Market Funds (Cost $147,351,202) 147,351,202 ================================================================================= TOTAL INVESTMENTS-99.04% (Cost $1,412,437,627) 1,525,440,247 ================================================================================= OTHER ASSETS LESS LIABILITIES-0.96% 14,727,416 ================================================================================= NET ASSETS-100.00% $1,540,167,663 _________________________________________________________________________________ =================================================================================
Investment Abbreviations: ADR - American Depositary Receipt Pfd. - Preferred
Notes to Schedule of Investments: (a) Industry and/or sector 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 MSCI Inc. and Standard & Poor's. (b) In accordance with the procedures established by the Board of Trustees, the foreign security is fair valued using adjusted closing market prices. The aggregate value of these securities at June 30, 2008 was $971,901,840, which represented 63.10% of the Fund's Net Assets. See Note 1A. (c) Non-income producing security. (d) Each unit represents one A bearer share in the company and one bearer share participation certificate in Richemont S.A. (e) The money market fund and the Fund are affiliated by having the same investment advisor. See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. INTERNATIONAL GROWTH FUND STATEMENT OF ASSETS AND LIABILITIES June 30, 2008 (Unaudited) ASSETS: Investments, at value (Cost $1,265,086,425) $1,378,089,045 - ------------------------------------------------------- Investments in affiliated money market funds (Cost $147,351,202) 147,351,202 ======================================================= Total investments (Cost $1,412,437,627) 1,525,440,247 ======================================================= Foreign currencies, at value (Cost $10,530,968) 10,614,543 - ------------------------------------------------------- Receivables for: Investments sold 18,696 - ------------------------------------------------------- Fund shares sold 6,423,567 - ------------------------------------------------------- Dividends 2,180,401 - ------------------------------------------------------- Investment for trustee deferred compensation and retirement plans 50,630 - ------------------------------------------------------- Other assets 15,662 ======================================================= Total assets 1,544,743,746 _______________________________________________________ ======================================================= LIABILITIES: Payables for: Investments purchased 2,067,764 - ------------------------------------------------------- Fund shares reacquired 398,018 - ------------------------------------------------------- Accrued fees to affiliates 1,482,200 - ------------------------------------------------------- Accrued other operating expenses 525,099 - ------------------------------------------------------- Trustee deferred compensation and retirement plans 103,002 ======================================================= Total liabilities 4,576,083 ======================================================= Net assets applicable to shares outstanding $1,540,167,663 _______________________________________________________ ======================================================= NET ASSETS CONSIST OF: Shares of beneficial interest $1,390,056,545 - ------------------------------------------------------- Undistributed net investment income 23,812,015 - ------------------------------------------------------- Undistributed net realized gain 13,231,227 - ------------------------------------------------------- Unrealized appreciation 113,067,876 ======================================================= $1,540,167,663 _______________________________________________________ ======================================================= NET ASSETS: Series I $ 714,007,575 _______________________________________________________ ======================================================= Series II $ 826,160,088 _______________________________________________________ ======================================================= SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED NUMBER OF SHARES AUTHORIZED: Series I 24,127,411 _______________________________________________________ ======================================================= Series II 28,280,796 _______________________________________________________ ======================================================= Series I: Net asset value per share $ 29.59 _______________________________________________________ ======================================================= Series II: Net asset value per share $ 29.21 _______________________________________________________ =======================================================
STATEMENT OF OPERATIONS For the six months ended June 30, 2008 (Unaudited) INVESTMENT INCOME: Dividends (net of foreign withholding taxes of $2,694,763) $ 23,059,355 - ------------------------------------------------------- Dividends from affiliated money market funds (includes securities lending income of $261,018) 2,695,776 ======================================================= Total investment income 25,755,131 ======================================================= EXPENSES: Advisory fees 5,331,439 - ------------------------------------------------------- Administrative services fees 2,004,423 - ------------------------------------------------------- Custodian fees 566,214 - ------------------------------------------------------- Distribution fees -- Series II 958,796 - ------------------------------------------------------- Transfer agent fees 32,039 - ------------------------------------------------------- Trustees' and officer's fees and benefits 27,956 - ------------------------------------------------------- Other 144,481 ======================================================= Total expenses 9,065,348 ======================================================= Less: Fees waived and expense offset arrangement(s) (95,922) ======================================================= Net expenses 8,969,426 ======================================================= Net investment income 16,785,705 ======================================================= REALIZED AND UNREALIZED GAIN (LOSS) FROM: Net realized gain (loss) from: Investment securities (net of foreign taxes of $357,722) (7,470,098) - ------------------------------------------------------- Foreign currencies 172,885 ======================================================= (7,297,213) ======================================================= Change in net unrealized appreciation (depreciation) of: Investment securities (net of foreign taxes on holdings of $1,137,523) (203,410,089) - ------------------------------------------------------- Foreign currencies 57,236 ======================================================= (203,352,853) ======================================================= Net realized and unrealized gain (loss) (210,650,066) ======================================================= Net increase (decrease) in net assets resulting from operations $(193,864,361) _______________________________________________________ =======================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. INTERNATIONAL GROWTH FUND STATEMENT OF CHANGES IN NET ASSETS For the six months ended June 30, 2008 and the year ended December 31, 2007 (Unaudited)
JUNE 30, DECEMBER 31, 2008 2007 - ---------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income $ 16,785,705 $ 10,346,855 - ---------------------------------------------------------------------------------------------------------- Net realized gain (loss) (7,297,213) 42,387,660 - ---------------------------------------------------------------------------------------------------------- Change in net unrealized appreciation (depreciation) (203,352,853) 53,567,858 ========================================================================================================== Net increase (decrease) in net assets resulting from operations (193,864,361) 106,302,373 ========================================================================================================== Distributions to shareholders from net investment income: Series I -- (3,152,708) - ---------------------------------------------------------------------------------------------------------- Series II -- (2,719,089) ========================================================================================================== Total distributions from net investment income -- (5,871,797) ========================================================================================================== Share transactions-net: Series I 17,477,376 149,884,993 - ---------------------------------------------------------------------------------------------------------- Series II 178,569,799 560,552,308 ========================================================================================================== Net increase in net assets resulting from share transactions 196,047,175 710,437,301 ========================================================================================================== Net increase in net assets 2,182,814 810,867,877 ========================================================================================================== NET ASSETS: Beginning of period 1,537,984,849 727,116,972 ========================================================================================================== End of period (including undistributed net investment income of $23,812,015 and $7,026,310, respectively) $1,540,167,663 $1,537,984,849 __________________________________________________________________________________________________________ ==========================================================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. INTERNATIONAL GROWTH FUND NOTES TO FINANCIAL STATEMENTS June 30, 2008 (Unaudited) NOTE 1--SIGNIFICANT ACCOUNTING POLICIES AIM V.I. International Growth Fund (the "Fund") is a series portfolio of AIM Variable Insurance Funds (the "Trust"). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of twenty separate portfolios, (each constituting a "Fund"). 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 Fund or class will be voted on exclusively by the shareholders of such Fund 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 Fund 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. 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 prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. 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, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. 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, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. 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. Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer's assets, general economic conditions, interest rates, investor perceptions and market liquidity. 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. AIM V.I. INTERNATIONAL GROWTH FUND The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds as received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. 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, the investment advisor 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. The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. 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 by a significant amount. 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. SECURITIES LENDING -- 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 by the securities lending provider. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its sponsored agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds and is shown as such on the Schedule of Investments. 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. Dividends received on cash collateral investments for securities lending transactions, which are net of compensation to counterparties, is included in Dividends from affiliates on the Statement of Operations. The aggregate value of securities out on loan is shown as a footnote on the Statement of Assets and Liabilities. 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 AIM V.I. INTERNATIONAL GROWTH FUND 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. 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. NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES The Trust has entered into a master investment advisory agreement with Invesco Aim Advisors, Inc. (the "Advisor" or "Invesco Aim"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Advisor based on the annual rate of the Fund's average daily net assets as follows:
AVERAGE NET ASSETS RATE - ------------------------------------------------------------------- First $250 million 0.75% - ------------------------------------------------------------------- Over $250 million 0.70% ___________________________________________________________________ ===================================================================
Under the terms of a master sub-advisory agreement approved by shareholders of the Fund on February 29, 2008, effective May 1, 2008, between the Advisor and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Global Asset Management (N.A.), Inc., Invesco Hong Kong Limited, Invesco Institutional (N.A.), Inc., Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd., (collectively, the "Affiliated Sub-Advisors") the Advisor, not the Fund, may pay 40% of the fees paid to the Advisor to any such Affiliated Sub- Advisor(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Advisor(s). The Advisor 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, 2010. 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 Invesco Ltd. ("Invesco") 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. These credits are used to pay certain expenses incurred by the Fund. The Advisor did not waive fees and/or reimburse expenses during the period under this expense limitation. Further, the Advisor has contractually agreed, through at least April 30, 2010, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Advisor receives from the affiliated money market funds on investments by the Fund of uninvested cash (but not cash collateral from securities lending) in such affiliated money market funds. For the six months ended June 30, 2008, the Advisor waived advisory fees of $95,059. At the request of the Trustees of the Trust, Invesco agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the six months ended June 30, 2008, Invesco did not reimburse any expenses. The Trust has entered into a master administrative services agreement with Invesco Aim pursuant to which the Fund has agreed to pay Invesco Aim a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco Aim for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants' accounts. Pursuant to such agreement, for the six months ended June 30, 2008, Invesco Aim was paid $177,421 for accounting and fund administrative services and reimbursed $1,827,002 for services provided by insurance companies. The Trust has entered into a transfer agency and service agreement with Invesco Aim Investment Services, Inc. ("IAIS") pursuant to which the Fund has agreed to pay IAIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IAIS for certain expenses incurred by IAIS in the course of providing such services. For the six months ended June 30, 2008, 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 Invesco Aim Distributors, Inc. ("IADI") 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 IADI 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 six months ended June 30, 2008, expenses incurred under the Plan are detailed in the Statement of Operations as distribution fees. Certain officers and trustees of the Trust are officers and directors of Invesco Aim, IAIS and/or IADI. AIM V.I. INTERNATIONAL GROWTH FUND NOTE 3--SUPPLEMENTAL INFORMATION The Fund adopted the provisions of Statement of Financial Accounting Standards No. 157, "Fair Value Measurements" (SFAS 157), effective with the beginning of the Fund's fiscal year. SFAS 157 establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (level 1) and the lowest priority to unobservable inputs (level 3) market prices are not readily available or are unreliable. Based on the inputs the securities or other instruments are tiered into three levels of hierarchy under SFAS 157. Changes in valuation methods may result in transfers in or out of an investment's assigned level within the hierarchy, Level 1 -- Quoted prices in an active market for identical assets. Level 2 -- Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk and others. Level 3 -- Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund's own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. Below is a summary of the tiered input levels, as of the end of the reporting period, June 30, 2008. The inputs or methods used for valuing securities may not be an indication of the risk associated with investing in those securities.
INVESTMENTS IN INPUT LEVEL SECURITIES - -------------------------------------- Level 1 $ 553,538,406 - -------------------------------------- Level 2 971,901,841 - -------------------------------------- Level 3 -- ====================================== $1,525,440,247 ______________________________________ ======================================
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS The Fund is permitted to purchase or sell securities from or to certain other AIM Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment advisor (or affiliated investment advisors), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the six months ended June 30, 2008, the Fund engaged in securities purchases of $2,711,010. NOTE 5--EXPENSE OFFSET ARRANGEMENT The expense offset arrangement is comprised of custodian credits which result from periodic overnight cash balances at the custodian. For the six months ended June 30, 2008, the Fund received credits from this arrangement, which resulted in the reduction of the Fund's total expenses of $863. 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 certain Trustees and Officers of the Fund. 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, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund. During the six months ended June 30, 2008, the Fund paid legal fees of $3,195 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--CASH BALANCES The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The State Street Bank and Trust Company ("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 Invesco Aim, not to exceed the contractually agreed upon rate. NOTE 8--TAX INFORMATION The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund's fiscal year-end. AIM V.I. INTERNATIONAL GROWTH FUND The Fund did not have a capital loss carryforward as of December 31, 2007. 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 six months ended June 30, 2008 was $473,307,576 and $306,739,286, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period end.
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS - ------------------------------------------------------------------------------------------------ Aggregate unrealized appreciation of investment securities $187,128,067 - ------------------------------------------------------------------------------------------------ Aggregate unrealized (depreciation) of investment securities (78,061,126) ================================================================================================ Net unrealized appreciation of investment securities $109,066,941 ________________________________________________________________________________________________ ================================================================================================ Cost of investments for tax purposes is $1,416,373,306.
NOTE 10--SHARE INFORMATION
CHANGES IN SHARES OUTSTANDING - ------------------------------------------------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED JUNE 30, 2008(a) DECEMBER 31, 2007 --------------------------- ---------------------------- SHARES AMOUNT SHARES AMOUNT - ------------------------------------------------------------------------------------------------------------------------- Sold: Series I 3,326,787 $103,051,101 9,094,637 $ 298,953,566 - ------------------------------------------------------------------------------------------------------------------------- Series II 7,957,607 243,140,108 18,926,292 627,011,734 ========================================================================================================================= Issued as reinvestment of dividends: Series I -- -- 90,543 3,152,708 - ------------------------------------------------------------------------------------------------------------------------- Series II -- -- 78,997 2,719,089 ========================================================================================================================= Reacquired: Series I (2,775,034) (85,573,725) (4,751,273) (152,221,281) - ------------------------------------------------------------------------------------------------------------------------- Series II (2,098,518) (64,570,309) (2,196,518) (69,178,515) ========================================================================================================================= 6,410,842 $196,047,175 21,242,678 $ 710,437,301 _________________________________________________________________________________________________________________________ =========================================================================================================================
(a) There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 54% 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, Invesco Aim and/or Invesco Aim affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco Aim and or Invesco 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. INTERNATIONAL GROWTH FUND NOTE 11--FINANCIAL HIGHLIGHTS The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
SERIES I --------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ------------------------------------------------------------ 2008 2007 2006 2005 2004 2003 - ------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 33.63 $ 29.44 $ 23.17 $ 19.77 $ 16.04 $ 12.49 - ------------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income(a) 0.36 0.34 0.23 0.23 0.15 0.09 - ------------------------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) (4.40) 3.98 6.32 3.31 3.70 3.54 =============================================================================================================================== Total from investment operations (4.04) 4.32 6.55 3.54 3.85 3.63 =============================================================================================================================== Less dividends from net investment income -- (0.13) (0.28) (0.14) (0.12) (0.08) =============================================================================================================================== Net asset value, end of period $ 29.59 $ 33.63 $ 29.44 $ 23.17 $ 19.77 $ 16.04 _______________________________________________________________________________________________________________________________ =============================================================================================================================== Total return(b) (12.01)% 14.68% 28.28% 17.93% 24.00% 29.06% _______________________________________________________________________________________________________________________________ =============================================================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $714,008 $792,779 $563,460 $444,608 $346,605 $290,680 _______________________________________________________________________________________________________________________________ =============================================================================================================================== Ratio of expenses to average net assets 1.06%(c)(d) 1.06%(d) 1.10% 1.11% 1.14% 1.10% =============================================================================================================================== Ratio of net investment income to average net assets 2.36%(c) 1.06% 0.90% 1.11% 0.90% 0.69% _______________________________________________________________________________________________________________________________ =============================================================================================================================== Portfolio turnover rate(e) 22% 20% 34% 36% 48% 79% _______________________________________________________________________________________________________________________________ ===============================================================================================================================
(a) Calculated using average shares outstanding. (b) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. (c) Ratios are annualized and based on average daily net assets of $742,529,593. (d) After fee waivers and/or expense reimbursements. Ratio of expenses to average net assets prior to fee waivers and/or expense reimbursements was 1.07% (annualized) and 1.07% for the six months ended June 30, 2008 and the year ended December 31, 2007, respectively. (e) Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year.
SERIES II ------------------------------------------------------------------------------ SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, --------------------------------------------------------- 2008 2007 2006 2005 2004 2003 - ----------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 33.24 $ 29.16 $ 23.00 $ 19.65 $ 15.97 $ 12.45 - ----------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income(a) 0.32 0.26 0.17 0.18 0.11 0.06 - ----------------------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) (4.35) 3.94 6.25 3.30 3.66 3.51 ============================================================================================================================= Total from investment operations (4.03) 4.20 6.42 3.48 3.77 3.57 ============================================================================================================================= Less dividends from net investment income -- (0.12) (0.26) (0.13) (0.09) (0.05) ============================================================================================================================= Net asset value, end of period $ 29.21 $ 33.24 $ 29.16 $ 23.00 $ 19.65 $ 15.97 _____________________________________________________________________________________________________________________________ ============================================================================================================================= Total return(b) (12.12)% 14.41% 27.92% 17.70% 23.63% 28.68% _____________________________________________________________________________________________________________________________ ============================================================================================================================= Ratios/supplemental data: Net assets, end of period (000s omitted) $826,160 $745,206 $163,657 $54,658 $21,497 $10,972 _____________________________________________________________________________________________________________________________ ============================================================================================================================= Ratio of expenses to average net assets 1.31%(c)(d) 1.31%(d) 1.35% 1.36% 1.39% 1.35% ============================================================================================================================= Ratio of net investment income to average net assets 2.11%(c) 0.81% 0.65% 0.86% 0.65% 0.44% _____________________________________________________________________________________________________________________________ ============================================================================================================================= Portfolio turnover rate(e) 22% 20% 34% 36% 48% 79% _____________________________________________________________________________________________________________________________ =============================================================================================================================
(a) Calculated using average shares outstanding. (b) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. (c) Ratios are annualized and based on average daily net assets of $771,251,242. (d) After fee waivers and/or expense reimbursements. Ratio of expenses to average net assets prior to fee waivers and/or expense reimbursements was 1.32% (annualized) and 1.32% for the six months ended June 30, 2008 and the year ended December 31, 2007, respectively. (e) Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year. AIM V.I. INTERNATIONAL GROWTH FUND NOTE 12--LEGAL PROCEEDINGS Terms used in the Legal Proceedings Note are defined terms solely for the purpose of this note. 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 Invesco Aim and IADI (Order No. 05- 1318). The WVASC makes findings of fact that Invesco Aim and IADI 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 Invesco Aim and IADI violated the West Virginia securities laws. The WVASC orders Invesco Aim and IADI 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. By agreement with the Commissioner of Securities, Invesco Aim's time to respond to that Order has been indefinitely suspended. Civil lawsuits, including purported class action and shareholder derivative suits, have been filed against certain of the AIM Funds, Invesco Funds Group, Inc. ("IFG"), Invesco Aim, IADI 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; and - that certain AIM Funds inadequately employed fair value pricing. These lawsuits allege as theories of recovery, depending on the lawsuit, violations of various provisions of the Federal and state securities laws Employee Retirement Income Security Act of 1974, as amended ("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. The case pending in Illinois State Court regarding fair value pricing was dismissed with prejudice on May 6, 2008. 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 Invesco 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 ERISA purportedly brought on behalf of participants in the Invesco 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 Invesco defendants' motion to dismiss the Amended Class Action Complaint for Violations of ERISA and dismissed such Complaint. Plaintiff appealed this ruling. On June 16, 2008, the Fourth Court of Appeals reversed the dismissal and remanded this lawsuit back to the MDL Court for further proceedings.. IFG, Invesco Aim, IADI 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, Invesco Aim and IADI 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, Invesco Aim and/or related entities and individuals in the future. At the present time, management of Invesco 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 Invesco Aim, IADI or the Fund. AIM V.I. INTERNATIONAL GROWTH FUND NOTE 12--LEGAL PROCEEDINGS--(CONTINUED) CALCULATING YOUR ONGOING FUND EXPENSES EXAMPLE As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2008, through June 30, 2008. The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower. ACTUAL EXPENSES The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled "Actual Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
- --------------------------------------------------------------------------------------------------- HYPOTHETICAL (5% ANNUAL RETURN BEFORE ACTUAL EXPENSES) ------------------------------------------------------ BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE CLASS (01/01/08) (06/30/08)(1) PERIOD(2) (06/30/08) PERIOD(2) RATIO - --------------------------------------------------------------------------------------------------- Series I $1,000.00 $879.90 $4.95 $1,019.59 $5.32 1.06% - --------------------------------------------------------------------------------------------------- Series II 1,000.00 878.80 6.12 1,018.35 6.57 1.31 - ---------------------------------------------------------------------------------------------------
(1) The actual ending account value is based on the actual total return of the Fund for the period January 1, 2008, through June 30, 2008, 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 182/366 to reflect the most recent fiscal half year. AIM V.I. INTERNATIONAL GROWTH FUND APPROVAL OF INVESTMENT ADVISORY AGREEMENT The Board of Trustees (the Board) of AIM their assigned funds. During the contract ated the information provided differently Variable Insurance Funds is required under renewal process, the Trustees receive from one another and attributed different the Investment Company Act of 1940 to comparative performance and fee data weight to the various factors. The approve annually the renewal of the AIM regarding the AIM Funds prepared by an Trustees recognized that the advisory V.I. International Growth Fund (the Fund) independent company, Lipper, Inc. arrangements and resulting advisory fees investment advisory agreement with Invesco (Lipper), under the direction and for the Fund and the other AIM Funds are Aim Advisors, Inc. (Invesco Aim). During supervision of the independent Senior the result of years of review and contract renewal meetings held on June Officer who also prepares a separate negotiation between the Trustees and 18-19, 2008, the Board as a whole and the analysis of this information for the Invesco Aim, that the Trustees may focus disinterested or "independent" Trustees, Trustees. Each Sub-Committee then makes to a greater extent on certain aspects of voting separately, approved the recommendations to the Investments these arrangements in some years than in continuance of the Fund's investment Committee regarding the performance, fees others, and that the Trustees' advisory agreement for another year, and expenses of their assigned funds. The deliberations and conclusions in a effective July 1, 2008. In doing so, the Investments Committee considers each particular year may be based in part on Board determined that the Fund's Sub-Committee's recommendations and makes their deliberations and conclusions of investment advisory agreement is in the its own recommendations regarding the these same arrangements throughout the best interests of the Fund and its performance, fees and expenses of the AIM year and in prior years. shareholders and that the compensation to Funds to the full Board. The Investments Invesco Aim under the Fund's investment Committee also considers each FACTORS AND CONCLUSIONS AND SUMMARY OF advisory agreement is fair and reasonable. Sub-Committee's recommendations in making INDEPENDENT WRITTEN FEE EVALUATION its annual recommendation to the Board The independent Trustees met separately whether to approve the continuance of each The discussion below serves as a summary during their evaluation of the Fund's AIM Fund's investment advisory agreement of the Senior Officer's independent investment advisory agreement with and sub-advisory agreements for another written evaluation with respect to the independent legal counsel from whom they year. Fund's investment advisory agreement as received independent legal advice, and the well as a discussion of the material independent Trustees also received The independent Trustees are assisted factors and related conclusions that assistance during their deliberations from in their annual evaluation of the Fund's formed the basis for the Board's approval the independent Senior Officer, a investment advisory agreement by the of the Fund's investment advisory full-time officer of the AIM Funds who independent Senior Officer. One agreement and sub-advisory agreements. reports directly to the independent responsibility of the Senior Officer is to Unless otherwise stated, information set Trustees. manage the process by which the AIM Funds' forth below is as of June 19, 2008 and proposed management fees are negotiated does not reflect any changes that may have THE BOARD'S FUND EVALUATION PROCESS during the annual contract renewal process occurred since that date, including but to ensure that they are negotiated in a not limited to changes to the Fund's The Board's Investments Committee has manner that is at arms' length and performance, advisory fees, expense established three Sub-Committees that are reasonable. Accordingly, the Senior limitations and/or fee waivers. responsible for overseeing the management Officer must either supervise a of a number of the series portfolios of competitive bidding process or prepare an I. Investment Advisory Agreement the AIM Funds. This Sub-Committee independent written evaluation. The Senior structure permits the Trustees to focus on Officer has recommended that an A. Nature, Extent and Quality of the performance of the AIM Funds that have independent written evaluation be provided Services Provided by Invesco Aim been assigned to them. The Sub-Committees and, at the direction of the Board, has meet throughout the year to review the prepared an independent written The Board reviewed the advisory services performance of their assigned funds, and evaluation. provided to the Fund by Invesco Aim under the Sub-Committees review monthly and the Fund's investment advisory agreement, quarterly comparative performance During the annual contract renewal the performance of Invesco Aim in information and periodic asset flow data process, the Board considered the factors providing these services, and the for their assigned funds. These materials discussed below under the heading "Factors credentials and experience of the officers are prepared under the direction and and Conclusions and Summary of Independent and employees of Invesco Aim who provide supervision of the independent Senior Written Fee Evaluation" in evaluating the these services. The Board's review of the Officer. Over the course of each year, the fairness and reasonableness of the Fund's qualifications of Invesco Aim to provide Sub-Committees meet with portfolio investment advisory agreement and these services included the Board's managers for their assigned funds and sub-advisory agreements at the contract consideration of Invesco Aim's portfolio other members of management and review renewal meetings and at their meetings and product review process, various back with these individuals the performance, throughout the year as part of their office support functions provided by investment objective(s), policies, ongoing oversight of the Fund. The Fund's Invesco Aim, and Invesco Aim's equity and strategies and limitations of these funds. investment advisory agreement and fixed income trading operations. The Board sub-advisory agreements were considered concluded that the nature, extent and In addition to their meetings separately, although the Board also quality of the advisory services provided throughout the year, the Sub-Committees considered the common interests of all of to the Fund by Invesco Aim were meet at designated contract renewal the AIM Funds in their deliberations. The appropriate and that Invesco Aim currently meetings each year to conduct an in-depth Board considered all of the information is providing satisfactory advisory review of the performance, fees and provided to them and did not identify any services in accordance with the terms of expenses of particular factor that was controlling. the Fund's investment advisory agreement. Each Trustee may have evalu- In addition, based on their ongoing meetings throughout the year with the continued
AIM V.I. INTERNATIONAL GROWTH FUND Fund's portfolio manager or managers, the the Board also reviewed more recent Fund the Fund shares directly in economies of Board concluded that these individuals are performance and this review did not change scale through lower fees charged by third competent and able to continue to carry their conclusions. party service providers based on the out their responsibilities under the combined size of all of the AIM Funds and Fund's investment advisory agreement. C. Advisory Fees and Fee Waivers affiliates. In determining whether to continue the The Board compared the Fund's contractual E. Profitability and Financial Fund's advisory agreement, the Board advisory fee rate to the contractual Resources of Invesco Aim considered the prior relationship between advisory fee rates of funds in the Fund's Invesco Aim and the Fund, as well as the expense group that are not managed by The Board reviewed information from Board's knowledge of Invesco Aim's Invesco Aim, at a common asset level and Invesco Aim concerning the costs of the operations, and concluded that it was as of the end of the past calendar year. advisory and other services that Invesco beneficial to maintain the current The Board noted that the Fund's Aim and its affiliates provide to the Fund relationship, in part, because of such contractual advisory fee rate was below and the profitability of Invesco Aim and knowledge. The Board also considered the the median contractual advisory fee rate its affiliates in providing these steps that Invesco Aim and its affiliates of funds in its expense group. The Board services. The Board also reviewed have taken over the last several years to also reviewed the methodology used by information concerning the financial improve the quality and efficiency of the Lipper and noted that the contractual fee condition of Invesco Aim and its services they provide to the Funds in the rates shown by Lipper in determining affiliates. The Board also reviewed with areas of investment performance, product contractual fee rates. The Board noted Invesco Aim the methodology used to line diversification, distribution, fund that Invesco Aim does not serve as an prepare the profitability information. The operations, shareholder services and advisor to other mutual funds or other Board considered the overall profitability compliance. The Board concluded that the clients with investment strategies of Invesco Aim, as well as the quality and efficiency of the services comparable to those of the Fund. profitability of Invesco Aim in connection Invesco Aim and its affiliates provide to with managing the Fund. The Board noted the AIM Funds in each of these areas have The Board noted that Invesco Aim has that Invesco Aim continues to operate at a generally improved, and support the contractually agreed to waive fees and/or net profit, although increased expenses in Board's approval of the continuance of the limit expenses of the Fund through at recent years have reduced the Fund's advisory agreement. least April 30, 2010 in an amount profitability of Invesco Aim and its necessary to limit total annual operating affiliates. The Board concluded that the B. Fund Performance expenses to a specified percentage of Fund's fees were fair and reasonable, and average daily net assets for each class of that the level of profits realized by The Board compared the Fund's performance the Fund. The Board considered the Invesco Aim and its affiliates from during the past one, three and five contractual nature of this fee waiver and providing services to the Fund was not calendar years to the performance of funds noted that it remains in effect until at excessive in light of the nature, quality in the Fund's performance group that are least April 30, 2010. The Board also and extent of the services provided. The not managed by Invesco Aim, and against considered the effect this expense Board considered whether Invesco Aim is the performance of all funds in the Lipper limitation would have on the Fund's financially sound and has the resources Variable Annuity Underlying Funds -- estimated total expenses. necessary to perform its obligations under International Growth Funds Index. The the Fund's investment advisory agreement, Board also reviewed the criteria used by After taking account of the Fund's and concluded that Invesco Aim has the Invesco Aim to identify the funds in the contractual advisory fee rate, as well as financial resources necessary to fulfill Fund's performance group for inclusion in the comparative advisory fee information these obligations. the Lipper reports. The Board noted that and the expense limitation discussed the Fund's performance was in the third above, the Board concluded that the Fund's F. Independent Written Evaluation of quintile of its performance group for the advisory fees were fair and reasonable. the Fund's Senior Officer one year period and the second quintile for the three and five year periods (the D. Economies of Scale and Breakpoints The Board noted that, at their direction, first quintile being the best performing the Senior Officer of the Fund, who is funds and the fifth quintile being the The Board considered the extent to which independent of Invesco Aim and Invesco worst performing funds). The Board noted there are economies of scale in Invesco Aim's affiliates, had prepared an that the performance was above the Aim's provision of advisory services to independent written evaluation to assist performance of the Index for the one, the Fund. The Board also considered the Board in determining the three and five year periods. The Board whether the Fund benefits from such reasonableness of the proposed management also considered the steps Invesco Aim has economies of scale through contractual fees of the AIM Funds, including the Fund. taken over the last several years to breakpoints in the Fund's advisory fee The Board noted that they had relied upon improve the quality and efficiency of the schedule or through advisory fee waivers the Senior Officer's written evaluation services that Invesco Aim provides to the or expense limitations. The Board noted instead of a competitive bidding process. AIM Funds. The Board concluded that that the Fund's contractual advisory fee In determining whether to continue the Invesco Aim continues to be responsive to schedule includes one breakpoint and that Fund's investment advisory agreement, the the Board's focus on fund performance. the level of the Fund's advisory fees, as Board considered the Senior Officer's Although the independent written a percentage of the Fund's net assets, has written evaluation. evaluation of the Fund's Senior Officer decreased as net assets increased because only considered Fund performance through of the breakpoint. Based on this G. Collateral Benefits to Invesco Aim the most recent calendar year, information, the Board concluded that the and its Affiliates Fund's advisory fees appropriately reflect economies of scale at current asset The Board considered various other levels. The Board also noted that benefits received by Invesco Aim and its continued
AIM V.I. INTERNATIONAL GROWTH FUND affiliates resulting from Invesco Aim's cash collateral. The Board considered the and the services to be provided by Invesco relationship with the Fund, including the contractual nature of this fee waiver and Aim pursuant to the Fund's investment fees received by Invesco Aim and its noted that it remains in effect until at advisory agreement, as well as the affiliates for their provision of least April 30, 2010. The Board concluded allocation of fees between Invesco Aim and administrative, transfer agency and that the Fund's investment of uninvested the Affiliated Sub-Advisers pursuant to distribution services to the Fund. The cash and cash collateral from any the sub-advisory agreements. The Board Board considered the performance of securities lending arrangements in the noted that the sub-advisory fees have no Invesco Aim and its affiliates in affiliated money market funds is in the direct effect on the Fund or its providing these services and the best interests of the Fund and its shareholders, as they are paid by Invesco organizational structure employed by shareholders. Aim to the Affiliated Sub-Advisers, and Invesco Aim and its affiliates to provide that Invesco Aim and the Affiliated these services. The Board also considered II. Sub-Advisory Agreements Sub-Advisers are affiliates. After taking that these services are provided to the account of the Fund's contractual Fund pursuant to written contracts which A. Nature, Extent and Quality of sub-advisory fee rate, as well as other are reviewed and approved on an annual Services Provided by Affiliated relevant factors, the Board concluded that basis by the Board. The Board concluded Sub-Advisers the Fund's sub-advisory fees were fair and that Invesco Aim and its affiliates were reasonable. providing these services in a satisfactory The Board reviewed the services to be manner and in accordance with the terms of provided by Invesco Trimark Ltd., Invesco D. Financial Resources of the their contracts, and were qualified to Asset Management Deutschland, GmbH, Affiliated Sub-Advisers continue to provide these services to the Invesco Asset Management Limited, Invesco Fund. Asset Management (Japan) Limited, Invesco The Board considered whether each Australia Limited, Invesco Global Asset Affiliated Sub-Adviser is financially The Board considered the benefits Management (N.A.), Inc., Invesco Hong Kong sound and has the resources necessary to realized by Invesco Aim as a result of Limited, Invesco Institutional (N.A.), perform its obligations under its portfolio brokerage transactions executed Inc. and Invesco Senior Secured respective sub-advisory agreement, and through "soft dollar" arrangements. Under Management, Inc. (collectively, the concluded that each Affiliated Sub-Adviser these arrangements, portfolio brokerage "Affiliated Sub-Advisers") under the has the financial resources necessary to commissions paid by the Fund and/or other sub-advisory agreements and the fulfill these obligations. funds advised by Invesco Aim are used to credentials and experience of the officers pay for research and execution services. and employees of the Affiliated The Board noted that soft dollar Sub-Advisers who will provide these arrangements shift the payment obligation services. The Board concluded that the for the research and execution services nature, extent and quality of the services from Invesco Aim to the funds and to be provided by the Affiliated therefore may reduce Invesco Aim's Sub-Advisers were appropriate. The Board expenses. The Board also noted that noted that the Affiliated Sub-Advisers, research obtained through soft dollar which have offices and personnel that are arrangements may be used by Invesco Aim in geographically dispersed in financial making investment decisions for the Fund centers around the world, have been formed and may therefore benefit Fund in part for the purpose of researching and shareholders. The Board concluded that compiling information and making Invesco Aim's soft dollar arrangements recommendations on the markets and were appropriate. The Board also concluded economies of various countries and that, based on their review and securities of companies located in such representations made by Invesco Aim, these countries or on various types of arrangements were consistent with investments and investment techniques, and regulatory requirements. providing investment advisory services. The Board concluded that the sub-advisory The Board considered the fact that the agreements will benefit the Fund and its Fund's uninvested cash and cash collateral shareholders by permitting Invesco Aim to from any securities lending arrangements utilize the additional resources and may be invested in money market funds talent of the Affiliated Sub-Advisers in advised by Invesco Aim pursuant to managing the Fund. procedures approved by the Board. The Board noted that Invesco Aim will receive B. Fund Performance advisory fees from these affiliated money market funds attributable to such The Board did not view Fund performance as investments, although Invesco Aim has a relevant factor in considering whether contractually agreed to waive through at to approve the sub-advisory agreements for least April 30, 2010, the advisory fees the Fund, as no Affiliated Sub-Adviser payable by the Fund in an amount equal to currently manages any portion of the 100% of the net advisory fees Invesco Aim Fund's assets. receives from the affiliated money market funds with respect to the Fund's C. Sub-Advisory Fees investment of uninvested cash, but not The Board considered the services to be provided by the Affiliated Sub-Advisers pursuant to the sub-advisory agreements
AIM V.I. INTERNATIONAL GROWTH FUND PROXY RESULTS A Special Meeting ("Meeting") of Shareholders of AIM V.I. International Growth Fund, an investment portfolio of AIM Variable Insurance Funds, a Delaware statutory trust ("Trust"), was held on February 29, 2008. The Meeting was held for the following purposes: (1) Elect 13 trustees to the Board of Trustees of the Trust, each of whom will serve until his or her successor is elected and qualified. (2) Approve an amendment to the Trust's Agreement and Declaration of Trust that would permit the Board of Trustees of the Trust to terminate the Trust, the Fund, and each other series portfolio of the Trust, or a share class without a shareholder vote. (3) Approve a new sub-advisory agreement between Invesco Aim Advisors, Inc. and each of AIM Funds Management, Inc.; Invesco Asset Management Deutschland, GmbH; Invesco Asset Management Limited; Invesco Asset Management (Japan) Limited; Invesco Australia Limited; Invesco Global Asset Management (N.A.), Inc.; Invesco Hong Kong Limited; Invesco Institutional (N.A.), Inc.; and Invesco Senior Secured Management, Inc. The results of the voting on the above matters were as follows:
WITHHELD/ MATTERS VOTES FOR ABSTENTIONS** - ----------------------------------------------------------------------------------------------------------- (1)* Bob R. Baker...................................................... 474,883,590 19,741,622 Frank S. Bayley................................................... 474,653,109 19,972,103 James T. Bunch.................................................... 475,597,417 19,027,795 Bruce L. Crockett................................................. 474,900,579 19,724,633 Albert R. Dowden.................................................. 474,749,929 19,875,283 Jack M. Fields.................................................... 475,205,840 19,419,372 Martin L. Flanagan................................................ 475,248,336 19,376,876 Carl Frischling................................................... 474,453,674 20,171,538 Prema Mathai-Davis................................................ 473,569,192 21,056,020 Lewis F. Pennock.................................................. 475,072,501 19,552,711 Larry Soll, Ph.D. ................................................ 475,170,544 19,454,668 Raymond Stickel, Jr. ............................................. 475,420,825 19,204,387 Philip A. Taylor.................................................. 475,640,570 18,984,642
WITHHELD/ VOTES FOR VOTES AGAINST ABSTENTIONS - ------------------------------------------------------------------------------------------------------------------- (2)* Approve an amendment to the Trust's Agreement and Declaration of Trust that would permit the Board of Trustees of the Trust to terminate the Trust, the Fund, and each other series portfolio of the Trust, or a share class without a shareholder vote................. 438,131,484 35,586,925 20,906,803 (3) Approve a new sub-advisory agreement between Invesco Aim Advisors, Inc. and each of AIM Funds Management, Inc.; Invesco Asset Management Deutschland, GmbH; Invesco Asset Management Limited; Invesco Asset Management (Japan) Limited; Invesco Australia Limited; Invesco Global Asset Management (N.A.), Inc.; Invesco Hong Kong Limited; Invesco Institutional (N.A.), Inc.; and Invesco Senior Secured Management, Inc. ........... 35,693,485 1,356,959 1,399,998
* Proposals 1 and 2 required approval by a combined vote of all of the portfolios of AIM Variable Insurance Funds. ** Includes Broker Non-Votes. AIM V.I. INTERNATIONAL GROWTH FUND [INVESCO AIM LOGO] AIM V.I. LARGE CAP GROWTH FUND - SERVICE MARK - Semiannual Report to Shareholders - June 30, 2008 AIM Investments [MOUNTAIN GRAPHIC] became INVESCO AIM on March 31, 2008. For more details, go to invescoaim.com 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 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 Invesco Aim Web site, invescoaim.com. On the home page, scroll down and click on 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, 2008, is available at our Web site. Go to invescoaim.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 noted, all data provided by Invesco Aim. THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND PROSPECTUS AND VARIABLE PRODUCT PROSPECTUS, WHICH CONTAIN MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ EACH CAREFULLY BEFORE INVESTING. Invesco Aim Distributors, Inc. NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE FUND PERFORMANCE ======================================================================================= PERFORMANCE SUMMARY FUND VS. INDEXES Cumulative total returns, 12/31/07 to 6/30/08, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower. Series I Shares -10.92% Series II Shares -11.05 S&P 500 Index(TRIANGLE) (Broad Market Index) -11.90 Russell 1000 Growth Index(TRIANGLE) (Style-Specific Index) -9.06 Lipper VUF Large-Cap Growth Funds Index(TRIANGLE) (Peer Group Index) -9.93 (TRIANGLE)Lipper Inc. The S&P 500--REGISTERED TRADEMARK-- INDEX is a market capitalization-weighted index covering all major areas of the U.S. economy. It is not the 500 largest companies, but rather the most widely held 500 companies chosen with respect to market size, liquidity, and their industry. The RUSSELL 1000--REGISTERED TRADEMARK-- GROWTH INDEX measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values. The Russell 1000 Growth Index is a trademark/service mark of the Frank Russell Company. Russell--REGISTERED TRADEMARK-- is a trademark of the Frank Russell Company. The LIPPER VUF LARGE-CAP GROWTH FUNDS INDEX is an equally weighted representation of the largest variable insurance underlying funds in the Lipper Large-Cap Growth Funds category. These funds typically have an above-average price-to-earnings ratio, price-to-book ratio, and three-year sales-per-share growth value, compared to the S&P 500--REGISTERED TRADEMARK-- Index. The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes. A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of an index of funds reflects fund expenses; performance of a market index does not. ======================================================================================= ========================================== AVERAGE ANNUAL TOTAL RETURNS THE NET ANNUAL FUND OPERATING EXPENSE ABLE PRODUCT. SALES CHARGES, EXPENSES AND As of 6/30/08 RATIO SET FORTH IN THE MOST RECENT FUND FEES, WHICH ARE DETERMINED BY THE VARIABLE PROSPECTUS AS OF THE DATE OF THIS REPORT PRODUCT ISSUERS, WILL VARY AND WILL LOWER SERIES I SHARES FOR SERIES I AND SERIES II SHARES WAS THE TOTAL RETURN. Inception (8/29/03) 7.55% 1.01% AND 1.26%, RESPECTIVELY.(1) THE THE MOST RECENT MONTH-END PERFORMANCE 1 Year -4.05 TOTAL ANNUAL FUND OPERATING EXPENSE RATIO DATA AT THE FUND LEVEL, EXCLUDING VARIABLE SET FORTH IN THE MOST RECENT FUND PRODUCT CHARGES, IS AVAILABLE ON THE SERIES II SHARES PROSPECTUS AS OF THE DATE OF THIS REPORT INVESCO AIM AUTOMATED INFORMATION LINE, Inception (8/29/03) 7.32% FOR SERIES I AND SERIES II SHARES WAS 866 702 4402. AS MENTIONED ABOVE, FOR THE 1 Year -4.30 1.06% AND 1.31%, RESPECTIVELY. THE EXPENSE MOST RECENT MONTH-END PERFORMANCE ========================================== RATIOS PRESENTED ABOVE MAY VARY FROM THE INCLUDING VARIABLE PRODUCT CHARGES, PLEASE EXPENSE RATIOS PRESENTED IN OTHER SECTIONS CONTACT YOUR VARIABLE PRODUCT ISSUER OR THE PERFORMANCE OF THE FUND'S SERIES I AND OF THIS REPORT THAT ARE BASED ON EXPENSES FINANCIAL ADVISOR. SERIES II SHARE CLASSES WILL DIFFER INCURRED DURING THE PERIOD COVERED BY THIS HAD THE ADVISOR NOT WAIVED FEES AND/OR PRIMARILY DUE TO DIFFERENT CLASS EXPENSES. REPORT. REIMBURSED EXPENSES IN THE PAST, THE PERFORMANCE DATA QUOTED REPRESENT AIM V.I. LARGE CAP GROWTH FUND, A PERFORMANCE WOULD HAVE BEEN LOWER. PAST PERFORMANCE AND CANNOT GUARANTEE SERIES PORTFOLIO OF AIM VARIABLE INSURANCE COMPARABLE FUTURE RESULTS; CURRENT FUNDS, IS CURRENTLY OFFERED THROUGH (1) Total annual operating expenses less PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE INSURANCE COMPANIES ISSUING VARIABLE any contractual fee waivers and/or CONTACT YOUR VARIABLE PRODUCT ISSUER OR PRODUCTS. YOU CANNOT PURCHASE SHARES OF expense reimbursements by the advisor FINANCIAL ADVISOR FOR THE MOST RECENT THE FUND DIRECTLY. PERFORMANCE FIGURES in effect through at least April 30, MONTH-END VARIABLE PRODUCT PERFORMANCE. GIVEN REPRESENT THE FUND AND ARE NOT 2010. See current prospectus for more PERFORMANCE FIGURES REFLECT FUND EXPENSES, INTENDED TO REFLECT ACTUAL VARIABLE information. REINVESTED DISTRIBUTIONS AND CHANGES IN PRODUCT VALUES. THEY DO NOT REFLECT SALES NET ASSET VALUE. INVESTMENT RETURN AND CHARGES, EXPENSES AND FEES ASSESSED IN PRINCIPAL VALUE WILL FLUCTUATE SO THAT YOU CONNECTION WITH A VARI- MAY HAVE A GAIN OR LOSS WHEN YOU SELL SHARES.
AIM V.I. LARGE CAP GROWTH FUND PORTFOLIO COMPOSITION By sector, based on Net Assets as of June 30, 2008 - ------------------------------------------------------------------------- Information Technology 30.8% - ------------------------------------------------------------------------- Industrials 21.5 - ------------------------------------------------------------------------- Health Care 12.3 - ------------------------------------------------------------------------- Materials 9.5 - ------------------------------------------------------------------------- Energy 9.2 - ------------------------------------------------------------------------- Consumer Discretionary 5.0 - ------------------------------------------------------------------------- Consumer Staples 3.9 - ------------------------------------------------------------------------- Financials 3.2 - ------------------------------------------------------------------------- Telecommunication Services 2.9 - ------------------------------------------------------------------------- Money Market Funds Plus Other Assets Less Liabilities 1.7 _________________________________________________________________________ =========================================================================
SCHEDULE OF INVESTMENTS(a) June 30, 2008 (Unaudited)
SHARES VALUE - ------------------------------------------------------------------------------ COMMON STOCKS & OTHER EQUITY INTERESTS-98.28% AEROSPACE & DEFENSE-10.70% Boeing Co. (The) 11,322 $ 744,082 - ------------------------------------------------------------------------------ General Dynamics Corp. 20,551 1,730,394 - ------------------------------------------------------------------------------ Honeywell International Inc. 36,330 1,826,672 - ------------------------------------------------------------------------------ Lockheed Martin Corp. 42,984 4,240,801 - ------------------------------------------------------------------------------ Raytheon Co. 36,384 2,047,692 - ------------------------------------------------------------------------------ United Technologies Corp. 12,770 787,909 ============================================================================== 11,377,550 ============================================================================== APPLICATION SOFTWARE-0.73% Adobe Systems Inc.(b) 19,800 779,922 ============================================================================== ASSET MANAGEMENT & CUSTODY BANKS-0.69% Janus Capital Group Inc. 27,881 738,010 ============================================================================== AUTO PARTS & EQUIPMENT-0.83% BorgWarner, Inc. 20,000 887,600 ============================================================================== AUTOMOTIVE RETAIL-0.93% AutoZone, Inc.(b) 8,200 992,282 ============================================================================== COMMUNICATIONS EQUIPMENT-4.86% Cisco Systems, Inc.(b) 77,275 1,797,416 - ------------------------------------------------------------------------------ Juniper Networks, Inc.(b) 35,378 784,684 - ------------------------------------------------------------------------------ Nokia Oyj-ADR (Finland) 67,218 1,646,841 - ------------------------------------------------------------------------------ Research In Motion Ltd. (Canada)(b) 8,054 941,513 ============================================================================== 5,170,454 ============================================================================== COMPUTER HARDWARE-8.97% Apple Inc.(b) 18,617 3,117,230 - ------------------------------------------------------------------------------ Hewlett-Packard Co. 104,826 4,634,357 - ------------------------------------------------------------------------------ International Business Machines Corp. 15,069 1,786,129 ============================================================================== 9,537,716 ============================================================================== CONSTRUCTION & ENGINEERING-4.04% Chicago Bridge & Iron Co. N.V.-New York Shares 41,888 1,667,980 - ------------------------------------------------------------------------------ Fluor Corp. 14,133 2,629,869 ============================================================================== 4,297,849 ============================================================================== CONSTRUCTION & FARM MACHINERY & HEAVY TRUCKS-1.68% Deere & Co. 9,887 713,149 - ------------------------------------------------------------------------------ Joy Global Inc. 14,141 1,072,312 ============================================================================== 1,785,461 ============================================================================== DATA PROCESSING & OUTSOURCED SERVICES-0.95% MasterCard, Inc.-Class A 3,787 1,005,524 ============================================================================== DISTILLERS & VINTNERS-1.54% Diageo PLC (United Kingdom)(c) 89,170 1,637,812 ============================================================================== DIVERSIFIED BANKS-0.84% Unibanco-Uniao de Bancos Brasileiros S.A.-GDR (Brazil) 7,019 890,922 ============================================================================== DIVERSIFIED METALS & MINING-4.35% BHP Billiton Ltd. (Australia)(c) 22,048 938,743 - ------------------------------------------------------------------------------ Freeport-McMoRan Copper & Gold, Inc. 11,483 1,345,693 - ------------------------------------------------------------------------------ Rio Tinto PLC-ADR (United Kingdom) 4,725 2,338,875 ============================================================================== 4,623,311 ============================================================================== EDUCATION SERVICES-0.62% Apollo Group Inc.-Class A(b) 15,000 663,900 ============================================================================== FERTILIZERS & AGRICULTURAL CHEMICALS-5.19% CF Industries Holdings, Inc. 9,300 1,421,040 - ------------------------------------------------------------------------------ Mosaic Co. (The)(b) 13,500 1,953,450 - ------------------------------------------------------------------------------ Syngenta A. G. (Switzerland)(c) 6,611 2,139,861 ============================================================================== 5,514,351 ==============================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. LARGE CAP GROWTH FUND
SHARES VALUE - ------------------------------------------------------------------------------ FOOTWEAR-1.92% NIKE, Inc.-Class B 34,321 $ 2,045,875 ============================================================================== HEALTH CARE EQUIPMENT-3.67% Bard (C.R.), Inc. 11,369 999,904 - ------------------------------------------------------------------------------ Baxter International Inc. 45,346 2,899,423 ============================================================================== 3,899,327 ============================================================================== HEALTH CARE SERVICES-4.35% Express Scripts, Inc.(b) 35,881 2,250,456 - ------------------------------------------------------------------------------ Medco Health Solutions, Inc.(b) 50,338 2,375,954 ============================================================================== 4,626,410 ============================================================================== HEAVY ELECTRICAL EQUIPMENT-3.07% ABB Ltd. (Switzerland)(b)(c) 115,653 3,264,669 ============================================================================== HOUSEHOLD PRODUCTS-0.77% Procter & Gamble Co. (The) 13,500 820,935 ============================================================================== INDUSTRIAL CONGLOMERATES-2.05% McDermott International, Inc.(b) 35,295 2,184,408 ============================================================================== INTEGRATED OIL & GAS-5.00% Exxon Mobil Corp. 12,412 1,093,870 - ------------------------------------------------------------------------------ Marathon Oil Corp. 29,913 1,551,587 - ------------------------------------------------------------------------------ Occidental Petroleum Corp. 29,724 2,670,999 ============================================================================== 5,316,456 ============================================================================== INTERNET RETAIL-0.73% Expedia, Inc.(b) 42,000 771,960 ============================================================================== INTERNET SOFTWARE & SERVICES-1.18% Google Inc.-Class A(b) 2,393 1,259,723 ============================================================================== INVESTMENT BANKING & BROKERAGE-0.84% Goldman Sachs Group, Inc. (The) 5,093 890,766 ============================================================================== IT CONSULTING & OTHER SERVICES-3.64% Accenture Ltd.-Class A 95,089 3,872,024 ============================================================================== LIFE SCIENCES TOOLS & SERVICES-1.06% Invitrogen Corp.(b) 28,800 1,130,688 ============================================================================== OIL & GAS DRILLING-2.34% ENSCO International Inc. 30,880 2,493,251 ============================================================================== OIL & GAS EQUIPMENT & SERVICES-1.82% National-Oilwell Varco Inc.(b) 21,800 1,934,096 ============================================================================== PHARMACEUTICALS-3.21% Johnson & Johnson 24,565 1,580,512 - ------------------------------------------------------------------------------ Merck & Co. Inc. 23,117 871,280 - ------------------------------------------------------------------------------ Teva Pharmaceutical Industries Ltd.-ADR (Israel) 21,000 961,800 ============================================================================== 3,413,592 ============================================================================== PROPERTY & CASUALTY INSURANCE-0.80% Chubb Corp. (The) 17,340 849,833 ============================================================================== SEMICONDUCTOR EQUIPMENT-0.95% MEMC Electronic Materials, Inc.(b) 16,360 1,006,794 ============================================================================== SEMICONDUCTORS-2.24% Intel Corp. 36,850 791,538 - ------------------------------------------------------------------------------ Texas Instruments Inc. 28,823 811,656 - ------------------------------------------------------------------------------ Xilinx, Inc. 30,700 775,175 ============================================================================== 2,378,369 ============================================================================== SOFT DRINKS-1.61% PepsiCo, Inc. 26,975 1,715,340 ============================================================================== SYSTEMS SOFTWARE-7.24% BMC Software, Inc.(b) 42,864 1,543,104 - ------------------------------------------------------------------------------ Microsoft Corp. 108,073 2,973,088 - ------------------------------------------------------------------------------ Oracle Corp.(b) 99,997 2,099,937 - ------------------------------------------------------------------------------ Symantec Corp.(b) 56,064 1,084,839 ============================================================================== 7,700,968 ============================================================================== WIRELESS TELECOMMUNICATION SERVICES-2.87% America Movil SAB de C.V.-Series L-ADR (Mexico) 29,259 1,543,412 - ------------------------------------------------------------------------------ China Mobile Ltd. (China)(c) 112,500 1,505,539 ============================================================================== 3,048,951 ============================================================================== Total Common Stocks & Other Equity Interests (Cost $83,340,265) 104,527,099 ============================================================================== MONEY MARKET FUNDS-1.89% Liquid Assets Portfolio-Institutional Class(d) 1,007,677 1,007,677 - ------------------------------------------------------------------------------ Premier Portfolio-Institutional Class(d) 1,007,677 1,007,677 ============================================================================== Total Money Market Funds (Cost $2,015,354) 2,015,354 ============================================================================== TOTAL INVESTMENTS-100.17% (Cost $85,355,619) 106,542,453 ============================================================================== OTHER ASSETS LESS LIABILITIES-(0.17)% (184,822) ============================================================================== NET ASSETS-100.00% $106,357,631 ______________________________________________________________________________ ==============================================================================
Investment Abbreviations: ADR - American Depositary Receipt GDR - Global Depositary Receipt
Notes to Schedule of Investments: (a) Industry and/or sector 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 MSCI Inc. and Standard & Poor's. (b) Non-income producing security. (c) In accordance with the procedures established by the Board of Trustees, the foreign security is fair valued using adjusted closing market prices. The aggregate value of these securities at June 30, 2008 was $9,486,624, which represented 8.92% 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 accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. LARGE CAP GROWTH FUND STATEMENT OF ASSETS AND LIABILITIES June 30, 2008 (Unaudited) ASSETS: Investments, at value (Cost $83,340,265) $104,527,099 - ------------------------------------------------------ Investments in affiliated money market funds (Cost $2,015,354) 2,015,354 ====================================================== Total investments (Cost $85,355,619) 106,542,453 ====================================================== Foreign currencies, at value (Cost $2,649) 2,660 - ------------------------------------------------------ Receivables for: Fund shares sold 18,276 - ------------------------------------------------------ Dividends 71,837 - ------------------------------------------------------ Investment for trustee deferred compensation and retirement plans 32,808 ====================================================== Total assets 106,668,034 ______________________________________________________ ====================================================== LIABILITIES: Payables for: Fund shares reacquired 157,025 - ------------------------------------------------------ Accrued fees to affiliates 69,073 - ------------------------------------------------------ Accrued other operating expenses 42,139 - ------------------------------------------------------ Trustee deferred compensation and retirement plans 42,166 ====================================================== Total liabilities 310,403 ====================================================== Net assets applicable to shares outstanding $106,357,631 ______________________________________________________ ====================================================== NET ASSETS CONSIST OF: Shares of beneficial interest $ 96,134,224 - ------------------------------------------------------ Undistributed net investment income (loss) (28,512) - ------------------------------------------------------ Undistributed net realized gain (loss) (10,935,015) - ------------------------------------------------------ Unrealized appreciation 21,186,934 ====================================================== $106,357,631 ______________________________________________________ ====================================================== NET ASSETS: Series I $105,315,465 ______________________________________________________ ====================================================== Series II $ 1,042,166 ______________________________________________________ ====================================================== SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED NUMBER OF SHARES AUTHORIZED: Series I 7,460,926 ______________________________________________________ ====================================================== Series II 74,384 ______________________________________________________ ====================================================== Series I: Net asset value per share $ 14.12 ______________________________________________________ ====================================================== Series II: Net asset value per share $ 14.01 ______________________________________________________ ======================================================
STATEMENT OF OPERATIONS For the six months ended June 30, 2008 (Unaudited) INVESTMENT INCOME: Dividends (net of foreign withholding taxes of $19,008) $ 542,021 - ------------------------------------------------------ Dividends from affiliated money market funds 41,340 ====================================================== Total investment income 583,361 ====================================================== EXPENSES: Advisory fees 390,806 - ------------------------------------------------------ Administrative services fees 160,770 - ------------------------------------------------------ Custodian fees 6,918 - ------------------------------------------------------ Distribution fees -- Series II 1,362 - ------------------------------------------------------ Transfer agent fees 4,585 - ------------------------------------------------------ Trustees' and officer's fees and benefits 9,701 - ------------------------------------------------------ Other 31,121 ====================================================== Total expenses 605,263 ====================================================== Less: Fees waived (37,267) ====================================================== Net expenses 567,996 ====================================================== Net investment income 15,365 ====================================================== REALIZED AND UNREALIZED GAIN (LOSS) FROM: Net realized gain (loss) from: Investment securities (includes net gains (losses) from securities sold to affiliates of $(71,062)) (1,126,357) - ------------------------------------------------------ Foreign currencies (2,737) ====================================================== (1,129,094) ====================================================== Change in net unrealized appreciation (depreciation) of: Investment securities (13,074,456) - ------------------------------------------------------ Foreign currencies 107 ====================================================== (13,074,349) ====================================================== Net realized and unrealized gain (loss) (14,203,443) ====================================================== Net increase (decrease) in net assets resulting from operations $(14,188,078) ______________________________________________________ ======================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. LARGE CAP GROWTH FUND STATEMENT OF CHANGES IN NET ASSETS For the six months ended June 30, 2008 and the year ended December 31, 2007 (Unaudited)
JUNE 30, DECEMBER 31, 2008 2007 - ------------------------------------------------------------------------------------------------------ OPERATIONS: Net investment income $ 15,365 $ 129,670 - ------------------------------------------------------------------------------------------------------ Net realized gain (loss) (1,129,094) 4,673,962 - ------------------------------------------------------------------------------------------------------ Change in net unrealized appreciation (depreciation) (13,074,349) 13,025,734 ====================================================================================================== Net increase (decrease) in net assets resulting from operations (14,188,078) 17,829,366 ====================================================================================================== Distributions to shareholders from net investment income -- Series 1 -- (38,491) ====================================================================================================== Share transactions-net: Series I (9,706,897) (9,305,183) - ------------------------------------------------------------------------------------------------------ Series II (77,377) (929,004) ====================================================================================================== Net increase (decrease) in net assets resulting from share transactions (9,784,274) (10,234,187) ====================================================================================================== Net increase (decrease) in net assets (23,972,352) 7,556,688 ====================================================================================================== NET ASSETS: Beginning of period 130,329,983 122,773,295 ====================================================================================================== End of period (including undistributed net investment income (loss) of $(28,512) and $(43,877), respectively) $106,357,631 $130,329,983 ______________________________________________________________________________________________________ ======================================================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. LARGE CAP GROWTH FUND NOTES TO FINANCIAL STATEMENTS June 30, 2008 (Unaudited) NOTE 1--SIGNIFICANT ACCOUNTING POLICIES AIM V.I. Large Cap Growth Fund (the "Fund") is a series portfolio of AIM Variable Insurance Funds (the "Trust"). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of twenty separate portfolios, (each constituting a "Fund"). 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 Fund or class will be voted on exclusively by the shareholders of such Fund 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 Fund 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. 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 prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. 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, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. 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, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. 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. Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer's assets, general economic conditions, interest rates, investor perceptions and market liquidity. 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. The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds as received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. AIM V.I. LARGE CAP GROWTH FUND 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, the investment advisor 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. The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. 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 by a significant amount. 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. 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. LARGE CAP GROWTH FUND NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES The Trust has entered into a master investment advisory agreement with Invesco Aim Advisors, Inc. (the "Advisor" or "Invesco Aim"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Advisor based on the annual rate of the Fund's average daily net assets as follows:
AVERAGE NET ASSETS RATE - ------------------------------------------------------------------- First $250 million 0.695% - ------------------------------------------------------------------- Next $250 million 0.67% - ------------------------------------------------------------------- Next $500 million 0.645% - ------------------------------------------------------------------- Next $1.5 billion 0.62% - ------------------------------------------------------------------- Next $2.5 billion 0.595% - ------------------------------------------------------------------- Next $2.5 billion 0.57% - ------------------------------------------------------------------- Next $2.5 billion 0.545% - ------------------------------------------------------------------- Over $10 billion 0.52% ___________________________________________________________________ ===================================================================
Under the terms of a master sub-advisory agreement approved by shareholders of the Fund on February 29, 2008, effective May 1, 2008, between the Advisor and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Global Asset Management (N.A.), Inc., Invesco Hong Kong Limited, Invesco Institutional (N.A.), Inc., Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the "Affiliated Sub-Advisors") the Advisor, not the Fund, may pay 40% of the fees paid to the Advisor to any such Affiliated Sub- Advisor(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Advisor(s). The Advisor 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, 2010. 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 Invesco Ltd. ("Invesco") 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. These credits are used to pay certain expenses incurred by the Fund. To the extent that the annualized expense ratio does not exceed the expense limitation, the Advisor will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year. Further, the Advisor has contractually agreed, through at least April 30, 2010, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Advisor receives from the affiliated money market funds on investments by the Fund of uninvested cash (but not cash collateral from securities lending) in such affiliated money market funds. For the six months ended June 30, 2008, the Advisor waived advisory fees of $37,267. At the request of the Trustees of the Trust, Invesco agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the six months ended June 30, 2008, Invesco did not reimburse any expenses. The Trust has entered into a master administrative services agreement with Invesco Aim pursuant to which the Fund has agreed to pay Invesco Aim a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco Aim for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants' accounts. Pursuant to such agreement, for the six months ended June 30, 2008, Invesco Aim was paid $24,863 for accounting and fund administrative services and reimbursed $135,907 for services provided by insurance companies. The Trust has entered into a transfer agency and service agreement with Invesco Aim Investment Services, Inc. ("IAIS") pursuant to which the Fund has agreed to pay IAIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IAIS for certain expenses incurred by IAIS in the course of providing such services. For the six months ended June 30, 2008, 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 Invesco Aim Distributors, Inc. ("IADI") 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 IADI 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 six months ended June 30, 2008, expenses incurred under the Plan are detailed in the Statement of Operations as distribution fees. Certain officers and trustees of the Trust are officers and directors of Invesco Aim, IAIS and/or IADI. AIM V.I. LARGE CAP GROWTH FUND NOTE 3--SUPPLEMENTAL INFORMATION The Fund adopted the provisions of Statement of Financial Accounting Standards No. 157, "Fair Value Measurements" (SFAS 157), effective with the beginning of the Fund's fiscal year. SFAS 157 establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (level 1) and the lowest priority to unobservable inputs (level 3) market prices are not readily available or are unreliable. Based on the inputs the securities or other instruments are tiered into three levels of hierarchy under SFAS 157. Changes in valuation methods may result in transfers in or out of an investment's assigned level within the hierarchy, Level 1 -- Quoted prices in an active market for identical assets. Level 2 -- Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk and others. Level 3 -- Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund's own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. Below is a summary of the tiered input levels, as of the end of the reporting period, June 30, 2008. The inputs or methods used for valuing securities may not be an indication of the risk associated with investing in those securities.
INVESTMENTS IN INPUT LEVEL SECURITIES - -------------------------------------- Level 1 $ 97,055,829 - -------------------------------------- Level 2 9,486,624 - -------------------------------------- Level 3 -- ====================================== $106,542,453 ______________________________________ ======================================
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS The Fund is permitted to purchase or sell securities from or to certain other AIM Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment advisor (or affiliated investment advisors), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the six months ended June 30, 2008, the Fund engaged in securities sales of $93,990, which resulted in net realized gains (losses) of $(71,062), and securities purchases of $63,275. 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 certain Trustees and Officers of the Fund. 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, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund. During the six months ended June 30, 2008, the Fund paid legal fees of $1,643 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--CASH BALANCES The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The State Street Bank and Trust Company ("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 Invesco Aim, not to exceed the contractually agreed upon rate. NOTE 7--TAX INFORMATION The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund's fiscal year-end. Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions. AIM V.I. LARGE CAP GROWTH FUND The Fund had a capital loss carryforward as of December 31, 2007 which expires as follows:
CAPITAL LOSS EXPIRATION CARRYFORWARD* - ----------------------------------------------------------------------------------------------- December 31, 2009 $3,427,095 - ----------------------------------------------------------------------------------------------- December 31, 2010 3,544,700 - ----------------------------------------------------------------------------------------------- December 31, 2013 10,284 - ----------------------------------------------------------------------------------------------- December 31, 2014 1,757,332 =============================================================================================== Total capital loss carryforward $8,739,411 _______________________________________________________________________________________________ ===============================================================================================
* 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 reorganization 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 six months ended June 30, 2008 was $17,375,047 and $26,888,696, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period end.
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS - ----------------------------------------------------------------------------------------------- Aggregate unrealized appreciation of investment securities $23,292,997 - ----------------------------------------------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (3,172,673) =============================================================================================== Net unrealized appreciation of investment securities $20,120,324 _______________________________________________________________________________________________ =============================================================================================== Cost of investments for tax purposes is $86,422,129.
NOTE 9--SHARE INFORMATION
CHANGES IN SHARES OUTSTANDING - ------------------------------------------------------------------------------------------------------------------------ SIX MONTHS ENDED YEAR ENDED JUNE 30, 2008(a) DECEMBER 31, 2007 --------------------------- --------------------------- SHARES AMOUNT SHARES AMOUNT - ------------------------------------------------------------------------------------------------------------------------ Sold: Series I 322,848 $ 4,685,266 1,230,557 $ 18,519,621 - ------------------------------------------------------------------------------------------------------------------------ Series II 489 7,140 404 6,093 ======================================================================================================================== Issued as reinvestment of dividends: Series I -- -- 2,379 38,491 - ------------------------------------------------------------------------------------------------------------------------ Series II -- -- -- -- ======================================================================================================================== Reacquired: Series I (1,003,729) (14,392,163) (1,902,716) (27,863,295) - ------------------------------------------------------------------------------------------------------------------------ Series II (6,011) (84,517) (63,178) (935,097) ======================================================================================================================== (686,403) $ (9,784,274) (732,554) $(10,234,187) ________________________________________________________________________________________________________________________ ========================================================================================================================
(a) There are entities that are each record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 90% of the outstanding shares of the Fund. The Fund and the Fund's principal underwriter or advisor, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco Aim and/or Invesco Aim affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco Aim and or Invesco 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. LARGE CAP GROWTH FUND NOTE 10--FINANCIAL HIGHLIGHTS The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
SERIES I ------------------------------------------------------------------------------------ AUGUST 29, 2003 (COMMENCEMENT SIX MONTHS ENDED YEAR ENDED DECEMBER 31, DATE) TO JUNE 30, ------------------------------------------- DECEMBER 31, 2008 2007 2006 2005 2004 2003 - ------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $ 15.85 $ 13.71 $ 12.71 $11.86 $10.90 $10.00 - ------------------------------------------------------------------------------------------------------------------------------ Income from investment operations: Net investment income (loss) 0.00 0.02 0.02 (0.01)(a) (0.04)(b) (0.03) - ------------------------------------------------------------------------------------------------------------------------------ Net gains (losses) on securities (both realized and unrealized) (1.73) 2.13 1.00 0.88 1.03 0.95 ============================================================================================================================== Total from investment operations (1.73) 2.15 1.02 0.87 0.99 0.92 ============================================================================================================================== Less distributions: Dividends from net investment income -- (0.01) (0.02) -- -- (0.02) - ------------------------------------------------------------------------------------------------------------------------------ Distributions from net realized gains -- -- -- (0.02) (0.03) -- ============================================================================================================================== Total distributions -- (0.01) (0.02) (0.02) (0.03) (0.02) ============================================================================================================================== Net asset value, end of period $ 14.12 $ 15.85 $ 13.71 $12.71 $11.86 $10.90 ______________________________________________________________________________________________________________________________ ============================================================================================================================== Total return(c) (10.92)% 15.64% 8.05% 7.30% 9.08% 9.16% ______________________________________________________________________________________________________________________________ ============================================================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $105,315 $129,071 $120,825 $4,352 $ 596 $ 546 ______________________________________________________________________________________________________________________________ ============================================================================================================================== Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 1.01%(d) 1.01% 1.02% 1.13% 1.33% 1.33%(e) - ------------------------------------------------------------------------------------------------------------------------------ Without fee waivers and/or expense reimbursements 1.08%(d) 1.08% 1.23% 7.30% 9.88% 14.54%(e) ============================================================================================================================== Ratio of net investment income (loss) to average net assets 0.03%(d) 0.11% 0.06% (0.06)% (0.35)%(b) (0.73)%(e) ______________________________________________________________________________________________________________________________ ============================================================================================================================== Portfolio turnover rate(f) 16% 58% 76% 99% 104% 37% ______________________________________________________________________________________________________________________________ ==============================================================================================================================
(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 annualized and based on average daily net assets of $111,984,150. (e) Annualized. (f) Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year. AIM V.I. LARGE CAP GROWTH FUND NOTE 10--FINANCIAL HIGHLIGHTS--(CONTINUED)
SERIES II -------------------------------------------------------------------------------- AUGUST 29, 2003 (COMMENCEMENT SIX MONTHS ENDED YEAR ENDED DECEMBER 31, DATE) TO JUNE 30, --------------------------------------- DECEMBER 31, 2008 2007 2006 2005 2004 2003 - ---------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 15.75 $13.66 $12.67 $11.84 $10.90 $10.00 - ---------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) (0.02) (0.04) (0.01) (0.03)(a) (0.06)(b) (0.03) - ---------------------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) (1.72) 2.13 1.00 0.88 1.03 0.94 ============================================================================================================================ Total from investment operations (1.74) 2.09 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 $ 14.01 $15.75 $13.66 $12.67 $11.84 $10.90 ____________________________________________________________________________________________________________________________ ============================================================================================================================ Total return(c) (11.05)% 15.30% 7.81% 7.15% 8.89% 9.11% ____________________________________________________________________________________________________________________________ ============================================================================================================================ Ratios/supplemental data: Net assets, end of period (000s omitted) $ 1,042 $1,259 $1,949 $ 636 $ 594 $ 546 ____________________________________________________________________________________________________________________________ ============================================================================================================================ Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 1.26%(d) 1.26% 1.27% 1.33% 1.48% 1.48%(e) - ---------------------------------------------------------------------------------------------------------------------------- Without fee waivers and/or expense reimbursements 1.33%(d) 1.33% 1.48% 7.55% 10.13% 14.79%(e) ============================================================================================================================ Ratio of net investment income (loss) to average net assets (0.22)%(d) (0.14)% (0.19)% (0.26)% (0.50)%(b) (0.88)%(e) ____________________________________________________________________________________________________________________________ ============================================================================================================================ Portfolio turnover rate(f) 16% 58% 76% 99% 104% 37% ____________________________________________________________________________________________________________________________ ============================================================================================================================
(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 annualized and based on average daily net assets of $1,095,797. (e) Annualized. (f) Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year. NOTE 11--LEGAL PROCEEDINGS Terms used in the Legal Proceedings Note are defined terms solely for the purpose of this note. 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 Invesco Aim and IADI (Order No. 05- 1318). The WVASC makes findings of fact that Invesco Aim and IADI 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 Invesco Aim and IADI violated the West Virginia securities laws. The WVASC orders Invesco Aim and IADI 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. By agreement with the Commissioner of Securities, Invesco Aim's time to respond to that Order has been indefinitely suspended. Civil lawsuits, including purported class action and shareholder derivative suits, have been filed against certain of the AIM Funds, Invesco Funds Group, Inc. ("IFG"), Invesco Aim, IADI 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; and - that certain AIM Funds inadequately employed fair value pricing. These lawsuits allege as theories of recovery, depending on the lawsuit, violations of various provisions of the Federal and state securities laws Employee Retirement Income Security Act of 1974, as amended ("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. The case pending in Illinois State Court regarding fair value pricing was dismissed with prejudice on May 6, 2008. 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 Invesco Aim- and IFG-related parties: (i) a Consolidated Amended Class Action Complaint purportedly brought on behalf of AIM V.I. LARGE CAP GROWTH FUND NOTE 11--LEGAL PROCEEDINGS--(CONTINUED) shareholders of the AIM Funds; (ii) a Consolidated Amended Fund Derivative Complaint purportedly brought on behalf of the AIM Funds and fund registrants; and (iii) an Amended Class Action Complaint for Violations of ERISA purportedly brought on behalf of participants in the Invesco 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 Invesco defendants' motion to dismiss the Amended Class Action Complaint for Violations of ERISA and dismissed such Complaint. Plaintiff appealed this ruling. On June 16, 2008, the Fourth Court of Appeals reversed the dismissal and remanded this lawsuit back to the MDL Court for further proceedings. IFG, Invesco Aim, IADI 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, Invesco Aim and IADI 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, Invesco Aim and/or related entities and individuals in the future. At the present time, management of Invesco 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 Invesco Aim, IADI or the Fund. AIM V.I. LARGE CAP GROWTH FUND CALCULATING YOUR ONGOING FUND EXPENSES EXAMPLE As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2008, through June 30, 2008. The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower. ACTUAL EXPENSES The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled "Actual Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
- --------------------------------------------------------------------------------------------------- HYPOTHETICAL (5% ANNUAL RETURN BEFORE ACTUAL EXPENSES) ------------------------------------------------------ BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE CLASS (01/01/08) (06/30/08)(1) PERIOD(2) (06/30/08) PERIOD(2) RATIO - --------------------------------------------------------------------------------------------------- Series I $1,000.00 $890.80 $4.75 $1,019.84 $5.07 1.01% - --------------------------------------------------------------------------------------------------- Series II 1,000.00 889.50 5.92 1,018.60 6.32 1.26 - ---------------------------------------------------------------------------------------------------
(1) The actual ending account value is based on the actual total return of the Fund for the period January 1, 2008, through June 30, 2008, 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 182/366 to reflect the most recent fiscal half year. See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. LARGE CAP GROWTH FUND APPROVAL OF INVESTMENT ADVISORY AGREEMENT The Board of Trustees (the Board) of AIM their assigned funds. During the contract ated the information provided differently Variable Insurance Funds is required under renewal process, the Trustees receive from one another and attributed different the Investment Company Act of 1940 to comparative performance and fee data weight to the various factors. The approve annually the renewal of the AIM regarding the AIM Funds prepared by an Trustees recognized that the advisory V.I. Large Cap Growth Fund (the Fund) independent company, Lipper, Inc. arrangements and resulting advisory fees investment advisory agreement with Invesco (Lipper), under the direction and for the Fund and the other AIM Funds are Aim Advisors, Inc. (Invesco Aim). During supervision of the independent Senior the result of years of review and contract renewal meetings held on June Officer who also prepares a separate negotiation between the Trustees and 18-19, 2008, the Board as a whole and the analysis of this information for the Invesco Aim, that the Trustees may focus disinterested or "independent" Trustees, Trustees. Each Sub-Committee then makes to a greater extent on certain aspects of voting separately, approved the recommendations to the Investments these arrangements in some years than in continuance of the Fund's investment Committee regarding the performance, fees others, and that the Trustees' advisory agreement for another year, and expenses of their assigned funds. The deliberations and conclusions in a effective July 1, 2008. In doing so, the Investments Committee considers each particular year may be based in part on Board determined that the Fund's Sub-Committee's recommendations and makes their deliberations and conclusions of investment advisory agreement is in the its own recommendations regarding the these same arrangements throughout the best interests of the Fund and its performance, fees and expenses of the AIM year and in prior years. shareholders and that the compensation to Funds to the full Board. The Investments Invesco Aim under the Fund's investment Committee also considers each FACTORS AND CONCLUSIONS AND SUMMARY OF advisory agreement is fair and reasonable. Sub-Committee's recommendations in making INDEPENDENT WRITTEN FEE EVALUATION The independent Trustees met separately its annual recommendation to the Board The discussion below serves as a summary during their evaluation of the Fund's whether to approve the continuance of each of the Senior Officer's independent investment advisory agreement with AIM Fund's investment advisory agreement written evaluation with respect to the independent legal counsel from whom they and sub-advisory agreements for another Fund's investment advisory agreement as received independent legal advice, and the year. well as a discussion of the material independent Trustees also received The independent Trustees are assisted factors and related conclusions that assistance during their deliberations from in their annual evaluation of the Fund's formed the basis for the Board's approval the independent Senior Officer, a investment advisory agreement by the of the Fund's investment advisory full-time officer of the AIM Funds who independent Senior Officer. One agreement and sub-advisory agreements. reports directly to the independent responsibility of the Senior Officer is to Unless otherwise stated, information set Trustees. manage the process by which the AIM Funds' forth below is as of June 19, 2008 and proposed management fees are negotiated does not reflect any changes that may have THE BOARD'S FUND EVALUATION PROCESS during the annual contract renewal process occurred since that date, including but The Board's Investments Committee has to ensure that they are negotiated in a not limited to changes to the Fund's established three Sub-Committees that are manner that is at arms' length and performance, advisory fees, expense responsible for overseeing the management reasonable. Accordingly, the Senior limitations and/or fee waivers. of a number of the series portfolios of Officer must either supervise a the AIM Funds. This Sub-Committee competitive bidding process or prepare an I. Investment Advisory Agreement structure permits the Trustees to focus on independent written evaluation. The Senior A. Nature, Extent and Quality of the performance of the AIM Funds that have Officer has recommended that an Services Provided by Invesco Aim been assigned to them. The Sub-Committees independent written evaluation be provided The Board reviewed the advisory services meet throughout the year to review the and, at the direction of the Board, has provided to the Fund by Invesco Aim under performance of their assigned funds, and prepared an independent written the Fund's investment advisory agreement, the Sub-Committees review monthly and evaluation. the performance of Invesco Aim in quarterly comparative performance During the annual contract renewal providing these services, and the information and periodic asset flow data process, the Board considered the factors credentials and experience of the officers for their assigned funds. These materials discussed below under the heading "Factors and employees of Invesco Aim who provide are prepared under the direction and and Conclusions and Summary of Independent these services. The Board's review of the supervision of the independent Senior Written Fee Evaluation" in evaluating the qualifications of Invesco Aim to provide Officer. Over the course of each year, the fairness and reasonableness of the Fund's these services included the Board's Sub-Committees meet with portfolio investment advisory agreement and consideration of Invesco Aim's portfolio managers for their assigned funds and sub-advisory agreements at the contract and product review process, various back other members of management and review renewal meetings and at their meetings office support functions provided by with these individuals the performance, throughout the year as part of their Invesco Aim, and Invesco Aim's equity and investment objective(s), policies, ongoing oversight of the Fund. The Fund's fixed income trading operations. The Board strategies and limitations of these funds. investment advisory agreement and concluded that the nature, extent and In addition to their meetings sub-advisory agreements were considered quality of the advisory services provided throughout the year, the Sub-Committees separately, although the Board also to the Fund by Invesco Aim were meet at designated contract renewal considered the common interests of all of appropriate and that Invesco Aim currently meetings each year to conduct an in-depth the AIM Funds in their deliberations. The is providing satisfactory advisory review of the performance, fees and Board considered all of the information services in accordance with the terms of expenses of provided to them and did not identify any the Fund's investment advisory agreement. particular factor that was controlling. In addition, based on their ongoing Each Trustee may have evalu- meetings throughout the year with the continued
AIM V.I. LARGE CAP GROWTH FUND Fund's portfolio manager or managers, the reviewed more recent Fund performance and expenses. Board concluded that these individuals are this review did not change their After taking account of the Fund's competent and able to continue to carry conclusions. contractual advisory fee rate, as well as out their responsibilities under the the comparative advisory fee information Fund's investment advisory agreement. C. Advisory Fees and Fee Waivers and the expense limitation discussed In determining whether to continue the The Board compared the Fund's contractual above, the Board concluded that the Fund's Fund's investment advisory agreement, the advisory fee rate to the contractual advisory fees were fair and reasonable. Board considered the prior relationship advisory fee rates of funds in the Fund's between Invesco Aim and the Fund, as well expense group that are not managed by D. Economies of Scale and Breakpoints as the Board's knowledge of Invesco Aim's Invesco Aim, at a common asset level and The Board considered the extent to which operations, and concluded that it was as of the end of the past calendar year. there are economies of scale in Invesco beneficial to maintain the current The Board noted that the Fund's Aim's provision of advisory services to relationship, in part, because of such contractual advisory fee rate was below the Fund. The Board also considered knowledge. The Board also considered the the median contractual advisory fee rate whether the Fund benefits from such steps that Invesco Aim and its affiliates of funds in its expense group. The Board economies of scale through contractual have taken over the last several years to also reviewed the methodology used by breakpoints in the Fund's advisory fee improve the quality and efficiency of the Lipper in determining contractual fee schedule or through advisory fee waivers services they provide to the AIM Funds in rates. or expense limitations. The Board noted the areas of investment performance, The Board also compared the Fund's that the Fund's contractual advisory fee product line diversification, effective fee rate (the advisory fee after schedule includes seven breakpoints but distribution, fund operations, shareholder any advisory fee waivers and before any that, due to the Fund's asset level at the services and compliance. The Board expense limitations/waivers) to the end of the past calendar year and the way concluded that the quality and efficiency advisory fee rates of other clients of in which the breakpoint have been of the services Invesco Aim and its Invesco Aim and its affiliates with structured, the Fund has yet to benefit affiliates provide to the AIM Funds in investment strategies comparable to those from the breakpoints. Based on this each of these areas have generally of the Fund, including two mutual funds information, the Board concluded that the improved, and support the Board's approval advised by Invesco Aim and two mutual Fund's advisory fees would appropriately of the continuance of the Fund's funds sub-advised by an Invesco Aim reflect economies of scale at higher asset investment advisory agreement. affiliate. The Board noted that the Fund's levels. The Board also noted that the Fund rate was: (i) above the rates for the two shares directly in economies of scale B. Fund Performance mutual funds; and (ii) above the through lower fees charged by third party The Board compared the Fund's performance sub-advisory fee rates for the two service providers based on the combined during the past one and three calendar sub-advised funds. size of all of the AIM Funds and years to the performance of funds in the Additionally, the Board compared the affiliates. Fund's performance group that are not Fund's effective fee rate to the total managed by Invesco Aim, and against the advisory fees paid by numerous separately E. Profitability and Financial performance of all funds in the Lipper managed accounts/wrap accounts advised by Resources of Invesco Aim Variable Annuity Underlying Funds - Large Invesco Aim affiliates. The Board noted The Board reviewed information from Cap Growth Index. The Board also reviewed that the Fund's rate was generally above Invesco Aim concerning the costs of the the criteria used by Invesco Aim to the rates for the separately managed advisory and other services that Invesco identify the funds in the Fund's accounts/wrap accounts. The Board Aim and its affiliates provide to the Fund performance group for inclusion in the considered that management of the and the profitability of Invesco Aim and Lipper reports. The Board noted that the separately managed accounts/wrap accounts its affiliates in providing these Fund's performance was in the second by the Invesco Aim affiliates involves services. The Board also reviewed quintile of its performance group for the different levels of services and different information concerning the financial one and three year periods (the first operational and regulatory requirements condition of Invesco Aim and its quintile being the best performing funds than Invesco Aim's management of the Fund. affiliates. The Board also reviewed with and the fifth quintile being the worst The Board concluded that these differences Invesco Aim the methodology used to performing funds). The Board noted that are appropriately reflected in the fee prepare the profitability information. The the Fund's performance was above the structure for the Fund. Board considered the overall profitability performance of the Index for the one and The Board noted that Invesco Aim has of Invesco Aim, as well as the three year periods. The Board also contractually agreed to waive fees and/or profitability of Invesco Aim in connection considered the steps Invesco Aim has taken limit expenses of the Fund through at with managing the Fund. The Board noted over the last several years to improve the least April 30, 2010 in an amount that Invesco Aim continues to operate at a quality and efficiency of the services necessary to limit total annual operating net profit, although increased expenses in that Invesco Aim provides to the AIM expenses to a specified percentage of recent years have reduced the Funds. The Board concluded that Invesco average daily net assets for each class of profitability of Invesco Aim and its Aim continues to be responsive to the the Fund. The Board considered the affiliates. The Board concluded that the Board's focus on fund performance. contractual nature of this fee waiver and Fund's fees were fair and reasonable, and Although the independent written noted that it remains in effect until at that the level of profits realized by evaluation of the Fund's Senior Officer least April 30, 2010. The Board also Invesco Aim and its affiliates from only considered Fund performance through considered the effect this expense providing services to the Fund was not the most recent calendar year, the Board limitation would have on the Fund's excessive in light of the nature, quality also estimated total and extent of the services provided. The Board considered whether Invesco Aim is continued
AIM V.I. LARGE CAP GROWTH FUND financially sound and has the resources that research obtained through soft dollar graphically dispersed in financial centers necessary to perform its obligations under arrangements may be used by Invesco Aim in around the world, have been formed in part the Fund's investment advisory agreement, making investment decisions for the Fund for the purpose of researching and and concluded that Invesco Aim has the and may therefore benefit Fund compiling information and making financial resources necessary to fulfill shareholders. The Board concluded that recommendations on the markets and these obligations. Invesco Aim's soft dollar arrangements economies of various countries and were appropriate. The Board also concluded securities of companies located in such F. Independent Written Evaluation of that, based on their review and countries or on various types of the Fund's Senior Officer representations made by Invesco Aim, these investments and investment techniques, and The Board noted that, at their direction, arrangements were consistent with providing investment advisory services. the Senior Officer of the Fund, who is regulatory requirements. The Board concluded that the sub-advisory independent of Invesco Aim and Invesco The Board considered the fact that the agreements will benefit the Fund and its Aim's affiliates, had prepared an Fund's uninvested cash and cash collateral shareholders by permitting Invesco Aim to independent written evaluation to assist from any securities lending arrangements utilize the additional resources and the Board in determining the may be invested in money market funds talent of the Affiliated Sub-Advisers in reasonableness of the proposed management advised by Invesco Aim pursuant to managing the Fund. fees of the AIM Funds, including the Fund. procedures approved by the Board. The The Board noted that they had relied upon Board noted that Invesco Aim will receive B. Fund Performance the Senior Officer's written evaluation advisory fees from these affiliated money The Board did not view Fund performance as instead of a competitive bidding process. market funds attributable to such a relevant factor in considering whether In determining whether to continue the investments, although Invesco Aim has to approve the sub-advisory agreements for Fund's investment advisory agreement, the contractually agreed to waive through at the Fund, as no Affiliated Sub-Adviser Board considered the Senior Officer's least April 30, 2010, the advisory fees currently manages any portion of the written evaluation. payable by the Fund in an amount equal to Fund's assets. 100% of the net advisory fees Invesco Aim G. Collateral Benefits to Invesco Aim receives from the affiliated money market C. Sub-Advisory Fees and its Affiliates funds with respect to the Fund's The Board considered the services to be The Board considered various other investment of uninvested cash, but not provided by the Affiliated Sub-Advisers benefits received by Invesco Aim and its cash collateral. The Board considered the pursuant to the sub-advisory agreements affiliates resulting from Invesco Aim's contractual nature of this fee waiver and and the services to be provided by Invesco relationship with the Fund, including the noted that it remains in effect until at Aim pursuant to the Fund's investment fees received by Invesco Aim and its least April 30, 2010. The Board concluded advisory agreement, as well as the affiliates for their provision of that the Fund's investment of uninvested allocation of fees between Invesco Aim and administrative, transfer agency and cash and cash collateral from any the Affiliated Sub-Advisers pursuant to distribution services to the Fund. The securities lending arrangements in the the sub-advisory agreements. The Board Board considered the performance of affiliated money market funds is in the noted that the sub-advisory fees have no Invesco Aim and its affiliates in best interests of the Fund and its direct effect on the Fund or its providing these services and the shareholders. shareholders, as they are paid by Invesco organizational structure employed by Aim to the Affiliated Sub-Advisers, and Invesco Aim and its affiliates to provide II. Sub-Advisory Agreements that Invesco Aim and the Affiliated these services. The Board also considered A. Nature, Extent and Quality of Sub-Advisers are affiliates. After taking that these services are provided to the Services Provided by Affiliated account of the Fund's contractual Fund pursuant to written contracts which Sub-Advisers sub-advisory fee rate, as well as other are reviewed and approved on an annual The Board reviewed the services to be relevant factors, the Board concluded that basis by the Board. The Board concluded provided by Trimark Ltd., Invesco Asset the Fund's sub-advisory fees were fair and that Invesco Aim and its affiliates were Management Deutschland, GmbH, Invesco reasonable. providing these services in a satisfactory Asset Management Limited, Invesco Asset manner and in accordance with the terms of Management (Japan) Limited, Invesco D. Financial Resources of the their contracts, and were qualified to Australia Limited, Invesco Global Asset Affiliated Sub-Advisers continue to provide these services to the Management (N.A.), Inc., Invesco Hong Kong The Board considered whether each Fund. Limited, Invesco Institutional (N.A.), Affiliated Sub-Adviser is financially The Board considered the benefits Inc. and Invesco Senior Secured sound and has the resources necessary to realized by Invesco Aim as a result of Management, Inc. (collectively, the perform its obligations under its portfolio brokerage transactions executed "Affiliated Sub-Advisers") under the respective sub-advisory agreement, and through "soft dollar" arrangements. Under sub-advisory agreements and the concluded that each Affiliated Sub-Adviser these arrangements, portfolio brokerage credentials and experience of the officers has the financial resources necessary to commissions paid by the Fund and/or other and employees of the Affiliated fulfill these obligations. funds advised by Invesco Aim are used to Sub-Advisers who will provide these pay for research and execution services. services. The Board concluded that the The Board noted that soft dollar nature, extent and quality of the services arrangements shift the payment obligation to be provided by the Affiliated for the research and execution services Sub-Advisers were appropriate. The Board from Invesco Aim to the funds and noted that the Affiliated Sub-Advisers, therefore may reduce Invesco Aim's which have offices and personnel that are expenses. The Board also noted geo-
AIM V.I. LARGE CAP GROWTH FUND PROXY RESULTS A Special Meeting ("Meeting") of Shareholders of AIM V.I. Large Cap Growth Fund, an investment portfolio of AIM Variable Insurance Funds, a Delaware statutory trust ("Trust"), was held on February 29, 2008. The Meeting was held for the following purposes: (1) Elect 13 trustees to the Board of Trustees of the Trust, each of whom will serve until his or her successor is elected and qualified. (2) Approve an amendment to the Trust's Agreement and Declaration of Trust that would permit the Board of Trustees of the Trust to terminate the Trust, the Fund, and each other series portfolio of the Trust, or a share class without a shareholder vote. (3) Approve a new sub-advisory agreement between Invesco Aim Advisors, Inc. and each of AIM Funds Management, Inc.; Invesco Asset Management Deutschland, GmbH; Invesco Asset Management Limited; Invesco Asset Management (Japan) Limited; Invesco Australia Limited; Invesco Global Asset Management (N.A.), Inc.; Invesco Hong Kong Limited; Invesco Institutional (N.A.), Inc.; and Invesco Senior Secured Management, Inc. The results of the voting on the above matters were as follows:
WITHHELD/ MATTERS VOTES FOR ABSTENTIONS** - ----------------------------------------------------------------------------------------------------------- (1)* Bob R. Baker..................................................... 474,883,590 19,741,622 Frank S. Bayley.................................................. 474,653,109 19,972,103 James T. Bunch................................................... 475,597,417 19,027,795 Bruce L. Crockett................................................ 474,900,579 19,724,633 Albert R. Dowden................................................. 474,749,929 19,875,283 Jack M. Fields................................................... 475,205,840 19,419,372 Martin L. Flanagan............................................... 475,248,336 19,376,876 Carl Frischling.................................................. 474,453,674 20,171,538 Prema Mathai-Davis............................................... 473,569,192 21,056,020 Lewis F. Pennock................................................. 475,072,501 19,552,711 Larry Soll, Ph.D. ............................................... 475,170,544 19,454,668 Raymond Stickel, Jr. ............................................ 475,420,825 19,204,387 Philip A. Taylor................................................. 475,640,570 18,984,642
VOTES WITHHELD/ VOTES FOR AGAINST ABSTENTIONS - ---------------------------------------------------------------------------------------------------------------------- (2)* Approve an amendment to the Trust's Agreement and Declaration of Trust that would permit the Board of Trustees of the Trust to terminate the Trust, the Fund, and each other series portfolio of the Trust, or a share class without a shareholder vote........ 438,131,484 35,586,925 20,906,803 (3) Approve a new sub-advisory agreement between Invesco Aim Advisors, Inc. and each of AIM Funds Management, Inc.; Invesco Asset Management Deutschland, GmbH; Invesco Asset Management Limited; Invesco Asset Management (Japan) Limited; Invesco Australia Limited; Invesco Global Asset Management (N.A.), Inc.; Invesco Hong Kong Limited; Invesco Institutional (N.A.), Inc.; and Invesco Senior Secured Management, Inc. ................... 7,289,772 254,897 317,361
* Proposals 1 and 2 required approval by a combined vote of all of the portfolios of AIM Variable Insurance Funds. ** Includes Broker Non-Votes. AIM V.I. LARGE CAP GROWTH FUND [INVESCO AIM LOGO] AIM V.I. LEISURE FUND - SERVICE MARK - Semiannual Report to Shareholders - June 30, 2008 AIM Investments [MOUNTAIN GRAPHIC] became INVESCO AIM on March 31, 2008. For more details, go to invescoaim.com 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 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 Invesco Aim Web site, invescoaim.com. On the home page, scroll down and click on 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, 2008, is available at our Web site. Go to invescoaim.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 noted, all data provided by Invesco Aim. THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND PROSPECTUS AND VARIABLE PRODUCT PROSPECTUS, WHICH CONTAIN MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ EACH CAREFULLY BEFORE INVESTING. Invesco Aim Distributors, Inc. NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE FUND PERFORMANCE ================================================================================ PERFORMANCE SUMMARY FUND VS. INDEXES Cumulative total returns, 12/31/07 to 6/30/08, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower. Series I Shares -16.02% Series II Shares -16.07 S&P 500 Index(TRIANGLE) (Broad Market Index / Style-Specific Index) -11.90 (TRIANGLE)Lipper Inc. The S&P 500--REGISTERED TRADEMARK-- INDEX is a market capitalization-weighted index covering all major areas of the U.S. economy. It is not the 500 largest companies, but rather the most widely held 500 companies chosen with respect to market size, liquidity, and their industry. The Fund is not managed to track the performance of any particular index, including the index defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the index. A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of an index of funds reflects fund expenses; performance of a market index does not. ======================================================================================= ========================================== AVERAGE ANNUAL TOTAL RETURNS PRINCIPAL VALUE WILL FLUCTUATE SO THAT YOU TION LINE, 866 702 4402. AS MENTIONED As of 6/30/08 MAY HAVE A GAIN OR LOSS WHEN YOU SELL ABOVE, FOR THE MOST RECENT MONTH-END SHARES. PERFORMANCE INCLUDING VARIABLE PRODUCT SERIES I SHARES THE NET ANNUAL FUND OPERATING EXPENSE CHARGES, PLEASE CONTACT YOUR VARIABLE Inception (4/30/02) 4.01% RATIO SET FORTH IN THE MOST RECENT FUND PRODUCT ISSUER OR FINANCIAL ADVISOR. 5 Years 6.03 PROSPECTUS AS OF THE DATE OF THIS REPORT HAD THE ADVISOR NOT WAIVED FEES AND/OR 1 Year -23.06 FOR SERIES I AND SERIES II SHARES WAS REIMBURSED EXPENSES, PERFORMANCE WOULD 1.01% AND 1.26%, RESPECTIVELY.(1) THE HAVE BEEN LOWER. SERIES II SHARES TOTAL ANNUAL FUND OPERATING EXPENSE RATIO Inception 3.78% SET FORTH IN THE MOST RECENT FUND (1) Total annual operating expenses 5 Years 5.80 PROSPECTUS AS OF THE DATE OF THIS REPORT less any contractual fee waivers and/or 1 Year -23.26 FOR SERIES I AND SERIES II SHARES WAS expense reimbursements by the advisor ========================================== 1.28% AND 1.53%, RESPECTIVELY. THE EXPENSE in effect through at least April 30, RATIOS PRESENTED ABOVE MAY VARY FROM THE 2010. See current prospectus for more SERIES II SHARES' INCEPTION DATE IS APRIL EXPENSE RATIOS PRESENTED IN OTHER SECTIONS information. 30, 2004. RETURNS SINCE THAT DATE ARE OF THIS REPORT THAT ARE BASED ON EXPENSES HISTORICAL. ALL OTHER RETURNS ARE THE INCURRED DURING THE PERIOD COVERED BY THIS BLENDED RETURNS OF THE HISTORICAL REPORT. PERFORMANCE OF SERIES II SHARES SINCE AIM V.I. LEISURE FUND, A SERIES THEIR INCEPTION AND THE RESTATED PORTFOLIO OF AIM VARIABLE INSURANCE FUNDS, HISTORICAL PERFORMANCE OF SERIES I SHARES IS CURRENTLY OFFERED THROUGH INSURANCE (FOR PERIODS PRIOR TO INCEPTION OF SERIES COMPANIES ISSUING VARIABLE PRODUCTS. YOU II SHARES) ADJUSTED TO REFLECT THE RULE CANNOT PURCHASE SHARES OF THE FUND 12B-1 FEES APPLICABLE TO THE SERIES II DIRECTLY. PERFORMANCE FIGURES GIVEN SHARES. THE INCEPTION DATE OF SERIES I REPRESENT THE FUND AND ARE NOT INTENDED TO SHARES IS APRIL 30, 2002. THE PERFORMANCE REFLECT ACTUAL VARIABLE PRODUCT VALUES. OF THE FUND'S SERIES I AND SERIES II SHARE THEY DO NOT REFLECT SALES CHARGES, CLASSES WILL DIFFER PRIMARILY DUE TO EXPENSES AND FEES ASSESSED IN CONNECTION DIFFERENT CLASS EXPENSES. WITH A VARIABLE PRODUCT. SALES CHARGES, THE PERFORMANCE DATA QUOTED REPRESENT EXPENSES AND FEES, WHICH ARE DETERMINED BY PAST PERFORMANCE AND CANNOT GUARANTEE THE VARIABLE PRODUCT ISSUERS, WILL VARY COMPARABLE FUTURE RESULTS; CURRENT AND WILL LOWER THE TOTAL RETURN. PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE THE MOST RECENT MONTH-END PERFORMANCE CONTACT YOUR VARIABLE PRODUCT ISSUER OR DATA AT THE FUND LEVEL, EXCLUDING VARIABLE FINANCIAL ADVISOR FOR THE MOST RECENT PRODUCT CHARGES, IS AVAILABLE ON THE MONTH-END VARIABLE PRODUCT PERFORMANCE. INVESCO AIM AUTOMATED INFORMA- PERFORMANCE FIGURES REFLECT FUND EXPENSES, REINVESTED DISTRIBUTIONS AND CHANGES IN NET ASSET VALUE. INVESTMENT RETURN AND
AIM V.I. LEISURE FUND PORTFOLIO COMPOSITION By sector, based on Net Assets as of June 30, 2008 - ------------------------------------------------------------------------- Consumer Discretionary 76.6% - ------------------------------------------------------------------------- Consumer Staples 15.6 - ------------------------------------------------------------------------- Financials 2.9 - ------------------------------------------------------------------------- Information Technology 2.5 - ------------------------------------------------------------------------- Money Market Funds Plus Other Assets Less Liabilities 2.4 _________________________________________________________________________ =========================================================================
SCHEDULE OF INVESTMENTS(a) June 30, 2008 (Unaudited)
SHARES VALUE - ----------------------------------------------------------------------------- COMMON STOCKS & OTHER EQUITY INTERESTS-97.58% ADVERTISING-10.25% Harte-Hanks, Inc. 9,377 $ 107,367 - ----------------------------------------------------------------------------- JC Decaux S.A. (France) 11,123 283,529 - ----------------------------------------------------------------------------- Omnicom Group Inc. 47,738 2,142,481 - ----------------------------------------------------------------------------- WPP Group PLC (United Kingdom)(b) 69,225 666,443 ============================================================================= 3,199,820 ============================================================================= APPAREL RETAIL-3.66% Abercrombie & Fitch Co.-Class A 18,245 1,143,597 ============================================================================= APPAREL, ACCESSORIES & LUXURY GOODS-6.41% Carter's, Inc.(c) 20,871 288,437 - ----------------------------------------------------------------------------- Coach, Inc.(c) 15,551 449,113 - ----------------------------------------------------------------------------- Compagnie Financiere Richemont S.A.-Class A (Switzerland)(b)(d) 8,914 492,368 - ----------------------------------------------------------------------------- Polo Ralph Lauren Corp. 12,260 769,683 ============================================================================= 1,999,601 ============================================================================= BREWERS-7.15% Anheuser-Busch Cos., Inc. 9,633 598,402 - ----------------------------------------------------------------------------- Carlsberg A.S.-Class B (Denmark) 2,260 218,280 - ----------------------------------------------------------------------------- Companhia de Bebidas das Americas-ADR (Brazil) 8,457 498,540 - ----------------------------------------------------------------------------- Heineken Holding N.V. (Netherlands)(b) 11,500 525,514 - ----------------------------------------------------------------------------- InBev N.V. (Belgium)(b) 5,669 391,848 ============================================================================= 2,232,584 ============================================================================= BROADCASTING & CABLE TV-14.20% Belo Corp.-Class A 14,316 104,650 - ----------------------------------------------------------------------------- Cablevision Systems Corp.-Class A(c) 35,764 808,266 - ----------------------------------------------------------------------------- CBS Corp.-Class A 3,396 66,154 - ----------------------------------------------------------------------------- CBS Corp.-Class B 3,397 66,208 - ----------------------------------------------------------------------------- Clear Channel Communications, Inc. 5,009 176,317 - ----------------------------------------------------------------------------- Comcast Corp.-Class A 54,617 1,036,085 - ----------------------------------------------------------------------------- DISH Network Corp.-Class A(c) 6,079 177,993 - ----------------------------------------------------------------------------- Jetix Europe N.V. (Netherlands) 22,835 578,117 - ----------------------------------------------------------------------------- Liberty Global, Inc.-Class A(c) 4,582 144,012 - ----------------------------------------------------------------------------- Liberty Global, Inc.-Series C(c)(e) 7,903 239,935 - ----------------------------------------------------------------------------- Liberty Media Corp.-Entertainment-Series A(c) 19,916 482,565 - ----------------------------------------------------------------------------- Scripps Co. (E.W.) (The)-Class A(e) 7,250 301,165 - ----------------------------------------------------------------------------- Sinclair Broadcast Group, Inc.-Class A 22,438 170,529 - ----------------------------------------------------------------------------- Television Broadcasts Ltd.-ADR (Hong Kong)(f) 6,976 80,518 ============================================================================= 4,432,514 ============================================================================= CASINOS & GAMING-2.32% International Game Technology 16,070 401,429 - ----------------------------------------------------------------------------- MGM MIRAGE(c) 9,554 323,785 ============================================================================= 725,214 ============================================================================= CATALOG RETAIL-1.19% Liberty Media Corp.-Interactive-Series A(c) 25,091 370,343 ============================================================================= COMMUNICATIONS EQUIPMENT-0.30% EchoStar Corp.-Class A(c) 2,968 92,661 ============================================================================= COMPUTER & ELECTRONICS RETAIL-1.63% Best Buy Co., Inc. 8,512 337,075 - ----------------------------------------------------------------------------- hhgregg, Inc.(c) 17,072 170,720 ============================================================================= 507,795 ============================================================================= CONSUMER ELECTRONICS-0.51% Sony Corp.-ADR (Japan) 3,641 159,257 ============================================================================= DEPARTMENT STORES-1.59% Kohl's Corp.(c) 12,362 494,974 ============================================================================= DISTILLERS & VINTNERS-3.91% Diageo PLC (United Kingdom)(b) 42,579 782,061 - ----------------------------------------------------------------------------- Pernod Ricard S.A. (France)(b) 4,288 439,791 ============================================================================= 1,221,852 ============================================================================= FOOTWEAR-1.94% Crocs, Inc.(c)(e) 28,892 231,425 - ----------------------------------------------------------------------------- NIKE, Inc.-Class B 6,254 372,801 ============================================================================= 604,226 ============================================================================= GENERAL MERCHANDISE STORES-1.13% Target Corp. 7,624 354,440 ============================================================================= HOME ENTERTAINMENT SOFTWARE-0.46% Electronic Arts Inc.(c) 3,222 143,153 =============================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. LEISURE FUND
SHARES VALUE - ----------------------------------------------------------------------------- HOME IMPROVEMENT RETAIL-1.97% Home Depot, Inc. (The) 14,039 $ 328,794 - ----------------------------------------------------------------------------- Lowe's Cos., Inc. 13,767 285,665 ============================================================================= 614,459 ============================================================================= HOTELS, RESORTS & CRUISE LINES-9.82% Accor S.A. (France)(b) 6,473 429,994 - ----------------------------------------------------------------------------- Carnival Corp.(g) 16,316 537,775 - ----------------------------------------------------------------------------- InterContinental Hotels Group PLC (United Kingdom)(b) 19,429 259,322 - ----------------------------------------------------------------------------- Marriott International, Inc.-Class A 8,153 213,935 - ----------------------------------------------------------------------------- Regal Hotels International Holdings Ltd. (Hong Kong)(b) 4,138,000 201,229 - ----------------------------------------------------------------------------- Rezidor Hotel Group A.B. (Sweden)(b)(h) 2,734 11,529 - ----------------------------------------------------------------------------- Rezidor Hotel Group A.B. (Sweden)(b) 59,000 248,798 - ----------------------------------------------------------------------------- Royal Caribbean Cruises Ltd. 4,686 105,295 - ----------------------------------------------------------------------------- Starwood Hotels & Resorts Worldwide, Inc. 26,362 1,056,325 ============================================================================= 3,064,202 ============================================================================= HYPERMARKETS & SUPER CENTERS-0.88% Wal-Mart Stores, Inc. 4,893 274,987 ============================================================================= INTERNET SOFTWARE & SERVICES-1.74% Google Inc.-Class A(c) 1,033 543,792 ============================================================================= INVESTMENT COMPANIES-EXCHANGE TRADED FUNDS-2.00% iShares Russell 3000 Index Fund 2,818 211,068 - ----------------------------------------------------------------------------- iShares S&P 500 Index Fund 1,596 204,145 - ----------------------------------------------------------------------------- S&P 500 Depositary Receipts Trust-Series 1 1,624 208,002 ============================================================================= 623,215 ============================================================================= MOVIES & ENTERTAINMENT-11.98% News Corp.-Class A 102,929 1,548,052 - ----------------------------------------------------------------------------- Time Warner Inc. 49,453 731,904 - ----------------------------------------------------------------------------- Viacom Inc.-Class A(c) 6,888 210,842 - ----------------------------------------------------------------------------- Viacom Inc.-Class B(c) 5,181 158,228 - ----------------------------------------------------------------------------- Walt Disney Co. (The) 34,977 1,091,282 ============================================================================= 3,740,308 ============================================================================= MULTI-SECTOR HOLDINGS-0.23% Liberty Media Corp.-Capital-Series A(c) 4,979 71,698 ============================================================================= PUBLISHING-1.58% Gannett Co., Inc. 4,221 91,469 - ----------------------------------------------------------------------------- McGraw-Hill Cos., Inc. (The) 10,016 401,842 ============================================================================= 493,311 ============================================================================= RESTAURANTS-4.38% Burger King Holdings Inc. 14,618 391,617 - ----------------------------------------------------------------------------- Jack in the Box Inc.(c) 7,342 164,534 - ----------------------------------------------------------------------------- McDonald's Corp. 8,700 489,114 - ----------------------------------------------------------------------------- Yum! Brands, Inc. 9,146 320,933 ============================================================================= 1,366,198 ============================================================================= SOFT DRINKS-3.63% Coca-Cola Femsa, S.A.B. de C.V.-ADR (Mexico) 10,052 566,832 - ----------------------------------------------------------------------------- PepsiCo, Inc. 8,900 565,951 ============================================================================= 1,132,783 ============================================================================= SPECIALIZED REIT'S-0.70% FelCor Lodging Trust Inc. 20,882 219,261 ============================================================================= SPECIALTY STORES-2.02% PetSmart, Inc. 31,599 630,400 ============================================================================= Total Common Stocks & Other Equity Interests (Cost $29,548,919) 30,456,645 ============================================================================= MONEY MARKET FUNDS-1.57% Liquid Assets Portfolio-Institutional Class(i) 245,328 245,328 - ----------------------------------------------------------------------------- Premier Portfolio-Institutional Class(i) 245,328 245,328 ============================================================================= Total Money Market Funds (Cost $490,656) 490,656 ============================================================================= TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)-99.15% (Cost $30,039,575) 30,947,301 ============================================================================= INVESTMENTS PURCHASED WITH CASH COLLATERAL FROM SECURITIES ON LOAN MONEY MARKET FUNDS-1.91% Liquid Assets Portfolio-Institutional Class (Cost $596,050)(i)(j) 596,050 596,050 ============================================================================= TOTAL INVESTMENTS-101.06% (Cost $30,635,625) 31,543,351 ============================================================================= OTHER ASSETS LESS LIABILITIES-(1.06)% (330,296) ============================================================================= NET ASSETS-100.00% $31,213,055 _____________________________________________________________________________ =============================================================================
Investment Abbreviations: ADR - American Depositary Receipt REIT - Real Estate Investment Trust
Notes to Schedule of Investments: (a) Industry and/or sector 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 MSCI Inc. and Standard & Poor's. (b) In accordance with the procedures established by the Board of Trustees, the foreign security is fair valued using adjusted closing market prices. The aggregate value of these securities at June 30, 2008 was $4,448,897, which represented 14.25% of the Fund's Net Assets. See Note 1A. (c) Non-income producing security. (d) Each unit represents one A bearer share in the company and one bearer share participation certificate in Richemont S.A. (e) All or a portion of this security was out on loan at June 30, 2008. (f) In accordance with the procedures established by the Board of Trustees, security fair valued based on an evaluated quote provided by an independent pricing service. The value of this security at June 30, 2008 represented 0.26% of the Fund's Net Assets. See Note 1A. (g) Each unit represents one common share and one trust share. (h) Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended. The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The value of this security at June 30, 2008 represented 0.04% of the Fund's Net Assets. Unless otherwise indicated, this security is not considered to be illiquid. (i) The money market fund and the Fund are affiliated by having the same investment advisor. (j) 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 1J. See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. LEISURE FUND STATEMENT OF ASSETS AND LIABILITIES June 30, 2008 (Unaudited) ASSETS: Investments, at value (Cost $29,548,919)* $30,456,645 - ------------------------------------------------------ Investments in affiliated money market funds (Cost $1,086,706) 1,086,706 ====================================================== Total investments (Cost $30,635,625) 31,543,351 ====================================================== Foreign currencies, at value (Cost $22,352) 22,573 - ------------------------------------------------------ Receivables for: Investments sold 144,206 - ------------------------------------------------------ Fund shares sold 117,771 - ------------------------------------------------------ Dividends 44,344 - ------------------------------------------------------ Investment for trustee deferred compensation and retirement plans 12,024 ====================================================== Total assets 31,884,269 ______________________________________________________ ====================================================== LIABILITIES: Payables for: Collateral upon return of securities loaned 596,050 - ------------------------------------------------------ Accrued fees to affiliates 22,222 - ------------------------------------------------------ Accrued other operating expenses 38,119 - ------------------------------------------------------ Trustee deferred compensation and retirement plans 14,823 ====================================================== Total liabilities 671,214 ====================================================== Net assets applicable to shares outstanding $31,213,055 ______________________________________________________ ====================================================== NET ASSETS CONSIST OF: Shares of beneficial interest $24,520,847 - ------------------------------------------------------ Undistributed net investment income (loss) (29,032) - ------------------------------------------------------ Undistributed net realized gain 5,812,289 - ------------------------------------------------------ Unrealized appreciation 908,951 ====================================================== $31,213,055 ______________________________________________________ ====================================================== NET ASSETS: Series I $31,205,019 ______________________________________________________ ====================================================== Series II $ 8,036 ______________________________________________________ ====================================================== SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED NUMBER OF SHARES AUTHORIZED: Series I 2,932,117 ______________________________________________________ ====================================================== Series II 758 ______________________________________________________ ====================================================== Series I: Net asset value per share $ 10.64 ______________________________________________________ ====================================================== Series II: Net asset value per share $ 10.60 ______________________________________________________ ======================================================
* At June 30, 2008, securities with an aggregate value of $576,456 were on loan to brokers. STATEMENT OF OPERATIONS For the six months ended June 30, 2008 (Unaudited) INVESTMENT INCOME: Dividends (net of foreign withholding taxes of $15,327) $ 282,386 - ------------------------------------------------------ Dividends from affiliated money market funds (includes securities lending income of $10,517) 22,736 ====================================================== Total investment income 305,122 ====================================================== EXPENSES: Advisory fees 137,603 - ------------------------------------------------------ Administrative services fees 70,655 - ------------------------------------------------------ Custodian fees 3,846 - ------------------------------------------------------ Distribution fees -- Series II 11 - ------------------------------------------------------ Transfer agent fees 526 - ------------------------------------------------------ Trustees' and officer's fees and benefits 8,630 - ------------------------------------------------------ Professional services fees 22,615 - ------------------------------------------------------ Other 7,131 ====================================================== Total expenses 251,017 ====================================================== Less: Fees waived and expense offset arrangement(s) (66,228) ====================================================== Net expenses 184,789 ====================================================== Net investment income 120,333 ====================================================== REALIZED AND UNREALIZED GAIN (LOSS) FROM: Net realized gain from: Investment securities 844,722 - ------------------------------------------------------ Foreign currencies 7,833 ====================================================== 852,555 ====================================================== Change in net unrealized appreciation (depreciation) of: Investment securities (7,278,750) - ------------------------------------------------------ Foreign currencies 781 ====================================================== (7,277,969) ====================================================== Net realized and unrealized gain (loss) (6,425,414) ====================================================== Net increase (decrease) in net assets resulting from operations $(6,305,081) ______________________________________________________ ======================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. LEISURE FUND STATEMENT OF CHANGES IN NET ASSETS For the six months ended June 30, 2008 and the year ended December 31, 2007 (Unaudited)
JUNE 30, DECEMBER 31, 2008 2007 - -------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income $ 120,333 $ 250,424 - -------------------------------------------------------------------------------------------------------- Net realized gain 852,555 5,418,001 - -------------------------------------------------------------------------------------------------------- Change in net unrealized appreciation (depreciation) (7,277,969) (5,558,810) ======================================================================================================== Net increase (decrease) in net assets resulting from operations (6,305,081) 109,615 ======================================================================================================== Distributions to shareholders from net investment income: Series I -- (754,185) - -------------------------------------------------------------------------------------------------------- Series II -- (134) ======================================================================================================== Total distributions from net investment income -- (754,319) ======================================================================================================== Distributions to shareholders from net realized gains: Series I -- (2,658,589) - -------------------------------------------------------------------------------------------------------- Series II -- (579) ======================================================================================================== Total distributions from net realized gains -- (2,659,168) ======================================================================================================== Share transactions-net: Series I (5,084,742) (6,922,866) - -------------------------------------------------------------------------------------------------------- Series II 266 (3,987) ======================================================================================================== Net increase (decrease) in net assets resulting from share transactions (5,084,476) (6,926,853) ======================================================================================================== Net increase (decrease) in net assets (11,389,557) (10,230,725) ________________________________________________________________________________________________________ ======================================================================================================== NET ASSETS: Beginning of period 42,602,612 52,833,337 ======================================================================================================== End of period (including undistributed net investment income (loss) of $(29,032) and $(149,365), respectively) $ 31,213,055 $ 42,602,612 ________________________________________________________________________________________________________ ========================================================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. LEISURE FUND NOTES TO FINANCIAL STATEMENTS June 30, 2008 (Unaudited) NOTE 1--SIGNIFICANT ACCOUNTING POLICIES AIM V.I. Leisure Fund (the "Fund") is a series portfolio of AIM Variable Insurance Funds (the "Trust"). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of twenty separate portfolios, (each constituting a "Fund"). 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 Fund or class will be voted on exclusively by the shareholders of such Fund 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 Fund 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. 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 prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. 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, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. 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, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. 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. Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer's assets, general economic conditions, interest rates, investor perceptions and market liquidity. 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. The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds as received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. AIM V.I. LEISURE FUND 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, the investment advisor 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. The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. 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 by a significant amount. 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. OTHER RISKS -- The Fund's investments are concentrated in a comparatively narrow segment of the economy. Consequently, the Fund may tend to be more volatile than other mutual funds, and the value of the Fund's investments may tend to rise and fall more rapidly. The leisure sector depends on consumer discretionary spending, which generally falls during economic downturns. J. SECURITIES LENDING -- 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 by the securities lending provider. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its sponsored agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds and is shown as such on the Schedule of Investments. 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. Dividends received on cash collateral investments for securities lending transactions, which are net of compensation to counterparties, is included in Dividends from affiliates on the Statement of Operations. The aggregate value of securities out on loan is shown as a footnote on the Statement of Assets and Liabilities. 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 AIM V.I. LEISURE FUND 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. L. 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 Invesco Aim Advisors, Inc. (the "Advisor" or "Invesco Aim"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Advisor based on the annual rate of the Fund's average daily net assets as follows:
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% ___________________________________________________________________ ===================================================================
Under the terms of a master sub-advisory agreement approved by shareholders of the Fund on February 29, 2008, effective May 1, 2008, between the Advisor and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Global Asset Management (N.A.), Inc., Invesco Hong Kong Limited, Invesco Institutional (N.A.), Inc., Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the "Affiliated Sub-Advisors") the Advisor, not the Fund, may pay 40% of the fees paid to the Advisor to any such Affiliated Sub- Advisor(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Advisor(s). The Advisor 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, 2010. 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 Invesco Ltd. ("Invesco") 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. These credits are used to pay certain expenses incurred by the Fund. To the extent that the annualized expense ratio does not exceed the expense limitation, the Advisor will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year. Further, the Advisor has contractually agreed, through at least April 30, 2010, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Advisor receives from the affiliated money market funds on investments by the Fund of uninvested cash (but not cash collateral from securities lending) in such affiliated money market funds. For the six months ended June 30, 2008, the Advisor waived advisory fees of $65,961. At the request of the Trustees of the Trust, Invesco agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the six months ended June 30, 2008, Invesco did not reimburse any expenses. The Trust has entered into a master administrative services agreement with Invesco Aim pursuant to which the Fund has agreed to pay Invesco Aim a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco Aim for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants' accounts. Pursuant to such agreement, for the six months ended June 30, 2008, Invesco Aim was paid $24,863 for accounting and fund administrative services and reimbursed $45,792 for services provided by insurance companies. AIM V.I. LEISURE FUND The Trust has entered into a transfer agency and service agreement with Invesco Aim Investment Services, Inc. ("IAIS") pursuant to which the Fund has agreed to pay IAIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IAIS for certain expenses incurred by IAIS in the course of providing such services. For the six months ended June 30, 2008, 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 Invesco Aim Distributors, Inc. ("IADI") 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 IADI 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 six months ended June 30, 2008, expenses incurred under the Plan are detailed in the Statement of Operations as distribution fees. Certain officers and trustees of the Trust are officers and directors of Invesco Aim, IAIS and/or IADI. NOTE 3--SUPPLEMENTAL INFORMATION The Fund adopted the provisions of Statement of Financial Accounting Standards No. 157, "Fair Value Measurements" (SFAS 157), effective with the beginning of the Fund's fiscal year. SFAS 157 establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (level 1) and the lowest priority to unobservable inputs (level 3) market prices are not readily available or are unreliable. Based on the inputs the securities or other instruments are tiered into three levels of hierarchy under SFAS 157. Changes in valuation methods may result in transfers in or out of an investment's assigned level within the hierarchy, Level 1--Quoted prices in an active market for identical assets. Level 2--Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk and others. Level 3--Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund's own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. Below is a summary of the tiered input levels, as of the end of the reporting period, June 30, 2008. The inputs or methods used for valuing securities may not be an indication of the risk associated with investing in those securities.
INVESTMENTS IN INPUT LEVEL SECURITIES - -------------------------------------- Level 1 $27,013,935 - -------------------------------------- Level 2 4,529,416 - -------------------------------------- Level 3 -- ====================================== $31,543,351 ______________________________________ ======================================
NOTE 4--EXPENSE OFFSET ARRANGEMENT The expense offset arrangement is comprised of custodian credits which result from periodic overnight cash balances at the custodian. For the six months ended June 30, 2008, the Fund received credits from this arrangement, which resulted in the reduction of the Fund's total expenses of $267. 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 certain Trustees and Officers of the Fund. 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, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund. During the six months ended June 30, 2008, the Fund paid legal fees of $1,551 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--CASH BALANCES The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The State Street Bank and Trust Company ("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 Invesco Aim, not to exceed the contractually agreed upon rate. AIM V.I. LEISURE FUND NOTE 7--TAX INFORMATION The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund's fiscal year-end. The Fund did not have a capital loss carryforward as of December 31, 2007. 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 six months ended June 30, 2008 was $526,694 and $4,629,511, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period end.
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS - ------------------------------------------------------------------------------------------------ Aggregate unrealized appreciation of investment securities $ 4,569,043 - ------------------------------------------------------------------------------------------------ Aggregate unrealized (depreciation) of investment securities (4,125,673) ================================================================================================ Net unrealized appreciation of investment securities $ 443,370 ________________________________________________________________________________________________ ================================================================================================ Cost of investments for tax purposes is $31,099,981.
NOTE 9--SHARE INFORMATION
CHANGES IN SHARES OUTSTANDING - --------------------------------------------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED JUNE 30, 2008(a) DECEMBER 31, 2007 ------------------------ ------------------------- SHARES AMOUNT SHARES AMOUNT - --------------------------------------------------------------------------------------------------------------------- Sold: Series I 12,235 $ 130,712 26,829 $ 342,162 - --------------------------------------------------------------------------------------------------------------------- Series II 23 266 -- -- ===================================================================================================================== Issued as reinvestment of dividends: Series I -- -- 256,214 3,412,774 - --------------------------------------------------------------------------------------------------------------------- Series II -- -- 54 713 ===================================================================================================================== Reacquired: Series I (442,805) (5,215,454) (741,988) (10,677,802) - --------------------------------------------------------------------------------------------------------------------- Series II -- -- (315) (4,700) ===================================================================================================================== (430,547) $(5,084,476) (459,206) $ (6,926,853) _____________________________________________________________________________________________________________________ =====================================================================================================================
(a) There is an entity that is a 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, Invesco Aim and/or Invesco Aim affiliates may make payments to this entity, which is considered to be related to the Fund, for providing services to the Fund, Invesco Aim and/or Invesco 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 is also owned beneficially. AIM V.I. LEISURE FUND NOTE 10--FINANCIAL HIGHLIGHTS The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
SERIES I ---------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ------------------------------------------------------- 2008 2007 2006 2005 2004 2003 - ---------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 12.67 $ 13.82 $ 11.86 $ 12.38 $ 10.96 $ 8.52 - ---------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) 0.03 0.09 0.07 0.04 0.00 (0.00) - ---------------------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) (2.06) (0.15) 2.83 (0.19) 1.47 2.44 ============================================================================================================================ Total from investment operations (2.03) (0.06) 2.90 (0.15) 1.47 2.44 ============================================================================================================================ Less distributions: Dividends from net investment income -- (0.24) (0.16) (0.14) (0.04) -- - ---------------------------------------------------------------------------------------------------------------------------- Distributions from net realized gains -- (0.85) (0.78) (0.23) (0.01) -- ============================================================================================================================ Total distributions -- (1.09) (0.94) (0.37) (0.05) -- ============================================================================================================================ Net asset value, end of period $ 10.64 $ 12.67 $ 13.82 $ 11.86 $ 12.38 $ 10.96 ____________________________________________________________________________________________________________________________ ============================================================================================================================ Total return(a) (16.02)% (0.79)% 24.61% (1.19)% 13.40% 28.64% ____________________________________________________________________________________________________________________________ ============================================================================================================================ Ratios/supplemental data: Net assets, end of period (000s omitted) $31,205 $42,593 $52,820 $54,192 $55,967 $34,424 ____________________________________________________________________________________________________________________________ ============================================================================================================================ Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 1.01%(b) 1.01% 1.01% 1.16% 1.29% 1.26% - ---------------------------------------------------------------------------------------------------------------------------- Without fee waivers and/or expense reimbursements 1.37%(b) 1.28% 1.26% 1.31% 1.34% 1.64% ============================================================================================================================ Ratio of net investment income (loss) to average net assets 0.65%(b) 0.50% 0.54% 0.34% 0.00% (0.14)% ____________________________________________________________________________________________________________________________ ============================================================================================================================ Portfolio turnover rate(c) 1% 15% 14% 32% 15% 22% ____________________________________________________________________________________________________________________________ ============================================================================================================================
(a) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. (b) Ratios are annualized and based on average daily net assets of $36,887,109. (c) Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year.
SERIES II ------------------------------------------------------------------------- APRIL 30, 2004 SIX MONTHS ENDED YEAR ENDED DECEMBER 31, (COMMENCEMENT DATE) JUNE 30, ---------------------------- TO DECEMBER 31, 2008 2007 2006 2005 2004 - ------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $ 12.63 $13.78 $11.84 $12.37 $11.09 - ------------------------------------------------------------------------------------------------------------------------ Income from investment operations: Net investment income (loss) 0.02 0.05 0.04 0.02 (0.02) - ------------------------------------------------------------------------------------------------------------------------ Net gains (losses) on securities (both realized and unrealized) (2.05) (0.15) 2.82 (0.19) 1.35 ======================================================================================================================== Total from investment operations (2.03) (0.10) 2.86 (0.17) 1.33 ======================================================================================================================== Less distributions: Dividends from net investment income -- (0.20) (0.14) (0.13) (0.04) - ------------------------------------------------------------------------------------------------------------------------ Distributions from net realized gains -- (0.85) (0.78) (0.23) (0.01) ======================================================================================================================== Total distributions -- (1.05) (0.92) (0.36) (0.05) ======================================================================================================================== Net asset value, end of period $ 10.60 $12.63 $13.78 $11.84 $12.37 ________________________________________________________________________________________________________________________ ======================================================================================================================== Total return(a) (16.07)% (1.13)% 24.28% (1.37)% 11.98% ________________________________________________________________________________________________________________________ ======================================================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $ 8 $ 9 $ 14 $ 11 $ 11 ________________________________________________________________________________________________________________________ ======================================================================================================================== Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 1.26%(b) 1.26% 1.26% 1.36% 1.45%(c) - ------------------------------------------------------------------------------------------------------------------------ Without fee waivers and/or expense reimbursements 1.62%(b) 1.53% 1.51% 1.56% 1.60%(c) ======================================================================================================================== Ratio of net investment income (loss) to average net assets 0.40%(b) 0.25% 0.29% 0.14% (0.16)%(c) ________________________________________________________________________________________________________________________ ======================================================================================================================== Portfolio turnover rate(d) 1% 15% 14% 32% 15% ________________________________________________________________________________________________________________________ ========================================================================================================================
(a) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. (b) Ratios are annualized and based on average daily net assets of $8,688. (c) Annualized. (d) Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year. AIM V.I. LEISURE FUND NOTE 11--LEGAL PROCEEDINGS Terms used in the Legal Proceedings Note are defined terms solely for the purpose of this note. 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 Invesco Aim and IADI (Order No. 05-1318). The WVASC makes findings of fact that Invesco Aim and IADI 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 Invesco Aim and IADI violated the West Virginia securities laws. The WVASC orders Invesco Aim and IADI 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. By agreement with the Commissioner of Securities, Invesco Aim's time to respond to that Order has been indefinitely suspended. Civil lawsuits, including purported class action and shareholder derivative suits, have been filed against certain of the AIM Funds, Invesco Funds Group, Inc. ("IFG"), Invesco Aim, IADI 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; and - that certain AIM Funds inadequately employed fair value pricing. These lawsuits allege as theories of recovery, depending on the lawsuit, violations of various provisions of the Federal and state securities laws Employee Retirement Income Security Act of 1974, as amended ("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. The case pending in Illinois State Court regarding fair value pricing was dismissed with prejudice on May 6, 2008. 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 Invesco 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 ERISA purportedly brought on behalf of participants in the Invesco 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 Invesco defendants' motion to dismiss the Amended Class Action Complaint for Violations of ERISA and dismissed such Complaint. Plaintiff appealed this ruling. On June 16, 2008, the Fourth Court of Appeals reversed the dismissal and remanded this lawsuit back to the MDL Court for further proceedings. IFG, Invesco Aim, IADI 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, Invesco Aim and IADI 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, Invesco Aim and/or related entities and individuals in the future. At the present time, management of Invesco 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 Invesco Aim, IADI or the Fund. AIM V.I. LEISURE FUND NOTE 11--LEGAL PROCEEDINGS--(CONTINUED) CALCULATING YOUR ONGOING FUND EXPENSES EXAMPLE As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2008, through June 30, 2008. The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower. ACTUAL EXPENSES The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled "Actual Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
- --------------------------------------------------------------------------------------------------- HYPOTHETICAL (5% ANNUAL RETURN BEFORE ACTUAL EXPENSES) ------------------------------------------------------ BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE CLASS (01/01/08) (06/30/08)(1) PERIOD(2) (06/30/08) PERIOD(2) RATIO - --------------------------------------------------------------------------------------------------- Series I $1,000.00 $839.80 $4.62 $1,019.84 $5.07 1.01% - --------------------------------------------------------------------------------------------------- Series II 1,000.00 839.30 5.76 1,018.60 6.32 1.26 - ---------------------------------------------------------------------------------------------------
(1) The actual ending account value is based on the actual total return of the Fund for the period January 1, 2008, through June 30, 2008, 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 182/366 to reflect the most recent fiscal half year. AIM V.I. LEISURE FUND APPROVAL OF INVESTMENT ADVISORY AGREEMENT The Board of Trustees (the Board) of comparative performance and fee data from one another and attributed different AIM Variable Insurance Funds is required regarding the AIM Funds prepared by an weight to the various factors. The under the Investment Company Act of 1940 independent company, Lipper, Inc. Trustees recognized that the advisory to approve annually the renewal of the AIM (Lipper), under the direction and arrangements and resulting advisory fees V.I. Leisure Fund (the Fund) investment supervision of the independent Senior for the Fund and the other AIM Funds are advisory agreement with Invesco Aim Officer who also prepares a separate the result of years of review and Advisors, Inc. (Invesco Aim). During analysis of this information for the negotiation between the Trustees and contract renewal meetings held on June Trustees. Each Sub-Committee then makes Invesco Aim, that the Trustees may focus 18-19, 2008, the Board as a whole and the recommendations to the Investments to a greater extent on certain aspects of disinterested or "independent" Trustees, Committee regarding the performance, fees these arrangements in some years than in voting separately, approved the and expenses of their assigned funds. The others, and that the Trustees' continuance of the Fund's investment Investments Committee also considers each deliberations and conclusions in a advisory agreement for another year, Sub-Committee's recommendations and makes particular year may be based in part on effective July 1, 2008. In doing so, the its own recommendations regarding the their deliberations and conclusions of Board determined that the Fund's performance, fees and expenses of the AIM these same arrangements throughout the investment advisory agreement is in the Funds to the full Board. The Investments year and in prior years. best interests of the Fund and its Committee also considers each shareholders and that the compensation to Sub-Committee's recommendations in making FACTORS AND CONCLUSIONS AND SUMMARY OF Invesco Aim under the Fund's investment its annual recommendation to the Board INDEPENDENT WRITTEN FEE EVALUATION advisory agreement is fair and reasonable. whether to approve the continuance of each The discussion below serves as a The independent Trustees met separately AIM Fund's investment advisory agreement summary of the Senior Officer's during their evaluation of the Fund's and sub-advisory agreements for another independent written evaluation with investment advisory agreement with year. respect to the Fund's investment advisory independent legal counsel from whom they The independent Trustees are assisted agreement as well as a discussion of the received independent legal advice, and the in their annual evaluation of the Fund's material factors and related conclusions independent Trustees also received investment advisory agreement by the that formed the basis for the Board's assistance during their deliberations from independent Senior Officer. One approval of the Fund's investment advisory the independent Senior Officer, a responsibility of the Senior Officer is to agreement and sub-advisory agreements. full-time officer of the AIM Funds who manage the process by which the AIM Funds' Unless otherwise stated, information set reports directly to the independent proposed management fees are negotiated forth below is as of June 19, 2008 and Trustees. during the annual contract renewal process does not reflect any changes that may have to ensure that they are negotiated in a occurred since that date, including but THE BOARD'S FUND EVALUATION PROCESS manner that is at arms' length and not limited to changes to the Fund's The Board's Investments Committee has reasonable. Accordingly, the Senior performance, advisory fees, expense established three Sub-Committees that are Officer must either supervise a limitations and/or fee waivers. responsible for overseeing the management competitive bidding process or prepare an of a number of the series portfolios of independent written evaluation. The Senior I. Investment Advisory Agreement the AIM Funds. This Sub-Committee Officer has recommended that an A. Nature, Extent and Quality of structure permits the Trustees to focus on independent written evaluation be provided Services Provided by Invesco Aim the performance of the AIM Funds that have and, at the direction of the Board, has The Board reviewed the advisory been assigned to them. The Sub-Committees prepared an independent written services provided to the Fund by Invesco meet throughout the year to review the evaluation. Aim under the Fund's investment advisory performance of their assigned funds, and During the annual contract renewal agreement, the performance of Invesco Aim the Sub-Committees review monthly and process, the Board considered the factors in providing these services, and the quarterly comparative performance discussed below under the heading "Factors credentials and experience of the officers information and periodic asset flow data and Conclusions and Summary of Independent and employees of Invesco Aim who provide for their assigned funds. These materials Written Fee Evaluation" in evaluating the these services. The Board's review of the are prepared under the direction and fairness and reasonableness of the Fund's qualifications of Invesco Aim to provide supervision of the independent Senior investment advisory agreement and these services included the Board's Officer. Over the course of each year, the sub-advisory agreements at the contract consideration of Invesco Aim's portfolio Sub-Committees meet with portfolio renewal meetings and at their meetings and product review process, various back managers for their assigned funds and throughout the year as part of their office support functions provided by other members of management and review ongoing oversight of the Fund. The Fund's Invesco Aim and its affiliates, and with these individuals the performance, investment advisory agreement and Invesco Aim's equity and fixed income investment objective(s), policies, sub-advisory agreements were considered trading operations. The Board concluded strategies and limitations of these funds. separately, although the Board also that the nature, extent and quality of the considered the common interests of all of advisory services provided to the Fund by In addition to their meetings the AIM Funds in their deliberations. The Invesco Aim were appropriate and that throughout the year, the Sub-Committees Board considered all of the information Invesco Aim currently is providing meet at designated contract renewal provided to them and did not identify any satisfactory advisory services in meetings each year to conduct an in-depth particular factor that was controlling. accordance with the terms of the Fund's review of the performance, fees and Each Trustee may have evaluated the investment advisory agreement. In expenses of their assigned funds. During information provided differently addition, based on their ongoing meetings the contract renewal process, the Trustees throughout the year with the Fund's receive portfolio manager or continued
AIM V.I. LEISURE FUND managers, the Board concluded that these Although the independent written that the Fund's contractual advisory fee individuals are competent and able to evaluation of the Fund's Senior Officer schedule includes seven breakpoints, but continue to carry out their only considered Fund performance through that, due to the Fund's asset level at the responsibilities under the Fund's the most recent calendar year, the Board end of the past calendar year and the way investment advisory agreement. also reviewed more recent Fund performance in which the breakpoints have been In determining whether to continue the and this review did not change their structured, the Fund has yet to benefit Fund's investment advisory agreement, the conclusions. from the breakpoints. Based on this Board considered the prior relationship information, the Board concluded that the between Invesco Aim and the Fund, as well C.Advisory Fees and Fee Waivers Fund's advisory fees would reflect as the Board's knowledge of Invesco Aim's The Board compared the Fund's economies of scale at higher asset levels. operations, and concluded that it was contractual advisory fee rate to the The Board also noted that the Fund shares beneficial to maintain the current contractual advisory fee rates of funds in directly in economies of scale through relationship, in part, because of such the Fund's Lipper expense group that are lower fees charged by third party service knowledge. The Board also considered the not managed by Invesco Aim, at a common providers based on the combined size of steps that Invesco Aim and its affiliates asset level and as of the end of the past all of the AIM Funds and affiliates. have taken over the last several years to calendar year. The Board noted that the improve the quality and efficiency of the Fund's contractual advisory fee rate was E.Profitability and Financial Resources services they provide to the AIM Funds in below the median contractual advisory fee of Invesco Aim the areas of investment performance, rate of funds in its expense group. The The Board reviewed information from product line diversification, Board also reviewed the methodology used Invesco Aim concerning the costs of the distribution, fund operations, shareholder by Lipper in determining contractual fee advisory and other services that Invesco services and compliance. The Board rates. Aim and its affiliates provide to the Fund concluded that the quality and efficiency The Board also compared the Fund's and the profitability of Invesco Aim and of the services Invesco Aim and its effective fee rate (the advisory fee after its affiliates in providing these affiliates provide to the AIM Funds in any advisory fee waivers and before any services. The Board also reviewed each of these areas have generally expense limitations/waivers) to the information concerning the financial improved, and support the Board's approval advisory fee rates of other clients of condition of Invesco Aim and its of the continuance of the Fund's Invesco Aim and its affiliates with affiliates. The Board also reviewed with investment advisory agreement. investment strategies comparable to those Invesco Aim the methodology used to of the Fund, including one mutual fund prepare the profitability information. The B. Fund Performance advised by Invesco Aim. The Board noted Board considered the overall profitability Because there was only one other fund that the Fund's rate was above the rate of Invesco Aim, as well as the identified by Invesco Aim in the Fund's for the other mutual fund. profitability of Invesco Aim in connection performance group for inclusion in the The Board noted that Invesco Aim has with managing the Fund. The Board noted Lipper reports, the Board compared the contractually agreed to waive fees and/or that Invesco Aim continues to operate at a Fund's performance during the past one, limit expenses of the Fund through at net profit, although increased expenses in three and five calendar years to the least April 30, 2010 in an amount recent years have reduced the performance of funds in the Fund's necessary to limit total annual operating profitability of Invesco Aim and its performance universe identified by Lipper, expenses to a specified percentage of affiliates. The Board concluded that the and against the performance of all funds average daily net assets for each class of Fund's fees were fair and reasonable, and in the S&P 500 Index. The Board also the Fund. The Board considered the that the level of profits realized by reviewed the criteria used by Invesco Aim contractual nature of this fee waiver and Invesco Aim and its affiliates from to identify the funds in the Fund's noted that it remains in effect until at providing services to the Fund was not performance group for inclusion in the least April 30, 2010. The Board also excessive in light of the nature, quality Lipper reports and the methodology used by considered the effect this fee waiver and extent of the services provided. The Lipper to identify the performance would have on the Fund's total estimated Board considered whether Invesco Aim is universe. The Board noted that the Fund's expenses. financially sound and has the resources performance was in the fourth quintile of After taking account of the Fund's necessary to perform its obligations under its Lipper performance universe for the contractual advisory fee rate, as well as the Fund's investment advisory agreement, one year period and the third quintile for the comparative advisory fee information and concluded that Invesco Aim has the the three and five year periods (the first and the expense limitation discussed financial resources necessary to fulfill quintile being the best performing funds above, the Board concluded that the Fund's these obligations. and the fifth quintile being the worst advisory fees were fair and reasonable. performing funds). The Board noted that F. Independent Written Evaluation of the Fund's performance was below the D. Economies of Scale and Breakpoints the Fund's Senior Officer performance of the Index for the one, The Board considered the extent to The Board noted that, at their direction, three and five year periods. The Board which there are economies of scale in the Senior Officer of the Fund, who is also considered the steps Invesco Aim has Invesco Aim's provision of advisory independent of Invesco Aim and Invesco taken over the last several years to services to the Fund. The Board also Aim's affiliates, had prepared an improve the quality and efficiency of the considered whether the Fund benefits from independent written evaluation to assist services that Invesco Aim provides to the such economies of scale through the Board in determining the AIM Funds. The Board concluded that contractual breakpoints in the Fund's reasonableness of the proposed management Invesco Aim continues to be responsive to advisory fee schedule or through advisory fees of the AIM Funds, including the the Board's focus on fund performance. fee waivers or expense limitations. The Fund. The Board noted that they had Board noted relied upon the Senior Officer's written evaluation continued
AIM V.I. LEISURE FUND instead of a competitive bidding process. money market funds attributable to such B. Fund Performance In determining whether to continue the investments, although Invesco Aim has The Board did not view Fund performance as Fund's investment advisory agreement, the contractually agreed to waive through at a relevant factor in considering whether Board considered the Senior Officer's least April 30, 2010, the advisory fees to approve the sub-advisory agreements for written evaluation. payable by the Fund in an amount equal to the Fund, as no Affiliated Sub-Adviser 100% of the net advisory fees Invesco Aim currently manages any portion of the G. Collateral Benefits to Invesco Aim receives from the affiliated money market Fund's assets. and its Affiliates funds with respect to the Fund's The Board considered various other investment of uninvested cash, but not C. Sub-Advisory Fees benefits received by Invesco Aim and its cash collateral. The Board considered the The Board considered the services to be affiliates resulting from Invesco Aim's contractual nature of this fee waiver and provided by the Affiliated Sub-Advisers relationship with the Fund, including the noted that it remains in effect until at pursuant to the sub-advisory agreements fees received by Invesco Aim and its least April 30, 2010. The Board concluded and the services to be provided by Invesco affiliates for their provision of that the Fund's investment of uninvested Aim pursuant to the Fund's investment administrative, transfer agency and cash and cash collateral from any advisory agreement, as well as the distribution services to the Fund. The securities lending arrangements in the allocation of fees between Invesco Aim and Board considered the performance of affiliated money market funds is in the the Affiliated Sub-Advisers pursuant to Invesco Aim and its affiliates in best interests of the Fund and its the sub-advisory agreements. The Board providing these services and the shareholders. noted that the sub-advisory fees have no organizational structure employed by direct effect on the Fund or its Invesco Aim and its affiliates to provide II. Sub-Advisory Agreements shareholders, as they are paid by Invesco these services. The Board also considered A. Nature, Extent and Quality of Aim to the Affiliated Sub-Advisers, and that these services are provided to the Services Provided by Affiliated that Invesco Aim and the Affiliated Fund pursuant to written contracts which Sub-Advisors Sub-Advisers are affiliates. After taking are reviewed and approved on an annual The Board reviewed the services to be account of the Fund's contractual basis by the Board. The Board concluded provided by Invesco Trimark Ltd., Invesco sub-advisory fee rate, as well as other that Invesco Aim and its affiliates were Asset Management Deutschland, GmbH, relevant factors, the Board concluded that providing these services in a satisfactory Invesco Asset Management Limited, Invesco the Fund's sub-advisory fees were fair and manner and in accordance with the terms of Asset Management (Japan) Limited, Invesco reasonable. their contracts, and were qualified to Australia Limited, Invesco Global Asset continue to provide these services to the Management (N.A.), Inc., Invesco Hong Kong D. Financial Resources of the Fund. Limited, Invesco Institutional (N.A.), Affiliated Sub-Advisers The Board considered the benefits Inc. and Invesco Senior Secured The Board considered whether each realized by Invesco Aim as a result of Management, Inc. (collectively, the Affiliated Sub-Adviser is financially portfolio brokerage transactions executed "Affiliated Sub-Advisers") under the sound and has the resources necessary to through "soft dollar" arrangements. Under sub-advisory agreements and the perform its obligations under its these arrangements, portfolio brokerage credentials and experience of the officers respective sub-advisory agreement, and commissions paid by the Fund and/or other and employees of the Affiliated concluded that each Affiliated Sub-Adviser funds advised by Invesco Aim are used to Sub-Advisers who will provide these has the financial resources necessary to pay for research and execution services. services. The Board concluded that the fulfill these obligations. The Board noted that soft dollar nature, extent and quality of the services arrangements shift the payment obligation to be provided by the Affiliated for the research and execution services Sub-Advisers were appropriate. The Board from Invesco Aim to the funds and noted that the Affiliated Sub-Advisers, therefore may reduce Invesco Aim's which have offices and personnel that are expenses. The Board also noted that geographically dispersed in financial research obtained through soft dollar centers around the world, have been formed arrangements may be used by Invesco Aim in in part for the purpose of researching and making investment decisions for the Fund compiling information and making and may therefore benefit Fund recommendations on the markets and shareholders. The Board concluded that economies of various countries and Invesco Aim's soft dollar arrangements securities of companies located in such were appropriate. The Board also concluded countries or on various types of that, based on their review and investments and investment techniques, and representations made by Invesco Aim, these providing investment advisory services. arrangements were consistent with The Board concluded that the sub-advisory regulatory requirements. agreements will benefit the Fund and its The Board considered the fact that the shareholders by permitting Invesco Aim to Fund's uninvested cash and cash collateral utilize the additional resources and from any securities lending arrangements talent of the Affiliated Sub-Advisers in may be invested in money market funds managing the Fund. advised by Invesco Aim pursuant to procedures approved by the Board The Board noted that Invesco Aim will receive advisory fees from these affiliated
AIM V.I. LEISURE FUND PROXY RESULTS A Special Meeting ("Meeting") of Shareholders of AIM V.I. Leisure Fund, an investment portfolio of AIM Variable Insurance Funds, a Delaware statutory trust ("Trust"), was held on February 29, 2008. The Meeting was held for the following purposes: (1) Elect 13 trustees to the Board of Trustees of the Trust, each of whom will serve until his or her successor is elected and qualified. (2) Approve an amendment to the Trust's Agreement and Declaration of Trust that would permit the Board of Trustees of the Trust to terminate the Trust, the Fund, and each other series portfolio of the Trust, or a share class without a shareholder vote. (3) Approve a new sub-advisory agreement between Invesco Aim Advisors, Inc. and each of AIM Funds Management, Inc.; Invesco Asset Management Deutschland, GmbH; Invesco Asset Management Limited; Invesco Asset Management (Japan) Limited; Invesco Australia Limited; Invesco Global Asset Management (N.A.), Inc.; Invesco Hong Kong Limited; Invesco Institutional (N.A.), Inc.; and Invesco Senior Secured Management, Inc. (4)(a) Approve modification of fundamental restriction on issuer diversification. (4)(b) Approve modification of fundamental restrictions on issuing senior securities and borrowing money. (4)(c) Approve modification of fundamental restriction on underwriting securities. (4)(d) Approve modification of fundamental restriction on industry concentration. (4)(e) Approve modification of fundamental restriction on real estate investments. (4)(f) Approve modification of fundamental restriction on purchasing or selling commodities. (4)(g) Approve modification of fundamental restriction on making loans. (4)(h) Approve modification of fundamental restriction on investments in investment companies. (5) Approve making the investment objective of the fund non-fundamental. The results of the voting on the above matters were as follows:
WITHHELD/ MATTERS VOTES FOR ABSTENTIONS** - ------------------------------------------------------------------------------------------------------------ (1)* Bob R. Baker.................................................... 474,883,590 19,741,622 Frank S. Bayley................................................. 474,653,109 19,972,103 James T. Bunch.................................................. 475,597,417 19,027,795 Bruce L. Crockett............................................... 474,900,579 19,724,633 Albert R. Dowden................................................ 474,749,929 19,875,283 Jack M. Fields.................................................. 475,205,840 19,419,372 Martin L. Flanagan.............................................. 475,248,336 19,376,876 Carl Frischling................................................. 474,453,674 20,171,538 Prema Mathai-Davis.............................................. 473,569,192 21,056,020 Lewis F. Pennock................................................ 475,072,501 19,552,711 Larry Soll, Ph.D. .............................................. 475,170,544 19,454,668 Raymond Stickel, Jr. ........................................... 475,420,825 19,204,387 Philip A. Taylor................................................ 475,640,570 18,984,642
VOTES WITHHELD/ VOTES FOR AGAINST ABSTENTIONS - -------------------------------------------------------------------------------------------------------------------- (2)* Approve an amendment to the Trust's Agreement and Declaration of Trust that would permit the Board of Trustees of the Trust to terminate the Trust, the Fund, and each other series portfolio of the Trust, or a share class without a shareholder vote........................ 438,131,484 35,586,925 20,906,803 (3) Approve a new sub-advisory agreement between Invesco Aim Advisors, Inc. and each of AIM Funds Management, Inc.; Invesco Asset Management Deutschland, GmbH; Invesco Asset Management Limited; Invesco Asset Management (Japan) Limited; Invesco Australia Limited; Invesco Global Asset Management (N.A.), Inc.; Invesco Hong Kong Limited; Invesco Institutional (N.A.), Inc.; and Invesco Senior Secured Management, Inc.......................... 2,897,017 125,376 128,875 (4)(a) Approve modification of fundamental restriction on issuer diversification.................................. 2,821,848 163,947 165,473 (4)(b) Approve modification of fundamental restrictions on issuing senior securities and borrowing money........... 2,818,516 163,947 168,805 (4)(c) Approve modification of fundamental restriction on underwriting securities................................. 2,824,770 161,025 165,473 (4)(d) Approve modification of fundamental restriction on industry concentration.................................. 2,822,883 162,912 165,473 (4)(e) Approve modification of fundamental restriction on real estate investments...................................... 2,824,770 161,025 165,473 (4)(f) Approve modification of fundamental restriction on purchasing or selling commodities....................... 2,823,735 162,060 165,473 (4)(g) Approve modification of fundamental restriction on making loans............................................ 2,816,354 169,441 165,473 (4)(h) Approve modification of fundamental restriction on investments in investment companies..................... 2,822,883 162,912 165,473 (5) Approve making the investment objective of the fund non- fundamental............................................. 2,829,544 159,002 162,722
* Proposals 1 and 2 required approval by a combined vote of all of the portfolios of AIM Variable Insurance Funds. ** Includes Broker Non-Votes. AIM V.I. LEISURE FUND [INVESCO AIM LOGO] AIM V.I. MID CAP CORE EQUITY FUND - SERVICE MARK - Semiannual Report to Shareholders - June 30, 2008 AIM Investments [MOUNTAIN GRAPHIC] became INVESCO AIM on March 31, 2008. For more details, go to invescoaim.com 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 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 Invesco Aim Web site, invescoaim.com. On the home page, scroll down and click on 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, 2008, is available at our Web site. Go to invescoaim.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 noted, all data provided by Invesco Aim. THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND PROSPECTUS AND VARIABLE PRODUCT PROSPECTUS, WHICH CONTAIN MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ EACH CAREFULLY BEFORE INVESTING. Invesco Aim Distributors, Inc. NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE FUND PERFORMANCE ======================================================================================= PERFORMANCE SUMMARY FUND VS. INDEXES Cumulative total returns, 12/31/07 to 6/30/08, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower. Series I Shares -5.35% Series II Shares -5.47 S&P 500 Index(TRIANGLE) (Broad Market Index) -11.90 Russell Midcap Index(TRIANGLE) (Style-Specific Index) -7.57 Lipper VUF Mid-Cap Core Funds Index(TRIANGLE) (Peer Group Index) -6.55 (TRIANGLE)Lipper Inc. The S&P 500--REGISTERED TRADEMARK-- INDEX is a market capitalization-weighted index covering all major areas of the U.S. economy. It is not the 500 largest companies, but rather the most widely held 500 companies chosen with respect to market size, liquidity, and their industry. The RUSSELL MIDCAP--REGISTERED TRADEMARK-- INDEX measures the performance of the 800 smallest companies in the Russell 1000--REGISTERED TRADEMARK-- Index, which represent approximately 30% of the total market capitalization of the Russell 1000 Index. The Russell Midcap Index and the Russell 1000 Index are trademarks/service marks of the Frank Russell Company. Russell--REGISTERED TRADEMARK-- is a trademark of the Frank Russell Company. The LIPPER VUF MID-CAP CORE FUNDS INDEX is an equally weighted representation of the largest variable insurance underlying funds in the Lipper Mid-Cap Core Funds category. These funds have an average price-to-earnings ratio, price-to-book ratio, and three-year sales-per-share growth value, compared to the S&P MidCap 400 Index. The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes. A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of an index of funds reflects fund expenses; performance of a market index does not. ======================================================================================= ========================================== AVERAGE ANNUAL TOTAL RETURNS PRINCIPAL VALUE WILL FLUCTUATE SO THAT YOU VARIABLE PRODUCT VALUES. THEY DO NOT As of 6/30/08 MAY HAVE A GAIN OR LOSS WHEN YOU SELL REFLECT SALES CHARGES, EXPENSES AND FEES SHARES. ASSESSED IN CONNECTION WITH A VARIABLE SERIES I SHARES THE NET ANNUAL FUND OPERATING EXPENSE PRODUCT. SALES CHARGES, EXPENSES AND FEES, Inception (9/10/01) 8.27% RATIO SET FORTH IN THE MOST RECENT FUND WHICH ARE DETERMINED BY THE VARIABLE 5 Years 10.05 PROSPECTUS AS OF THE DATE OF THIS REPORT PRODUCT ISSUERS, WILL VARY AND WILL LOWER 1 Year -5.79 FOR SERIES I AND SERIES II SHARES WAS THE TOTAL RETURN. 1.02% AND 1.27%, RESPECTIVELY.(1) THE THE MOST RECENT MONTH-END PERFORMANCE SERIES II SHARES TOTAL ANNUAL FUND OPERATING EXPENSE RATIO DATA AT THE FUND LEVEL, EXCLUDING VARIABLE Inception (9/10/01) 8.01% SET FORTH IN THE MOST RECENT FUND PRODUCT CHARGES, IS AVAILABLE ON THE 5 Years 9.79 PROSPECTUS AS OF THE DATE OF THIS REPORT INVESCO AIM AUTOMATED INFORMATION LINE, 1 Year -6.01 FOR SERIES I AND SERIES II SHARES WAS 866 702 4402. AS MENTIONED ABOVE, FOR THE ========================================== 1.04% AND 1.29%, RESPECTIVELY. THE EXPENSE MOST RECENT MONTH-END PERFORMANCE RATIOS PRESENTED ABOVE MAY VARY FROM THE INCLUDING VARIABLE PRODUCT CHARGES, PLEASE THE PERFORMANCE OF THE FUND'S SERIES I AND EXPENSE RATIOS PRESENTED IN OTHER SECTIONS CONTACT YOUR VARIABLE PRODUCT ISSUER OR SERIES II SHARE CLASSES WILL DIFFER OF THIS REPORT THAT ARE BASED ON EXPENSES FINANCIAL ADVISOR. PRIMARILY DUE TO DIFFERENT CLASS EXPENSES. INCURRED DURING THE PERIOD COVERED BY THIS THE PERFORMANCE DATA QUOTED REPRESENT REPORT. (1) Total annual operating expenses less PAST PERFORMANCE AND CANNOT GUARANTEE AIM V.I. MID CAP CORE EQUITY FUND, A any contractual fee waivers and/or COMPARABLE FUTURE RESULTS; CURRENT SERIES PORTFOLIO OF AIM VARIABLE INSURANCE expense reimbursements by the advisor PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE FUNDS, IS CURRENTLY OFFERED THROUGH in effect through at least April 30, CONTACT YOUR VARIABLE PRODUCT ISSUER OR INSURANCE COMPANIES ISSUING VARIABLE 2010. See current prospectus for more FINANCIAL ADVISOR FOR THE MOST RECENT PRODUCTS. YOU CANNOT PURCHASE SHARES OF information. MONTH-END VARIABLE PRODUCT PERFORMANCE. THE FUND DIRECTLY. PERFORMANCE FIGURES PERFORMANCE FIGURES REFLECT FUND EXPENSES, GIVEN REPRESENT THE FUND AND ARE NOT REINVESTED DISTRIBUTIONS AND CHANGES IN INTENDED TO REFLECT ACTUAL NET ASSET VALUE. INVESTMENT RETURN AND
AIM V.I. MID CAP CORE EQUITY FUND PORTFOLIO COMPOSITION By sector, based on Net Assets as of June 30, 2008 - ------------------------------------------------------------------------- Health Care 13.0% - ------------------------------------------------------------------------- Financials 12.5 - ------------------------------------------------------------------------- Information Technology 11.9 - ------------------------------------------------------------------------- Materials 9.7 - ------------------------------------------------------------------------- Consumer Staples 9.4 - ------------------------------------------------------------------------- Industrials 9.4 - ------------------------------------------------------------------------- Consumer Discretionary 7.5 - ------------------------------------------------------------------------- Energy 6.8 - ------------------------------------------------------------------------- Utilities 1.2 - ------------------------------------------------------------------------- Money Market Funds Plus Other Assets Less Liabilities 18.6 _________________________________________________________________________ =========================================================================
SCHEDULE OF INVESTMENTS(a) June 30, 2008 (Unaudited)
SHARES VALUE - ------------------------------------------------------------------------------- COMMON STOCKS & OTHER EQUITY INTERESTS-79.01% ADVERTISING-1.16% Omnicom Group Inc. 147,579 $ 6,623,346 =============================================================================== AEROSPACE & DEFENSE-1.25% Goodrich Corp. 81,561 3,870,885 - ------------------------------------------------------------------------------- Precision Castparts Corp. 33,885 3,265,498 =============================================================================== 7,136,383 =============================================================================== APPAREL, ACCESSORIES & LUXURY GOODS-0.93% Polo Ralph Lauren Corp.(b) 84,537 5,307,233 =============================================================================== APPLICATION SOFTWARE-1.04% Amdocs Ltd.(c) 151,183 4,447,804 - ------------------------------------------------------------------------------- Cadence Design Systems, Inc.(c) 148,575 1,500,607 =============================================================================== 5,948,411 =============================================================================== ASSET MANAGEMENT & CUSTODY BANKS-1.66% Legg Mason, Inc. 218,759 9,531,330 =============================================================================== COMMUNICATIONS EQUIPMENT-2.11% Foundry Networks, Inc.(c) 331,840 3,922,349 - ------------------------------------------------------------------------------- Motorola, Inc. 482,530 3,541,770 - ------------------------------------------------------------------------------- Polycom, Inc.(c) 189,560 4,617,682 =============================================================================== 12,081,801 =============================================================================== COMPUTER STORAGE & PERIPHERALS-1.34% QLogic Corp.(c) 527,059 7,689,791 =============================================================================== CONSTRUCTION MATERIALS-0.42% Eagle Materials Inc.(b) 95,864 2,428,235 =============================================================================== CONSUMER ELECTRONICS-0.91% Harman International Industries, Inc.(b) 125,786 5,206,283 =============================================================================== DATA PROCESSING & OUTSOURCED SERVICES-0.40% Alliance Data Systems Corp.(c) 40,463 2,288,183 =============================================================================== DEPARTMENT STORES-0.73% Kohl's Corp.(c) 103,899 4,160,116 =============================================================================== DISTRIBUTORS-1.30% Genuine Parts Co. 187,651 7,445,992 =============================================================================== ELECTRONIC EQUIPMENT MANUFACTURERS-0.50% Agilent Technologies, Inc.(c) 80,995 2,878,562 =============================================================================== ELECTRONIC MANUFACTURING SERVICES-1.63% Molex Inc. 258,585 6,312,060 - ------------------------------------------------------------------------------- Tyco Electronics Ltd. 84,343 3,021,166 =============================================================================== 9,333,226 =============================================================================== ENVIRONMENTAL & FACILITIES SERVICES-1.43% Republic Services, Inc. 276,639 8,216,178 =============================================================================== FOOD RETAIL-1.10% SUPERVALU, Inc.(c) 203,406 6,283,211 =============================================================================== GAS UTILITIES-1.19% UGI Corp. 237,242 6,811,218 ===============================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. MID CAP CORE EQUITY FUND
SHARES VALUE - ------------------------------------------------------------------------------- HEALTH CARE EQUIPMENT-3.98% Hospira, Inc.(c) 190,543 $ 7,642,680 - ------------------------------------------------------------------------------- Varian Medical Systems, Inc.(c) 141,705 7,347,404 - ------------------------------------------------------------------------------- Zimmer Holdings, Inc.(c) 115,069 7,830,445 =============================================================================== 22,820,529 =============================================================================== HEALTH CARE SERVICES-1.17% Quest Diagnostics Inc. 138,850 6,730,059 =============================================================================== HEALTH CARE TECHNOLOGY-1.15% IMS Health Inc. 283,880 6,614,404 =============================================================================== HOME FURNISHINGS-0.37% Leggett & Platt, Inc.(b) 126,991 2,129,639 =============================================================================== HOMEBUILDING-0.44% Ryland Group, Inc. (The) 114,917 2,506,340 =============================================================================== HOUSEHOLD PRODUCTS-0.37% Energizer Holdings, Inc.(c) 29,261 2,138,686 =============================================================================== HUMAN RESOURCE & EMPLOYMENT SERVICES-1.53% Administaff, Inc.(b) 314,382 8,768,114 =============================================================================== INDUSTRIAL MACHINERY-4.39% Atlas Copco A.B.-Class A (Sweden)(b)(d) 349,600 5,138,163 - ------------------------------------------------------------------------------- Dover Corp. 160,568 7,766,674 - ------------------------------------------------------------------------------- ITT Corp. 91,801 5,813,757 - ------------------------------------------------------------------------------- Parker Hannifin Corp. 90,555 6,458,383 =============================================================================== 25,176,977 =============================================================================== INSURANCE BROKERS-1.45% Marsh & McLennan Cos., Inc. 257,910 6,847,511 - ------------------------------------------------------------------------------- National Financial Partners Corp.(b) 73,687 1,460,476 =============================================================================== 8,307,987 =============================================================================== LEISURE PRODUCTS-0.59% Namco Bandai Holdings Inc. (Japan)(b) 298,100 3,374,929 =============================================================================== LIFE SCIENCES TOOLS & SERVICES-3.93% PerkinElmer, Inc. 191,567 5,335,141 - ------------------------------------------------------------------------------- Pharmaceutical Product Development, Inc. 206,806 8,871,977 - ------------------------------------------------------------------------------- Techne Corp.(c) 107,672 8,332,736 =============================================================================== 22,539,854 =============================================================================== METAL & GLASS CONTAINERS-1.15% Pactiv Corp.(c) 311,054 6,603,676 =============================================================================== MULTI-SECTOR HOLDINGS-0.16% PICO Holdings, Inc.(b)(c) 21,187 920,575 =============================================================================== OFFICE ELECTRONICS-0.97% Xerox Corp. 408,112 5,533,999 =============================================================================== OFFICE SERVICES & SUPPLIES-0.77% Pitney Bowes Inc. 128,775 4,391,228 =============================================================================== OIL & GAS EQUIPMENT & SERVICES-1.61% BJ Services Co. 288,622 9,218,587 =============================================================================== OIL & GAS EXPLORATION & PRODUCTION-5.16% Chesapeake Energy Corp.(b) 192,790 12,716,428 - ------------------------------------------------------------------------------- Newfield Exploration Co.(c) 71,147 4,642,342 - ------------------------------------------------------------------------------- Penn West Energy Trust (Canada)(b) 212,282 7,183,623 - ------------------------------------------------------------------------------- Whiting Petroleum Corp.(c) 47,549 5,043,998 =============================================================================== 29,586,391 =============================================================================== PACKAGED FOODS & MEATS-3.07% Cadbury PLC (United Kingdom)(d) 1,226,486 15,390,450 - ------------------------------------------------------------------------------- Del Monte Foods Co. 309,442 2,197,038 =============================================================================== 17,587,488 =============================================================================== PAPER PRODUCTS-1.41% MeadWestvaco Corp. 339,699 8,098,424 =============================================================================== PERSONAL PRODUCTS-2.46% Avon Products, Inc. 167,799 6,044,120 - ------------------------------------------------------------------------------- Estee Lauder Cos. Inc. (The)-Class A(b) 173,032 8,037,336 =============================================================================== 14,081,456 =============================================================================== PHARMACEUTICALS-2.72% Barr Pharmaceuticals Inc.(c) 346,422 15,616,704 =============================================================================== PRECIOUS METALS & MINERALS-1.12% Coeur d'Alene Mines Corp.(b)(c) 2,215,226 6,424,155 =============================================================================== PROPERTY & CASUALTY INSURANCE-3.83% Axis Capital Holdings Ltd. 334,767 9,979,404 - ------------------------------------------------------------------------------- Progressive Corp. (The) 639,053 11,963,072 =============================================================================== 21,942,476 =============================================================================== PUBLISHING-1.03% Washington Post Co. (The)-Class B 10,090 5,921,821 =============================================================================== REGIONAL BANKS-1.30% BB&T Corp.(b) 146,191 3,328,769 - ------------------------------------------------------------------------------- PNC Financial Services Group, Inc. 72,673 4,149,628 =============================================================================== 7,478,397 =============================================================================== SEMICONDUCTORS-2.45% Linear Technology Corp.(b) 206,481 6,725,086 - ------------------------------------------------------------------------------- Microchip Technology Inc.(b) 125,017 3,818,019 - ------------------------------------------------------------------------------- Xilinx, Inc. 138,313 3,492,404 =============================================================================== 14,035,509 =============================================================================== SPECIALIZED CONSUMER SERVICES-0.08% Hillenbrand, Inc. 20,674 442,424 ===============================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. MID CAP CORE EQUITY FUND
SHARES VALUE - ------------------------------------------------------------------------------- SPECIALIZED FINANCE-1.61% Moody's Corp.(b) 268,053 $ 9,231,745 =============================================================================== SPECIALTY CHEMICALS-5.63% International Flavors & Fragrances Inc. 317,507 12,401,824 - ------------------------------------------------------------------------------- Rohm and Haas Co. 120,798 5,609,859 - ------------------------------------------------------------------------------- Sigma-Aldrich Corp. 264,164 14,227,873 =============================================================================== 32,239,556 =============================================================================== SYSTEMS SOFTWARE-1.49% McAfee Inc.(c) 142,688 4,855,672 - ------------------------------------------------------------------------------- Symantec Corp.(c) 189,702 3,670,734 =============================================================================== 8,526,406 =============================================================================== THRIFTS & MORTGAGE FINANCE-2.52% People's United Financial Inc. 925,624 14,439,734 =============================================================================== Total Common Stocks & Other Equity Interests (Cost $438,960,026) 452,797,768 =============================================================================== PREFERRED STOCK-2.36% HOUSEHOLD PRODUCTS-2.36% Henkel AG & Co. KGaA(Germany)-Pfd. (Cost $14,422,578)(d) 340,341 13,515,448 =============================================================================== MONEY MARKET FUNDS-18.72% Liquid Assets Portfolio-Institutional Class(e) 53,663,542 53,663,542 - ------------------------------------------------------------------------------- Premier Portfolio-Institutional Class(e) 53,663,542 53,663,542 =============================================================================== Total Money Market Funds (Cost $107,327,084) 107,327,084 =============================================================================== TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)-100.09% (Cost $560,709,688) 573,640,300 =============================================================================== INVESTMENTS PURCHASED WITH CASH COLLATERAL FROM SECURITIES ON LOAN MONEY MARKET FUNDS-9.89% Liquid Assets Portfolio-Institutional Class(e)(f) (Cost $56,684,850) 56,684,850 56,684,850 =============================================================================== TOTAL INVESTMENTS-109.98% (Cost $617,394,538) 630,325,150 =============================================================================== OTHER ASSETS LESS LIABILITIES-(9.98)% (57,217,882) =============================================================================== NET ASSETS-100.00% $573,107,268 _______________________________________________________________________________ ===============================================================================
Investment Abbreviations: Pfd. - Preferred
Notes to Schedule of Investments: (a) Industry and/or sector 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 MSCI Inc. and Standard & Poor's. (b) All or a portion of this security was out on loan at June 30, 2008. (c) Non-income producing security. (d) In accordance with the procedures established by the Board of Trustees, the foreign security is fair valued using adjusted closing market prices. The aggregate value of these securities at June 30, 2008 was $34,044,062, which represented 5.94% 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. (f) 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. Nee Note 11. See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. MID CAP CORE EQUITY FUND STATEMENT OF ASSETS AND LIABILITIES June 30, 2008 (Unaudited) ASSETS: Investments, at value (Cost $453,382,604)* $466,313,216 - -------------------------------------------------------------------------------- Investments in affiliated money market funds (Cost $164,011,934) 164,011,934 ================================================================================ Total investments (Cost $617,394,538) 630,325,150 ================================================================================ Cash 18,168 - -------------------------------------------------------------------------------- Foreign currencies, at value (Cost $32,313) 32,785 - -------------------------------------------------------------------------------- Receivables for: Fund shares sold 1,103,792 - -------------------------------------------------------------------------------- Dividends 908,707 - -------------------------------------------------------------------------------- Investment for trustee deferred compensation and retirement plans 22,856 - -------------------------------------------------------------------------------- Other assets 9,907 ================================================================================ Total assets 632,421,365 ________________________________________________________________________________ ================================================================================ LIABILITIES: Payables for: Investments purchased 235,497 - -------------------------------------------------------------------------------- Fund shares reacquired 1,782,244 - -------------------------------------------------------------------------------- Foreign currency contracts 62,101 - -------------------------------------------------------------------------------- Collateral upon return of securities loaned 56,684,850 - -------------------------------------------------------------------------------- Accrued fees to affiliates 421,889 - -------------------------------------------------------------------------------- Accrued other operating expenses 65,664 - -------------------------------------------------------------------------------- Trustee deferred compensation and retirement plans 61,852 ================================================================================ Total liabilities 59,314,097 ================================================================================ Net assets applicable to shares outstanding $573,107,268 ________________________________________________________________________________ ================================================================================ NET ASSETS CONSIST OF: Shares of beneficial interest $467,468,157 - -------------------------------------------------------------------------------- Undistributed net investment income 10,937,778 - -------------------------------------------------------------------------------- Undistributed net realized gain 81,829,281 - -------------------------------------------------------------------------------- Unrealized appreciation 12,872,052 ================================================================================ $573,107,268 ________________________________________________________________________________ ================================================================================ NET ASSETS: Series I $510,059,534 ________________________________________________________________________________ ================================================================================ Series II $ 63,047,734 ________________________________________________________________________________ ================================================================================ SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED NUMBER OF SHARES AUTHORIZED: Series I 36,997,897 ________________________________________________________________________________ ================================================================================ Series II 4,616,565 ________________________________________________________________________________ ================================================================================ Series I: Net asset value per share $ 13.79 ________________________________________________________________________________ ================================================================================ Series II: Net asset value per share $ 13.66 ________________________________________________________________________________ ================================================================================
* At June 30, 2008, securities with an aggregate value of $54,536,960 were on loan to brokers. STATEMENT OF OPERATIONS For the six months ended June 30, 2008 (Unaudited) INVESTMENT INCOME: Dividends (net of foreign withholding taxes of $159,919) $ 4,112,002 - ------------------------------------------------------ Dividends from affiliated money market funds (includes securities lending income of $174,538) 1,920,882 ====================================================== Total investment income 6,032,884 ====================================================== EXPENSES: Advisory fees 2,180,793 - ------------------------------------------------------ Administrative services fees 822,742 - ------------------------------------------------------ Custodian fees 20,454 - ------------------------------------------------------ Distribution fees -- Series II 88,711 - ------------------------------------------------------ Transfer agent fees 11,337 - ------------------------------------------------------ Trustees' and officer's fees and benefits 17,947 - ------------------------------------------------------ Other 81,626 ====================================================== Total expenses 3,223,610 ====================================================== Less: Fees waived (73,268) ====================================================== Net expenses 3,150,342 ====================================================== Net investment income 2,882,542 ====================================================== REALIZED AND UNREALIZED GAIN (LOSS) FROM: Net realized gain (loss) from: Investment securities 21,511,451 - ------------------------------------------------------ Foreign currencies (14,598) - ------------------------------------------------------ Foreign currency contracts (165,383) ====================================================== 21,331,470 ====================================================== Change in net unrealized appreciation (depreciation) of: Investment securities (59,104,924) - ------------------------------------------------------ Foreign currencies 4,394 - ------------------------------------------------------ Foreign currency contracts (62,101) ====================================================== (59,162,631) ====================================================== Net realized and unrealized gain (loss) (37,831,161) ====================================================== Net increase (decrease) in net assets resulting from operations $(34,948,619) ______________________________________________________ ======================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. MID CAP CORE EQUITY FUND STATEMENT OF CHANGES IN NET ASSETS For the six months ended June 30, 2008 and the year ended December 31, 2007 (Unaudited)
JUNE 30, DECEMBER 31, 2008 2007 - ------------------------------------------------------------------------------------------------------ OPERATIONS: Net investment income $ 2,882,542 $ 8,238,981 - ------------------------------------------------------------------------------------------------------ Net realized gain 21,331,470 62,335,612 - ------------------------------------------------------------------------------------------------------ Change in net unrealized appreciation (depreciation) (59,162,631) (10,812,599) ====================================================================================================== Net increase (decrease) in net assets resulting from operations (34,948,619) 59,761,994 ====================================================================================================== Distributions to shareholders from net investment income: Series I -- (1,301,490) - ------------------------------------------------------------------------------------------------------ Series II -- (37,603) ====================================================================================================== Total distributions from net investment income -- (1,339,093) ====================================================================================================== Distributions to shareholders from net realized gains: Series I -- (8,489,530) - ------------------------------------------------------------------------------------------------------ Series II -- (1,129,701) ====================================================================================================== Total distributions from net realized gains -- (9,619,231) ====================================================================================================== Share transactions-net: Series I (44,519,683) (40,138,176) - ------------------------------------------------------------------------------------------------------ Series II (12,110,716) 18,100,448 ====================================================================================================== Net increase (decrease) in net assets resulting from share transactions (56,630,399) (22,037,728) ====================================================================================================== Net increase (decrease) in net assets (91,579,018) 26,765,942 ====================================================================================================== NET ASSETS: Beginning of period 664,686,286 637,920,344 ====================================================================================================== End of period (including undistributed net investment income of $10,937,778 and $8,055,236, respectively) $573,107,268 $664,686,286 ______________________________________________________________________________________________________ ======================================================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. MID CAP CORE EQUITY FUND NOTES TO FINANCIAL STATEMENTS June 30, 2008 (Unaudited) NOTE 1--SIGNIFICANT ACCOUNTING POLICIES AIM V.I. Mid Cap Core Equity Fund (the "Fund") is a series portfolio of AIM Variable Insurance Funds (the "Trust"). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of twenty separate portfolios, (each constituting a "Fund"). 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 Fund or class will be voted on exclusively by the shareholders of such Fund 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 Fund 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. 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 prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. 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, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. 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, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. 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. Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer's assets, general economic conditions, interest rates, investor perceptions and market liquidity. 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. The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds as received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. AIM V.I. MID CAP CORE EQUITY FUND 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, the investment advisor 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. The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. 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 by a significant amount. 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. SECURITIES LENDING -- 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 by the securities lending provider. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its sponsored agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds and is shown as such on the Schedule of Investments. 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. Dividends received on cash collateral investments for securities lending transactions, which are net of compensation to counterparties, is included in Dividends from affiliates on the Statement of Operations. The aggregate value of securities out on loan is shown as a footnote on the Statement of Assets and Liabilities. 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. AIM V.I. MID CAP CORE EQUITY 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. 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 Invesco Aim Advisors, Inc. (the "Advisor" or "Invesco Aim"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Advisor based on the annual rate of the Fund's average daily net assets as follows:
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% ___________________________________________________________________ ===================================================================
Under the terms of a master sub-advisory agreement approved by shareholders of the Fund on February 29, 2008, effective May 1, 2008, between the Advisor and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Global Asset Management (N.A.), Inc., Invesco Hong Kong Limited, Invesco Institutional (N.A.), Inc., Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the "Affiliated Sub-Advisors") the Advisor, not the Fund, may pay 40% of the fees paid to the Advisor to any such Affiliated Sub- Advisor(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Advisor(s). The Advisor 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, 2010. 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 Invesco Ltd. ("Invesco") 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. These credits are used to pay certain expenses incurred by the Fund. The Advisor did not waive fees and/or reimburse expenses during the period under this expense limitation. Further, the Advisor has contractually agreed, through at least April 30, 2010, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Advisor receives from the affiliated money market funds on investments by the Fund of uninvested cash (but not cash collateral from securities lending) in such affiliated money market funds. For the six months ended June 30, 2008, the Advisor waived advisory fees of $73,268. At the request of the Trustees of the Trust, Invesco agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the six months ended June 30, 2008, Invesco did not reimburse any expenses. The Trust has entered into a master administrative services agreement with Invesco Aim pursuant to which the Fund has agreed to pay Invesco Aim a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco Aim for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants' accounts. Pursuant to such agreement, for the six months ended June 30, 2008, Invesco Aim was paid $74,585 for accounting and fund administrative services and reimbursed $748,157 for services provided by insurance companies. The Trust has entered into a transfer agency and service agreement with Invesco Aim Investment Services, Inc. ("IAIS") pursuant to which the Fund has agreed to pay IAIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IAIS for certain expenses incurred by IAIS in the course of providing such services. For the six months ended June 30, 2008, 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 Invesco Aim Distributors, Inc. ("IADI") 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 IADI 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 AIM V.I. MID CAP CORE EQUITY FUND Series II shares of the Fund. For the six months ended June 30, 2008, expenses incurred under the Plan are detailed in the Statement of Operations as distribution fees. Certain officers and trustees of the Trust are officers and directors of Invesco Aim, IAIS and/or IADI. NOTE 3--SUPPLEMENTAL INFORMATION The Fund adopted the provisions of Statement of Financial Accounting Standards No. 157, "Fair Value Measurements" (SFAS 157), effective with the beginning of the Fund's fiscal year. SFAS 157 establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (level 1) and the lowest priority to unobservable inputs (level 3) market prices are not readily available or are unreliable. Based on the inputs the securities or other instruments are tiered into three levels of hierarchy under SFAS 157. Changes in valuation methods may result in transfers in or out of an investment's assigned level within the hierarchy, Level 1 -- Quoted prices in an active market for identical assets. Level 2 -- Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk and others. Level 3 -- Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund's own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. Below is a summary of the tiered input levels, as of the end of the reporting period, June 30, 2008. The inputs or methods used for valuing securities may not be an indication of the risk associated with investing in those securities.
INVESTMENTS IN INPUT LEVEL SECURITIES - ------------------------------------ Level 1 $596,281,090 - ------------------------------------ Level 2 34,044,060 - ------------------------------------ Level 3 -- ==================================== $630,325,150 ____________________________________ ====================================
NOTE 4--TRUSTEES' AND OFFICER'S FEES AND BENEFITS "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. 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, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund. During the six months ended June 30, 2008, the Fund paid legal fees of $2,282 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust. NOTE 5--CASH BALANCES The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The State Street Bank and Trust Company ("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 Invesco Aim, not to exceed the contractually agreed upon rate. AIM V.I. MID CAP CORE EQUITY FUND NOTE 6--FOREIGN CURRENCY CONTRACTS
OPEN FOREIGN CURRENCY CONTRACTS AT PERIOD END - --------------------------------------------------------------------------------------------------------------- CONTRACT TO SETTLEMENT -------------------------------------- VALUE UNREALIZED DATE DELIVER RECEIVE 06/30/08 APPRECIATION - --------------------------------------------------------------------------------------------------------------- 9/10/08 EUR 5,125,000 USD 8,041,792 $8,039,107 $ 2,685 =============================================================================================================== CONTRACT TO SETTLEMENT -------------------------------------- VALUE UNREALIZED DATE DELIVER RECEIVE 06/30/08 (DEPRECIATION) - --------------------------------------------------------------------------------------------------------------- 9/10/08 GBP 4,125,000 USD 8,105,666 $8,170,452 $ (64,786) =============================================================================================================== Total open foreign currency contracts $ (62,101) _______________________________________________________________________________________________________________ ===============================================================================================================
Currency Abbreviations: EUR - Euro GBP - British Pound USD - U.S. Dollar Sterling
NOTE 7--TAX INFORMATION The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund's fiscal year-end. The Fund did not have a capital loss carryforward as of December 31, 2007. 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 six months ended June 30, 2008 was $112,269,859 and $129,002,963, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period end.
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS - ------------------------------------------------------------------------------------------------ Aggregate unrealized appreciation of investment securities $ 50,179,809 - ------------------------------------------------------------------------------------------------ Aggregate unrealized (depreciation) of investment securities (37,693,084) ================================================================================================ Net unrealized appreciation of investment securities $ 12,486,725 ________________________________________________________________________________________________ ================================================================================================ Cost of investments for tax purposes is $617,838,425.
NOTE 9--SHARE INFORMATION
CHANGES IN SHARES OUTSTANDING - ------------------------------------------------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED JUNE 30, 2008(a) DECEMBER 31, 2007 --------------------------- ---------------------------- SHARES AMOUNT SHARES AMOUNT - ------------------------------------------------------------------------------------------------------------------------- Sold: Series I 763,368 $ 10,808,949 3,861,535 $ 56,702,650 - ------------------------------------------------------------------------------------------------------------------------- Series II 1,049,908 14,597,991 2,574,352 37,303,201 ========================================================================================================================= Issued as reinvestment of dividends: Series I -- -- 658,441 9,791,025 - ------------------------------------------------------------------------------------------------------------------------- Series II -- -- 79,139 1,167,305 ========================================================================================================================= Reacquired: Series I (3,955,432) (55,328,632) (7,309,460) (106,631,851) - ------------------------------------------------------------------------------------------------------------------------- Series II (1,905,267) (26,708,707) (1,410,426) (20,370,058) ========================================================================================================================= (4,047,423) $(56,630,399) (1,546,419) $ (22,037,728) _________________________________________________________________________________________________________________________ =========================================================================================================================
(a) There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate 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, Invesco Aim and/or Invesco Aim affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco Aim and or Invesco 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. MID CAP CORE EQUITY FUND NOTE 10--FINANCIAL HIGHLIGHTS The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
SERIES I --------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ------------------------------------------------------------ 2008 2007 2006 2005 2004 2003 - ------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 14.57 $ 13.52 $ 13.61 $ 13.11 $ 12.06 $ 9.53 - ------------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income 0.09 0.19 0.14 0.06 0.03(a) 0.00(a) - ------------------------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) (0.87) 1.11 1.39 0.94 1.63 2.60 =============================================================================================================================== Total from investment operations (0.78) 1.30 1.53 1.00 1.66 2.60 =============================================================================================================================== Less distributions: Dividends from net investment income -- (0.04) (0.14) (0.07) (0.02) -- - ------------------------------------------------------------------------------------------------------------------------------- Distributions from net realized gains -- (0.21) (1.48) (0.43) (0.59) (0.07) =============================================================================================================================== Total distributions -- (0.25) (1.62) (0.50) (0.61) (0.07) =============================================================================================================================== Net asset value, end of period $ 13.79 $ 14.57 $ 13.52 $ 13.61 $ 13.11 $ 12.06 _______________________________________________________________________________________________________________________________ =============================================================================================================================== Total return(b) (5.35)% 9.55% 11.24% 7.62% 13.82% 27.31% _______________________________________________________________________________________________________________________________ =============================================================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $510,060 $585,608 $581,154 $584,860 $496,606 $293,162 _______________________________________________________________________________________________________________________________ =============================================================================================================================== Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 1.01%(c)(d) 1.00%(d) 1.04% 1.03% 1.04% 1.07% =============================================================================================================================== Ratio of net investment income to average net assets 0.98%(c) 1.23% 0.93% 0.50% 0.25% 0.01% _______________________________________________________________________________________________________________________________ =============================================================================================================================== Portfolio turnover rate(e) 22% 62% 83% 70% 55% 37% _______________________________________________________________________________________________________________________________ ===============================================================================================================================
(a) Calculated using average shares outstanding. (b) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. (c) Ratios are annualized and based on average daily net assets of $537,291,510. (d) After fee waivers and/or expense reimbursements. Ratio of expenses to average net assets prior to fee waivers and/or expense reimbursements was 1.03% (annualized) and 1.01% for the six months ended June 30, 2008 and the year ended December 31, 2007, respectively. (e) Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year.
SERIES II --------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ------------------------------------------------------ 2008 2007 2006 2005 2004 2003 - ---------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 14.45 $ 13.42 $ 13.52 $ 13.04 $ 12.01 $ 9.51 - ---------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) 0.09 0.13 0.10 0.03 (0.00)(a) (0.03)(a) - ---------------------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) (0.88) 1.12 1.38 0.92 1.62 2.60 ============================================================================================================================ Total from investment operations (0.79) 1.25 1.48 0.95 1.62 2.57 ============================================================================================================================ Less distributions: Dividends from net investment income -- (0.01) (0.10) (0.04) (0.00) -- - ---------------------------------------------------------------------------------------------------------------------------- Distributions from net realized gains -- (0.21) (1.48) (0.43) (0.59) (0.07) ============================================================================================================================ Total distributions -- (0.22) (1.58) (0.47) (0.59) (0.07) ============================================================================================================================ Net asset value, end of period $ 13.66 $ 14.45 $ 13.42 $ 13.52 $ 13.04 $12.01 ____________________________________________________________________________________________________________________________ ============================================================================================================================ Total return(b) (5.47)% 9.29% 10.98% 7.27% 13.57% 27.05% ____________________________________________________________________________________________________________________________ ============================================================================================================================ Ratios/supplemental data: Net assets, end of period (000s omitted) $63,048 $79,079 $56,766 $50,380 $33,495 $4,874 ____________________________________________________________________________________________________________________________ ============================================================================================================================ Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 1.26%(c)(d) 1.25%(d) 1.29% 1.28% 1.29% 1.32% ============================================================================================================================ Ratio of net investment income (loss) to average net assets 0.73%(c) 0.98% 0.68% 0.25% (0.00)% (0.24)% ____________________________________________________________________________________________________________________________ ============================================================================================================================ Portfolio turnover rate(e) 22% 62% 83% 70% 55% 37% ____________________________________________________________________________________________________________________________ ============================================================================================================================
(a) Calculated using average shares outstanding. (b) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. (c) Ratios are annualized and based on average daily net assets of $71,358,513. (d) After fee waivers and/or expense reimbursements. Ratio of expenses to average net assets prior to fee waivers and/or expense reimbursements was 1.28% (annualized) and 1.26% for the six months ended June 30, 2008 and the year ended December 31, 2007, respectively. (e) Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year. AIM V.I. MID CAP CORE EQUITY FUND NOTE 11--LEGAL PROCEEDINGS Terms used in the Legal Proceedings Note are defined terms solely for the purpose of this note. 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 Invesco Aim and IADI (Order No. 05-1318). The WVASC makes findings of fact that Invesco Aim and IADI 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 Invesco Aim and IADI violated the West Virginia securities laws. The WVASC orders Invesco Aim and IADI 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. By agreement with the Commissioner of Securities, Invesco Aim's time to respond to that Order has been indefinitely suspended. Civil lawsuits, including purported class action and shareholder derivative suits, have been filed against certain of the AIM Funds, Invesco Funds Group, Inc. ("IFG"), Invesco Aim, IADI 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; and - that certain AIM Funds inadequately employed fair value pricing. These lawsuits allege as theories of recovery, depending on the lawsuit, violations of various provisions of the Federal and state securities laws Employee Retirement Income Security Act of 1974, as amended ("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. The case pending in Illinois State Court regarding fair value pricing was dismissed with prejudice on May 6, 2008. 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 Invesco 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 ERISA purportedly brought on behalf of participants in the Invesco 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 Invesco defendants' motion to dismiss the Amended Class Action Complaint for Violations of ERISA and dismissed such Complaint. Plaintiff appealed this ruling. On June 16, 2008, the Fourth Court of Appeals reversed the dismissal and remanded this lawsuit back to the MDL Court for further proceedings.. IFG, Invesco Aim, IADI 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, Invesco Aim and IADI 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, Invesco Aim and/or related entities and individuals in the future. At the present time, management of Invesco 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 Invesco Aim, IADI or the Fund. AIM V.I. MID CAP CORE EQUITY FUND CALCULATING YOUR ONGOING FUND EXPENSES EXAMPLE As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2008, through June 30, 2008. The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower. ACTUAL EXPENSES The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled "Actual Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
- --------------------------------------------------------------------------------------------------- HYPOTHETICAL (5% ANNUAL RETURN BEFORE ACTUAL EXPENSES) ------------------------------------------------------ BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE CLASS (01/01/08) (06/30/08)(1) PERIOD(2) (06/30/08) PERIOD(2) RATIO - --------------------------------------------------------------------------------------------------- Series I $1,000.00 $946.50 $4.89 $1,019.84 $5.07 1.01% - --------------------------------------------------------------------------------------------------- Series II 1,000.00 945.30 6.09 1,018.60 6.32 1.26 - ---------------------------------------------------------------------------------------------------
(1) The actual ending account value is based on the actual total return of the Fund for the period January 1, 2008, through June 30, 2008, 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 182/366 to reflect the most recent fiscal half year. AIM V.I. MID CAP CORE EQUITY FUND APPROVAL OF INVESTMENT ADVISORY AGREEMENT The Board of Trustees (the Board) of AIM renewal process, the Trustees receive from one another and attributed different Variable Insurance Funds is required under comparative performance and fee data weight to the various factors. The the Investment Company Act of 1940 to regarding the AIM Funds prepared by an Trustees recognized that the advisory approve annually the renewal of the AIM independent company, Lipper, Inc. arrangements and resulting advisory fees V.I. Mid Cap Core Equity Fund (the Fund) (Lipper), under the direction and for the Fund and the other AIM Funds are investment advisory agreement with Invesco supervision of the independent Senior the result of years of review and Aim Advisors, Inc. (Invesco Aim). During Officer who also prepares a separate negotiation between the Trustees and contract renewal meetings held on June analysis of this information for the Invesco Aim, that the Trustees may focus 18-19, 2008, the Board as a whole and the Trustees. Each Sub-Committee then makes to a greater extent on certain aspects of disinterested or "independent" Trustees, recommendations to the Investments these arrangements in some years than in voting separately, approved the Committee regarding the performance, fees others, and that the Trustees' continuance of the Fund's investment and expenses of their assigned funds. The deliberations and conclusions in a advisory agreement for another year, Investments Committee considers each particular year may be based in part on effective July 1, 2008. In doing so, the Sub-Committee's recommendations and makes their deliberations and conclusions of Board determined that the Fund's its own recommendations regarding the these same arrangements throughout the investment advisory agreement is in the performance, fees and expenses of the AIM year and in prior years. best interests of the Fund and its Funds to the full Board. The Investments shareholders and that the compensation to Committee also considers each FACTORS AND CONCLUSIONS AND SUMMARY OF Invesco Aim under the Fund's investment Sub-Committee's recommendations in making INDEPENDENT WRITTEN FEE EVALUATION advisory agreement is fair and reasonable. its annual recommendation to the Board The discussion below serves as a summary The independent Trustees met separately whether to approve the continuance of each of the Senior Officer's independent during their evaluation of the Fund's AIM Fund's investment advisory agreement written evaluation with respect to the investment advisory agreement with and sub-advisory agreements for another Fund's investment advisory agreement as independent legal counsel from whom they year. well as a discussion of the material received independent legal advice, and the The independent Trustees are assisted factors and related conclusions that independent Trustees also received in their annual evaluation of the Fund's formed the basis for the Board's approval assistance during their deliberations from investment advisory agreement by the of the Fund's investment advisory the independent Senior Officer, a independent Senior Officer. One agreement and sub-advisory agreements. full-time officer of the AIM Funds who responsibility of the Senior Officer is to Unless otherwise stated, information set reports directly to the independent manage the process by which the AIM Funds' forth below is as of June 19, 2008 and Trustees. proposed management fees are negotiated does not reflect any changes that may have during the annual contract renewal process occurred since that date, including but THE BOARD'S FUND EVALUATION PROCESS to ensure that they are negotiated in a not limited to changes to the Fund's The Board's Investments Committee has manner that is at arms' length and performance, advisory fees, expense established three Sub-Committees that are reasonable. Accordingly, the Senior limitations and/or fee waivers. responsible for overseeing the management Officer must either supervise a of a number of the series portfolios of competitive bidding process or prepare an I. Investment Advisory Agreement the AIM Funds. This Sub-Committee independent written evaluation. The Senior A. Nature, Extent and Quality of structure permits the Trustees to focus on Officer has recommended that an Services Provided by Invesco Aim the performance of the AIM Funds that have independent written evaluation be provided The Board reviewed the advisory services been assigned to them. The Sub-Committees and, at the direction of the Board, has provided to the Fund by Invesco Aim under meet throughout the year to review the prepared an independent written the Fund's investment advisory agreement, performance of their assigned funds, and evaluation. the performance of Invesco Aim in the Sub-Committees review monthly and During the annual contract renewal providing these services, and the quarterly comparative performance process, the Board considered the factors credentials and experience of the officers information and periodic asset flow data discussed below under the heading "Factors and employees of Invesco Aim who provide for their assigned funds. These materials and Conclusions and Summary of Independent these services. The Board's review of the are prepared under the direction and Written Fee Evaluation" in evaluating the qualifications of Invesco Aim to provide supervision of the independent Senior fairness and reasonableness of the Fund's these services included the Board's Officer. Over the course of each year, the investment advisory agreement and consideration of Invesco Aim's portfolio Sub-Committees meet with portfolio sub-advisory agreements at the contract and product review process, various back managers for their assigned funds and renewal meetings and at their meetings office support functions provided by other members of management and review throughout the year as part of their Invesco Aim and its affiliates, and with these individuals the performance, ongoing oversight of the Fund. The Fund's Invesco Aim's equity and fixed income investment objective(s), policies, investment advisory agreement and trading operations. The Board concluded strategies and limitations of these funds. sub-advisory agreements were considered that the nature, extent and quality of the In addition to their meetings separately, although the Board also advisory services provided to the Fund by throughout the year, the Sub-Committees considered the common interests of all of Invesco Aim were appropriate and that meet at designated contract renewal the AIM Funds in their deliberations. The Invesco Aim currently is providing meetings each year to conduct an in-depth Board considered all of the information satisfactory advisory services in review of the performance, fees and provided to them and did not identify any accordance with the terms of the Fund's expenses of their assigned funds. During particular factor that was controlling. investment advisory agreement. In the contract Each Trustee may have evaluated the addition, based on their ongoing meetings information provided differently throughout the year with the Fund's portfolio manager or continued
AIM V.I. MID CAP CORE EQUITY FUND managers, the Board concluded that these considered Fund performance through the After taking account of the Fund's individuals are competent and able to most recent calendar year, the Board also contractual advisory fee rate, as well as continue to carry out their reviewed more recent Fund performance and the comparative advisory fee information responsibilities under the Fund's this review did not change their and the expense limitation discussed investment advisory agreement. conclusions. above, the Board concluded that the Fund's In determining whether to continue the advisory fees were fair and reasonable. Fund's investment advisory agreement, the C. Advisory Fees and Fee Waivers Board considered the prior relationship The Board compared the Fund's contractual D. Economies of Scale and Breakpoints between Invesco Aim and the Fund, as well advisory fee rate to the contractual The Board considered the extent to which as the Board's knowledge of Invesco Aim's advisory fee rates of funds in the Fund's there are economies of scale in Invesco operations, and concluded that it was Lipper expense group that are not managed Aim's provision of advisory services to beneficial to maintain the current by Invesco Aim, at a common asset level the Fund. The Board also considered relationship, in part, because of such and as of the end of the past calendar whether the Fund benefits from such knowledge. The Board also considered the year. The Board noted that the Fund's economies of scale through contractual steps that Invesco Aim and its affiliates contractual advisory fee rate was below breakpoints in the Fund's advisory fee have taken over the last several years to the median contractual advisory fee rate schedule or through advisory fee waivers improve the quality and efficiency of the of funds in its expense group. The Board or expense limitations. The Board noted services they provide to the AIM Funds in also reviewed the methodology used by that the Fund's contractual advisory fee the areas of investment performance, Lipper in determining contractual fee schedule includes three breakpoints and product line diversification, rates. that the level of the Fund's advisory distribution, fund operations, shareholder The Board also compared the Fund's fees, as a percentage of the Fund's net services and compliance. The Board effective fee rate (the advisory fee after assets, has decreased as net assets concluded that the quality and efficiency any advisory fee waivers and before any increased because of the breakpoints. of the services Invesco Aim and its expense limitations/waivers) to the Based on this information, the Board affiliates provide to the AIM Funds in advisory fee rates of other clients of concluded that the Fund's advisory fees each of these areas generally have Invesco Aim and its affiliates with appropriately reflect economies of scale improved, and support the Board's approval investment strategies comparable to those at current asset levels. The Board also of the continuance of the Fund's of the Fund, including two mutual funds noted that the Fund shares directly in investment advisory agreement. advised by Invesco Aim. The Board noted economies of scale through lower fees that the Fund's rate was above the rate charged by third party service providers B. Fund Performance for one of the mutual funds and below the based on the combined size of all of the The Board compared the Fund's performance rate for the other mutual fund. AIM Funds and affiliates. during the past one, three and five Additionally, the Board compared the calendar years to the performance of funds Fund's effective fee rate to the total E. Profitability and Financial in the Fund's performance group that are advisory fees paid by numerous separately Resources of Invesco Aim not managed by Invesco Aim, and against managed accounts/wrap accounts advised by The Board reviewed information from the performance of all funds in the Lipper an Invesco Aim affiliate. The Board noted Invesco Aim concerning the costs of the Variable Annuity Underlying Funds - that the Fund's rate was generally above advisory and other services that Invesco Mid-Cap Core Index. The Board also the rates for the separately managed Aim and its affiliates provide to the Fund reviewed the criteria used by Invesco Aim accounts/wrap accounts. The Board and the profitability of Invesco Aim and to identify the funds in the Fund's considered that management of the its affiliates in providing these performance group for inclusion in the separately managed accounts/wrap accounts services. The Board also reviewed Lipper reports. The Board noted that the by the Invesco Aim affiliate involves information concerning the financial Fund's performance was in the second different levels of services and different condition of Invesco Aim and its quintile of its performance group for the operational and regulatory requirements affiliates. The Board also reviewed with one year period, the third quintile for than Invesco Aim's management of the Fund. Invesco Aim the methodology used to the three year period, and the fourth The Board concluded that these differences prepare the profitability information. The quintile for the five year period (the are appropriately reflected in the fee Board considered the overall profitability first quintile being the best performing structure for the Fund. of Invesco Aim, as well as the funds and the fifth quintile being the The Board noted that Invesco Aim has profitability of Invesco Aim in connection worst performing funds). The Board noted contractually agreed to waive fees and/or with managing the Fund. The Board noted that the Fund's performance was above the limit expenses of the Fund through at that Invesco Aim continues to operate at a performance of the Index for the one year least April 30, 2010 in an amount net profit, although increased expenses in period, and below the performance of the necessary to limit total annual operating recent years have reduced the Index for the three and five year periods. expenses to a specified percentage of profitability of Invesco Aim and its The Board also considered the steps average daily net assets for each class of affiliates. The Board concluded that the Invesco Aim has taken over the last the Fund. The Board considered the Fund's fees were fair and reasonable, and several years to improve the quality and contractual nature of this fee waiver and that the level of profits realized by efficiency of the services that Invesco noted that it remains in effect until at Invesco Aim and its affiliates from Aim provides to the AIM Funds. The Board least April 30, 2010. The Board also providing services to the Fund was not concluded that Invesco Aim continues to be considered the effect this expense excessive in light of the nature, quality responsive to the Board's focus on fund limitation would have on the Fund's and extent of the services provided. The performance. Although the independent estimated total expenses. Board considered whether Invesco Aim is written evaluation of the Fund's Senior financially sound and has the resources Officer only necessary to perform its obligations continued
AIM V.I. MID CAP CORE EQUITY FUND under the Fund's investment advisory Aim in making investment decisions for the in part for the purpose of researching and agreement, and concluded that Invesco Aim Fund and may therefore benefit Fund compiling information and making has the financial resources necessary to shareholders. The Board concluded that recommendations on the markets and fulfill these obligations. Invesco Aim's soft dollar arrangements economies of various countries and were appropriate. The Board also concluded securities of companies located in such F. Independent Written Evaluation of that, based on their review and countries or on various types of the Fund's Senior Officer representations made by Invesco Aim, these investments and investment techniques, and The Board noted that, at their direction, arrangements were consistent with providing investment advisory services. the Senior Officer of the Fund, who is regulatory requirements. The Board concluded that the sub-advisory independent of Invesco Aim and Invesco The Board considered the fact that the agreements will benefit the Fund and its Aim's affiliates, had prepared an Fund's uninvested cash and cash collateral shareholders by permitting Invesco Aim to independent written evaluation to assist from any securities lending arrangements utilize the additional resources and the Board in determining the may be invested in money market funds talent of the Affiliated Sub-Advisers in reasonableness of the proposed management advised by Invesco Aim pursuant to managing the Fund. fees of the AIM Funds, including the Fund. procedures approved by the Board. The The Board noted that they had relied upon Board noted that Invesco Aim will receive B. Fund Performance the Senior Officer's written evaluation advisory fees from these affiliated money The Board did not view Fund performance as instead of a competitive bidding process. market funds attributable to such a relevant factor in considering whether In determining whether to continue the investments, although Invesco Aim has to approve the sub-advisory agreements for Fund's investment advisory agreement, the contractually agreed to waive through at the Fund, as no Affiliated Sub-Adviser Board considered the Senior Officer's least April 30, 2010, the advisory fees currently manages any portion of the written evaluation. payable by the Fund in an amount equal to Fund's assets. 100% of the net advisory fees Invesco Aim G. Collateral Benefits to Invesco Aim receives from the affiliated money market C. Sub-Advisory Fees and its Affiliates funds with respect to the Fund's The Board considered the services to be The Board considered various other investment of uninvested cash, but not provided by the Affiliated Sub-Advisers benefits received by Invesco Aim and its cash collateral. The Board considered the pursuant to the sub-advisory agreements affiliates resulting from Invesco Aim's contractual nature of this fee waiver and and the services to be provided by Invesco relationship with the Fund, including the noted that it remains in effect until at Aim pursuant to the Fund's investment fees received by Invesco Aim and its least April 30, 2010. The Board concluded advisory agreement, as well as the affiliates for their provision of that the Fund's investment of uninvested allocation of fees between Invesco Aim and administrative, transfer agency and cash and cash collateral from any the Affiliated Sub-Advisers pursuant to distribution services to the Fund. The securities lending arrangements in the the sub-advisory agreements. The Board Board considered the performance of affiliated money market funds is in the noted that the sub-advisory fees have no Invesco Aim and its affiliates in best interests of the Fund and its direct effect on the Fund or its providing these services and the shareholders. shareholders, as they are paid by Invesco organizational structure employed by Aim to the Affiliated Sub-Advisers, and Invesco Aim and its affiliates to provide II. Sub-Advisory Agreements that Invesco Aim and the Affiliated these services. The Board also considered A. Nature, Extent and Quality of Sub-Advisers are affiliates. After taking that these services are provided to the Services Provided by Affiliated account of the Fund's contractual Fund pursuant to written contracts which Sub-Advisers sub-advisory fee rate, as well as other are reviewed and approved on an annual The Board reviewed the services to be relevant factors, the Board concluded that basis by the Board. The Board concluded provided by Invesco Trimark Ltd., Invesco the Fund's sub-advisory fees were fair and that Invesco Aim and its affiliates were Asset Management Deutschland, GmbH, reasonable. providing these services in a satisfactory Invesco Asset Management Limited, Invesco manner and in accordance with the terms of Asset Management (Japan) Limited, Invesco D. Financial Resources of the their contracts, and were qualified to Australia Limited, Invesco Global Asset Affiliated Sub-Advisers continue to provide these services to the Management (N.A.), Inc., Invesco Hong Kong The Board considered whether each Fund. Limited, Invesco Institutional (N.A.), Affiliated Sub-Adviser is financially The Board considered the benefits Inc. and Invesco Senior Secured sound and has the resources necessary to realized by Invesco Aim as a result of Management, Inc. (collectively, the perform its obligations under its portfolio brokerage transactions executed "Affiliated Sub-Advisers") under the respective sub-advisory agreement, and through "soft dollar" arrangements. Under sub-advisory agreements and the concluded that each Affiliated Sub-Adviser these arrangements, portfolio brokerage credentials and experience of the officers has the financial resources necessary to commissions paid by the Fund and/or other and employees of the Affiliated fulfill these obligations. funds advised by Invesco Aim are used to Sub-Advisers who will provide these pay for research and execution services. services. The Board concluded that the The Board noted that soft dollar nature, extent and quality of the services arrangements shift the payment obligation to be provided by the Affiliated for the research and execution services Sub-Advisers were appropriate. The Board from Invesco Aim to the funds and noted that the Affiliated Sub-Advisers, therefore may reduce Invesco Aim's which have offices and personnel that are expenses. The Board also noted that geographically dispersed in financial research obtained through soft dollar centers around the world, have been formed arrangements may be used by Invesco
AIM V.I. MID CAP CORE EQUITY FUND PROXY RESULTS A Special Meeting ("Meeting") of Shareholders of AIM V.I. Mid Cap Core Equity Fund, an investment portfolio of AIM Variable Insurance Funds, a Delaware statutory trust ("Trust"), was held on February 29, 2008. The Meeting was held for the following purposes: (1) Elect 13 trustees to the Board of Trustees of the Trust, each of whom will serve until his or her successor is elected and qualified. (2) Approve an amendment to the Trust's Agreement and Declaration of Trust that would permit the Board of Trustees of the Trust to terminate the Trust, the Fund, and each other series portfolio of the Trust, or a share class without a shareholder vote. (3) Approve a new sub-advisory agreement between Invesco Aim Advisors, Inc. and each of AIM Funds Management, Inc.; Invesco Asset Management Deutschland, GmbH; Invesco Asset Management Limited; Invesco Asset Management (Japan) Limited; Invesco Australia Limited; Invesco Global Asset Management (N.A.), Inc.; Invesco Hong Kong Limited; Invesco Institutional (N.A.), Inc.; and Invesco Senior Secured Management, Inc. The results of the voting on the above matters were as follows:
WITHHELD/ MATTERS VOTES FOR ABSTENTIONS** - ------------------------------------------------------------------------------------------------------------ (1)* Bob R. Baker.................................................... 474,883,590 19,741,622 Frank S. Bayley................................................. 474,653,109 19,972,103 James T. Bunch.................................................. 475,597,417 19,027,795 Bruce L. Crockett............................................... 474,900,579 19,724,633 Albert R. Dowden................................................ 474,749,929 19,875,283 Jack M. Fields.................................................. 475,205,840 19,419,372 Martin L. Flanagan.............................................. 475,248,336 19,376,876 Carl Frischling................................................. 474,453,674 20,171,538 Prema Mathai-Davis.............................................. 473,569,192 21,056,020 Lewis F. Pennock................................................ 475,072,501 19,552,711 Larry Soll, Ph.D. .............................................. 475,170,544 19,454,668 Raymond Stickel, Jr. ........................................... 475,420,825 19,204,387 Philip A. Taylor................................................ 475,640,570 18,984,642
VOTES WITHHELD/ VOTES FOR AGAINST ABSTENTIONS - --------------------------------------------------------------------------------------------------------------------- (2)* Approve an amendment to the Trust's Agreement and Declaration of Trust that would permit the Board of Trustees of the Trust to terminate the Trust, the Fund, and each other series portfolio of the Trust, or a share class without a shareholder vote................. 438,131,484 35,586,925 20,906,803 (3) Approve a new sub-advisory agreement between Invesco Aim Advisors, Inc. and each of AIM Funds Management, Inc.; Invesco Asset Management Deutschland, GmbH; Invesco Asset Management Limited; Invesco Asset Management (Japan) Limited; Invesco Australia Limited; Invesco Global Asset Management (N.A.), Inc.; Invesco Hong Kong Limited; Invesco Institutional (N.A.), Inc.; and Invesco Senior Secured Management, Inc............. 40,275,628 1,220,515 2,065,705
* Proposals 1 and 2 required approval by a combined vote of all of the portfolios of AIM Variable Insurance Funds. ** Includes Broker Non-Votes. AIM V.I. MID CAP CORE EQUITY FUND [INVESCO AIM LOGO] AIM V.I. MONEY MARKET FUND - SERVICE MARK - Semiannual Report to Shareholders - June 30, 2008 AIM Investments [MOUNTAIN GRAPHIC] became INVESCO AIM on March 31, 2008. For more details, go to invescoaim.com 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 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 Invesco Aim Web site, invescoaim.com. On the home page, scroll down and click on 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, 2008, is available at our Web site. Go to invescoaim.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 noted, all data provided by Invesco Aim. THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND PROSPECTUS AND VARIABLE PRODUCT PROSPECTUS, WHICH CONTAIN MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ EACH CAREFULLY BEFORE INVESTING. Invesco Aim Distributors, Inc. NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE FUND PERFORMANCE ======================================================================================= PERFORMANCE SUMMARY As of June 30, 2008, the seven-day SEC yield on the Fund's Series I shares was 1.83% and the seven-day SEC yield on the Fund's Series II shares was 1.57%. ======================================================================================= ======================================================================================= AN INVESTMENT IN THE FUND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. ALTHOUGH THE FUND SEEKS TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUND. ======================================================================================= THE PERFORMANCE DATA QUOTED REPRESENT PAST AIM V.I. MONEY MARKET FUND, A SERIES ABLE PRODUCT ISSUERS, WILL VARY AND WILL PERFORMANCE AND CANNOT GUARANTEE PORTFOLIO OF AIM VARIABLE INSURANCE FUNDS, LOWER THE TOTAL RETURN. COMPARABLE FUTURE RESULTS; CURRENT IS CURRENTLY OFFERED THROUGH INSURANCE THE MOST RECENT MONTH-END PERFORMANCE PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE COMPANIES ISSUING VARIABLE PRODUCTS. YOU DATA AT THE FUND LEVEL, EXCLUDING VARIABLE SEE YOUR VARIABLE PRODUCT ISSUER OR CANNOT PURCHASE SHARES OF THE FUND PRODUCT CHARGES, IS AVAILABLE ON THE FINANCIAL ADVISOR FOR THE MOST RECENT DIRECTLY. PERFORMANCE FIGURES GIVEN INVESCO AIM AUTOMATED INFORMATION LINE, MONTH-END VARIABLE PRODUCT PERFORMANCE. REPRESENT THE FUND AND ARE NOT INTENDED TO 866 702 4402. AS MENTIONED ABOVE, FOR THE PERFORMANCE FIGURES REFLECT FUND EXPENSES, REFLECT ACTUAL VARIABLE PRODUCT VALUES. MOST RECENT MONTH-END PERFORMANCE REINVESTED DISTRIBUTIONS AND CHANGES IN THEY DO NOT REFLECT SALES CHARGES, INCLUDING VARIABLE PRODUCT CHARGES, PLEASE NET ASSET VALUE. INVESTMENT RETURN AND EXPENSES AND FEES ASSESSED IN CONNECTION CONTACT YOUR VARIABLE PRODUCT ISSUER OR PRINCIPAL VALUE WILL FLUCTUATE SO THAT YOU WITH A VARIABLE PRODUCT. SALES CHARGES, FINANCIAL ADVISOR. MAY HAVE A GAIN OR LOSS WHEN YOU SELL EXPENSES AND FEES, WHICH ARE DETERMINED BY SHARES. THE VARI-
AIM V.I. MONEY MARKET FUND PORTFOLIO COMPOSITION* Number of days to Maturity as of June 30, 2008 - ------------------------------------------------------------------------- 1-7 46.3% - ------------------------------------------------------------------------- 8-30 22.3 - ------------------------------------------------------------------------- 31-90 23.2 - ------------------------------------------------------------------------- 91-180 8.2 _________________________________________________________________________ =========================================================================
* The number of days to maturity of each holding is determined in accordance with the provisions of Rule 2a-7 of the Investment Company Act of 1940. SCHEDULE OF INVESTMENTS June 30, 2008 (Unaudited)
PRINCIPAL AMOUNT MATURITY (000) VALUE - -------------------------------------------------------------------------------------- COMMERCIAL PAPER-43.06%(a) ASSET-BACKED SECURITIES-COMMERCIAL LOANS/LEASES-4.08% Amstel Funding Corp. 2.77%(b)(c) 08/21/08 $1,000 $ 996,076 - -------------------------------------------------------------------------------------- 2.87%(b)(c) 07/08/08 1,000 999,442 ====================================================================================== 1,995,518 ====================================================================================== ASSET-BACKED SECURITIES-CONSUMER RECEIVABLES-4.08% Old Line Funding, LLC 2.56%(b) 07/28/08 2,000 1,996,160 ====================================================================================== ASSET-BACKED SECURITIES-FULLY SUPPORTED BANK-9.17% Gotham Funding Corp. (CEP-Bank of Tokyo-Mitsubishi Ltd.) 2.70%(b)(c) 08/26/08 2,000 1,991,600 - -------------------------------------------------------------------------------------- 3.10%(b)(c) 07/25/08 500 498,967 - -------------------------------------------------------------------------------------- Lexington Parker Capital Co., LLC (Multi CEP's- Liberty Hampshire Co., LLC; agent) 3.10%(b) 07/25/08 2,000 1,995,867 ====================================================================================== 4,486,434 ====================================================================================== ASSET-BACKED SECURITIES-MULTI-PURPOSE-13.53% Atlantic Asset Securitization LLC 2.55%(b) 07/10/08 1,000 999,362 - -------------------------------------------------------------------------------------- 2.57%(b) 07/10/08 1,000 999,358 - -------------------------------------------------------------------------------------- Gemini Securitization Corp., LLC 2.80%(b) 07/24/08 836 834,504 - -------------------------------------------------------------------------------------- Sheffield Receivables Corp. 2.70%(b) 08/29/08 1,800 1,792,035 - -------------------------------------------------------------------------------------- Thames Asset Global Securitization No. 1, Inc. 2.70%(b)(c) 08/15/08 2,000 1,993,250 ====================================================================================== 6,618,509 ====================================================================================== ASSET-BACKED SECURITIES-SECURITIES-2.04% Grampian Funding Ltd./LLC 2.66%(b)(c) 07/14/08 1,000 999,039 ====================================================================================== DIVERSIFIED BANKS-4.06% Bank of America Corp. 2.72% 11/20/08 1,000 989,291 - -------------------------------------------------------------------------------------- Lloyds TSB Bank PLC 2.80%(c) 08/18/08 500 498,133 - -------------------------------------------------------------------------------------- UBS Finance (Delaware) Inc. 3.05%(c) 07/24/08 500 499,026 ====================================================================================== 1,986,450 ====================================================================================== REGIONAL BANKS-6.10% Banque et Caisse dEpargne de lEtat 2.55%(c) 10/28/08 2,000 1,983,142 - -------------------------------------------------------------------------------------- Swedbank A.B. 2.72%(c) 07/09/08 1,000 999,395 ====================================================================================== 2,982,537 ====================================================================================== Total Commercial Paper (Cost $21,064,647) 21,064,647 ====================================================================================== VARIABLE RATE DEMAND NOTES-19.69%(d)(e) LETTER OF CREDIT ENHANCED-19.69%(f) A Mining Group, LLC; Series 2006, Incremental Taxable Bonds (LOC-Wachovia Bank, N.A.) 2.67% 06/01/29 200 200,000 - -------------------------------------------------------------------------------------- Albany (City of), New York Industrial Development Agency (Albany Medical Center Hospital); Series 2006 B, Taxable IDR (LOC-RBS Citizens, N.A.) 2.73% 05/01/35 975 975,000 - -------------------------------------------------------------------------------------- Albuquerque (City of), New Mexico (KTech Corp.); Series 2002, Taxable RB (LOC-Wells Fargo Bank, N.A.) 2.48% 11/01/22 650 650,000 - -------------------------------------------------------------------------------------- Corp. Finance Managers Inc., Integrated Loan Program; Series 2003 B, PARTs (LOC-Wells Fargo Bank, N.A.) 2.48% 02/02/43 1,405 1,405,000 - -------------------------------------------------------------------------------------- EPC Allentown, LLC; Series 2005, Incremental Taxable Bonds (LOC-Wachovia Bank, N.A.) 2.58% 07/01/30 3,200 3,200,000 - -------------------------------------------------------------------------------------- Roman Catholic Diocese of Charlotte; Series 2002, Incremental Taxable Bonds (LOC-Wachovia Bank, N.A.) 2.58% 05/01/14 1,200 1,200,000 - --------------------------------------------------------------------------------------
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. MONEY MARKET FUND
PRINCIPAL AMOUNT MATURITY (000) VALUE - -------------------------------------------------------------------------------------- LETTER OF CREDIT ENHANCED-(CONTINUED) Thomasville (City of), Georgia Payroll Development Authority (American Fresh Foods L.P.); Series 2005 B, Taxable RB (LOC-Wachovia Bank, N.A.) 2.62% 09/01/17 $2,000 $ 2,000,000 ====================================================================================== Total Variable Rate Demand Notes (Cost $9,630,000) 9,630,000 ====================================================================================== CERTIFICATES OF DEPOSIT-12.26% ABN AMRO Bank N.V. (United Kingdom) 3.08%(c) 07/31/08 2,000 2,000,000 - -------------------------------------------------------------------------------------- Banco Santander, S.A. 2.65% 09/17/08 1,000 1,000,000 - -------------------------------------------------------------------------------------- HSBC Bank U.S.A N.A. 2.95% 07/03/08 1,000 1,000,000 - -------------------------------------------------------------------------------------- Nordea Bank A.B. 2.64% 10/14/08 1,000 1,000,000 - -------------------------------------------------------------------------------------- Royal Bank of Canada 2.85% 09/08/08 1,000 1,000,000 ====================================================================================== Total Certificates of Deposit (Cost $6,000,000) 6,000,000 ====================================================================================== MASTER NOTE AGREEMENT-4.09% Merrill Lynch Mortgage Capital, Inc. 2.80%(b)(g)(h) (Cost $2,000,000) -- 2,000 2,000,000 ====================================================================================== MEDIUM-TERM NOTE-4.09% Societe Generale S.A. Unsec. Floating Rate MTN 2.46%(b)(c)(e) (Cost $2,000,000) 08/29/08 2,000 2,000,000 ====================================================================================== TOTAL INVESTMENTS (excluding Repurchase Agreements)-83.19% (Cost $40,694,647) 40,694,647 ======================================================================================
REPURCHASE AMOUNT VALUE - ----------------------------------------------------------------------------- REPURCHASE AGREEMENTS-16.21%(i) BNP Paribas, Joint agreement dated 06/30/08, aggregate maturing value $900,067,500 (collateralized by Corporate and U.S. Government sponsored agency obligations valued at $933,677,995; 0%-24.71%, 01/23/09-06/01/38) 2.70%, 07/01/08(c) $2,000,150 $ 2,000,000 - ----------------------------------------------------------------------------- Deutsche Bank Securities Inc., Joint agreement dated 06/30/08, aggregate maturing value $1,000,075,000 (collateralized by U.S. Government sponsored agency obligations valued at $1,020,000,000; 4.50%-7.31%, 01/01/19- 07/01/38) 2.70%, 07/01/08 3,931,083 3,930,788 - ----------------------------------------------------------------------------- Fortis Bank N.V./S.A., Joint agreement dated 06/30/08, aggregate maturing value $450,033,375 (collateralized by Corporate, U.S. Government sponsored agency and U.S. Treasury obligations valued at $463,762,383; 0%-6.00%, 01/01/10- 03/25/38) 2.67%, 07/01/08(c) 2,000,148 2,000,000 ============================================================================= Total Repurchase Agreements (Cost $7,930,788) 7,930,788 ============================================================================= TOTAL INVESTMENTS-99.40% (Cost $48,625,435)(j)(k) 48,625,435 ============================================================================= OTHER ASSETS LESS LIABILITIES-0.60% 295,830 ============================================================================= NET ASSETS-100.00% $48,921,265 _____________________________________________________________________________ =============================================================================
Investment Abbreviations: CEP - Credit Enhancement Provider IDR - Industrial Development Revenue Bonds LOC - Letter of Credit MTN - Medium-Term Notes PARTs - Pooled Adjustable Rate Taxable Notes(SM) RB - Revenue Bonds Unsec. - Unsecured
Notes to Schedule of Investments: (a) Securities 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 purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended. The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The aggregate value of these securities at June 30, 2008 was $20,095,660, which represented 41.08% of the Fund's Net Assets. Unless otherwise indicated, these securities are not considered to be illiquid. (c) The security is credit guaranteed, enhanced or has credit risk by a foreign entity. The foreign credit exposure to countries other than the United States of America (as a percentage of net assets) is summarized as follows: United Kingdom: 11.2%; France: 8.2%; Japan: 5.1%; other countries less than 5%: 15.3%. (d) Demand security payable upon demand by the Fund at specified time intervals no greater than thirteen months. (e) Interest or dividend rate is redetermined periodically. Rate shown is the rate in effect on June 30, 2008. (f) Principal and interest payments are fully enhanced by a letter of credit from the bank listed or a predecessor bank, branch or subsidiary. (g) The Fund may demand prepayment of notes purchased under the Master Note Purchase Agreement upon one or two business day's notice depending on the timing of the demand. Interest rates on master notes are redetermined periodically. Rate shown is the rate in effect on June 30, 2008. (h) Open master note agreement with no specified maturity date. Either party may terminate the agreement upon thirty days prior written notice provided the last maturing advances under the note is paid in full, whether at maturity or on demand. (i) Principal amount equals value at period end. See Note 1I. (j) Also represents cost for federal income tax purposes. (k) This table provides a listing of those entities that have either issued, guaranteed, backed or otherwise enhanced the credit quality of more than 5% of the securities held in the portfolio. In instances where the entity has guaranteed, backed or otherwise enhanced the credit quality of a security, it is not primarily responsible for the issuer's obligations but may be called upon to satisfy the issuer's obligations.
ENTITIES PERCENTAGE ------------------------------------------------------------------------------------------- Wachovia Bank, N.A. 13.5% ------------------------------------------------------------------------------------------- Bank of Tokyo-Mitsubishi Ltd. 5.1 ___________________________________________________________________________________________ ===========================================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. MONEY MARKET FUND STATEMENT OF ASSETS AND LIABILITIES June 30, 2008 (Unaudited) ASSETS: Investments, excluding repurchase agreements, at value (Cost $40,694,647) $40,694,647 - ------------------------------------------------------ Repurchase agreements (Cost $7,930,788) 7,930,788 ====================================================== Total investments (Cost $48,625,435) 48,625,435 ====================================================== Receivables for: Investments sold 105,000 - ------------------------------------------------------ Fund shares sold 193,920 - ------------------------------------------------------ Interest 83,504 - ------------------------------------------------------ Investment for trustee deferred compensation and retirement plans 42,463 - ------------------------------------------------------ Other assets 306 ====================================================== Total assets 49,050,628 ______________________________________________________ ====================================================== LIABILITIES: Payables for: Fund shares reacquired 15,747 - ------------------------------------------------------ Accrued fees to affiliates 26,171 - ------------------------------------------------------ Accrued other operating expenses 37,459 - ------------------------------------------------------ Trustee deferred compensation and retirement plans 49,986 ====================================================== Total liabilities 129,363 ====================================================== Net assets applicable to shares outstanding $48,921,265 ______________________________________________________ ====================================================== NET ASSETS CONSIST OF: Shares of beneficial interest $48,914,851 - ------------------------------------------------------ Undistributed net investment income 6,414 ====================================================== $48,921,265 ______________________________________________________ ====================================================== NET ASSETS: Series I $46,686,722 ______________________________________________________ ====================================================== Series II $ 2,234,543 ______________________________________________________ ====================================================== SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED NUMBER OF SHARES AUTHORIZED: Series I 46,685,393 ______________________________________________________ ====================================================== Series II 2,234,376 ______________________________________________________ ====================================================== Series I: Net asset value per share $ 1.00 ______________________________________________________ ====================================================== Series II: Net asset value per share $ 1.00 ______________________________________________________ ======================================================
STATEMENT OF OPERATIONS For the six months ended June 30, 2008 (Unaudited) INVESTMENT INCOME: Interest $844,185 ==================================================== EXPENSES: Advisory fees 100,756 - ---------------------------------------------------- Administrative services fees 71,783 - ---------------------------------------------------- Custodian fees 2,638 - ---------------------------------------------------- Distribution fees -- Series II 2,999 - ---------------------------------------------------- Transfer agent fees 3,625 - ---------------------------------------------------- Trustees' and officer's fees and benefits 8,809 - ---------------------------------------------------- Professional services fees 20,810 - ---------------------------------------------------- Other 7,210 ==================================================== Total expenses 218,630 ==================================================== Net investment income 625,555 - ---------------------------------------------------- Net increase in net assets resulting from operations $625,555 ____________________________________________________ ====================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. MONEY MARKET FUND STATEMENT OF CHANGE IN NET ASSETS For the six months ended June 30, 2008 and the year ended December 31, 2007 (Unaudited)
JUNE 30, DECEMBER 31, 2008 2007 - ------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income $ 625,555 $ 2,114,184 ======================================================================================================= Distributions to shareholders from net investment income: Series I (598,451) (2,016,504) - ------------------------------------------------------------------------------------------------------- Series II (27,034) (97,680) ======================================================================================================= Total distributions from net investment income (625,485) (2,114,184) ======================================================================================================= Share transactions-net: Series I 194,261 2,924,198 - ------------------------------------------------------------------------------------------------------- Series II (280,514) 173,554 ======================================================================================================= Net increase (decrease) in net assets resulting from share transactions (86,253) 3,097,752 ======================================================================================================= Net increase (decrease) in net assets (86,183) 3,097,752 NET ASSETS: Beginning of period 49,007,448 45,909,696 ======================================================================================================= End of period (including undistributed net investment income of $6,414 and $6,344, respectively) $48,921,265 $49,007,448 _______________________________________________________________________________________________________ =======================================================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. MONEY MARKET FUND NOTES TO FINANCIAL STATEMENTS June 30, 2008 (Unaudited) NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES AIM V.I. Money Market Fund (the "Fund") is a series portfolio of AIM Variable Insurance Funds (the "Trust"). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of twenty separate portfolios, (each constituting a "Fund"). 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 Fund or class will be voted on exclusively by the shareholders of such Fund 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 Fund 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. 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. The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds as received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. Brokerage commissions and mark ups are considered transaction costs and are recorded as an increase to the cost basis of securities purchased and/or a reduction of proceeds on a sale of securities. Such transaction costs are included in the determination of realized gain (loss) from investment securities reported in the Statement of Operations and the Statement of Changes in Net Assets and the realized net gains (losses) on securities per share in the Financial Highlights. Transaction costs are included in the calculation of the Fund's net asset value and, accordingly, they reduce the Fund's total returns. These transaction costs are not considered operating expenses and are not reflected in net investment income reported in the Statement of Operations and Statement of Changes in Net Assets, or the net investment income per share and ratios of expenses and net investment income reported in the Financial Highlights, nor are they limited by any expense limitation arrangements between the Fund and the advisor. The Fund allocates realized and unrealized capital gains and losses to a class based on the relative net assets of each class. The Fund allocates income to a class based on the relative value of the settled shares of each class. C. COUNTRY DETERMINATION -- For the purposes of making investment selection decisions and presentation in the Schedule of Investments, the investment advisor 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. The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. 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 by a significant amount. 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. MONEY MARKET 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. 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 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 Invesco Aim Advisors, Inc. (the "Advisor" or "Invesco Aim"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Advisor based on the annual rate of the Fund's average daily net assets as follows:
AVERAGE NET ASSETS RATE - ------------------------------------------------------------------- First $250 million 0.40% - ------------------------------------------------------------------- Over $250 million 0.35% ___________________________________________________________________ ===================================================================
Under the terms of a master sub-advisory agreement approved by shareholders of the Fund on February 29, 2008, effective May 1, 2008, between the Advisor and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Global Asset Management (N.A.), Inc., Invesco Hong Kong Limited, Invesco Institutional (N.A.), Inc., Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the "Affiliated Sub-Advisors") the Advisor, not the Fund, may pay 40% of the fees paid to the Advisor to any such Affiliated Sub- Advisor(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Advisor(s). The Advisor 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, 2010. 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 Invesco Ltd. ("Invesco") 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. These credits are used to pay certain expenses incurred by the Fund. The Advisor did not waive fees and/or reimburse expenses during the period under this expense limitation. At the request of the Trustees of the Trust, Invesco agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the six months ended June 30, 2008, Invesco did not reimburse any expenses. The Trust has entered into a master administrative services agreement with Invesco Aim pursuant to which the Fund has agreed to pay Invesco Aim a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco Aim for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants' accounts. Pursuant to such agreement, for the six months ended June 30, 2008, Invesco Aim was paid $24,863 for accounting and fund administrative services and reimbursed $46,920 for services provided by insurance companies. The Trust has entered into a transfer agency and service agreement with Invesco Aim Investment Services, Inc. ("IAIS") pursuant to which the Fund has agreed to pay IAIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IAIS for certain expenses incurred by IAIS in the course of providing such services. For the six months ended June 30, 2008, 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 Invesco Aim Distributors, Inc. ("IADI") 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 IADI 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 six months ended June 30, 2008, expenses incurred under the Plan are detailed in the Statement of Operations as distribution fees. Certain officers and trustees of the Trust are officers and directors of Invesco Aim, IAIS and/or IADI. AIM V.I. MONEY MARKET FUND NOTE 3--SUPPLEMENTAL INFORMATION The Fund adopted the provisions of Statement of Financial Accounting Standards No. 157, "Fair Value Measurements" (SFAS 157), effective with the beginning of the Fund's fiscal year. SFAS 157 establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (level 1) and the lowest priority to unobservable inputs (level 3) market prices are not readily available or are unreliable. Based on the inputs the securities or other instruments are tiered into three levels of hierarchy under SFAS 157. Changes in valuation methods may result in transfers in or out of an investment's assigned level within the hierarchy, Level 1 -- Quoted prices in an active market for identical assets. Level 2 -- Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk and others. Level 3 -- Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund's own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. Below is a summary of the tiered input levels, as of the end of the reporting period, June 30, 2008. The inputs or methods used for valuing securities may not be an indication of the risk associated with investing in those securities.
INVESTMENTS IN INPUT LEVEL SECURITIES - -------------------------------------- Level 1 $ -- - -------------------------------------- Level 2 48,625,435 - -------------------------------------- Level 3 -- ====================================== $48,625,435 ______________________________________ ======================================
NOTE 4--TRUSTEES' AND OFFICER'S FEES AND BENEFITS "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. 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, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund. During the six months ended June 30, 2008, the Fund paid legal fees of $1,557 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust. NOTE 5--CASH BALANCES The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The Bank of New York Mellon, 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 Invesco Aim, not to exceed the contractually agreed upon rate. NOTE 6--TAX INFORMATION The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund's fiscal year-end. The Fund did not have a capital loss carryforward as of December 31, 2007. AIM V.I. MONEY MARKET FUND NOTE 7--SHARE INFORMATION
CHANGES IN SHARES OUTSTANDING - ------------------------------------------------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED JUNE 30, 2008(a) DECEMBER 31, 2007 ---------------------------- ---------------------------- SHARES AMOUNT SHARES AMOUNT - ------------------------------------------------------------------------------------------------------------------------- Sold: Series I 16,527,812 $ 16,527,812 33,843,692 $ 33,843,692 - ------------------------------------------------------------------------------------------------------------------------- Series II 174,211 174,211 611,826 611,826 ========================================================================================================================= Issued as reinvestment of dividends: Series I 598,451 598,451 2,016,467 2,016,467 - ------------------------------------------------------------------------------------------------------------------------- Series II 27,034 27,034 97,676 97,676 ========================================================================================================================= Reacquired: Series I (16,932,002) (16,932,002) (32,935,961) (32,935,961) - ------------------------------------------------------------------------------------------------------------------------- Series II (481,759) (481,759) (535,948) (535,948) ========================================================================================================================= (86,253) $ (86,253) 3,097,752 $ 3,097,752 _________________________________________________________________________________________________________________________ =========================================================================================================================
(a) There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 85% of the outstanding shares of the Fund. The Fund and the Fund's principal underwriter or advisor, are parties to participation agreements with these entities whereby these entities sell units of interest in separate accounts funding variable products that are invested in the Fund. The Fund, Invesco Aim and/or Invesco Aim affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco Aim and or Invesco 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 8--FINANCIAL HIGHLIGHTS The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
SERIES I ---------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ------------------------------------------------------- 2008 2007 2006 2005 2004 2003 - ---------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ============================================================================================================================ Net investment income 0.01 0.04 0.04 0.02 0.01 0.01 ============================================================================================================================ Less dividends from net investment income (0.01) (0.04) (0.04) (0.02) (0.01) (0.01) ============================================================================================================================ Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ____________________________________________________________________________________________________________________________ ============================================================================================================================ Total return(a) 1.25% 4.54% 4.27% 2.51% 0.69% 0.58% ____________________________________________________________________________________________________________________________ ============================================================================================================================ Ratios/supplemental data: Net assets, end of period (000s omitted) $46,687 $46,492 $43,568 $44,923 $54,008 $77,505 ____________________________________________________________________________________________________________________________ ============================================================================================================================ Ratio of expenses to average net assets 0.86%(b) 0.86% 0.90% 0.82% 0.75% 0.66% ============================================================================================================================ Ratio of net investment income to average net assets 2.50%(b) 4.45% 4.20% 2.46% 0.67% 0.59% ____________________________________________________________________________________________________________________________ ============================================================================================================================
(a) Includes adjustments in accordance with accounting principles generally accepted in the United States of America. Total returns are not annualized for periods less than one year and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. (b) Ratios are annualized and based on average daily net assets of $48,242,683. AIM V.I. MONEY MARKET FUND NOTE 8--FINANCIAL HIGHLIGHTS--(CONTINUED)
SERIES II ------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ---------------------------------------------------- 2008 2007 2006 2005 2004 2003 - --------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 =========================================================================================================================== Net investment income 0.01 0.04 0.04 0.02 0.004 0.003 =========================================================================================================================== Less dividends from net investment income (0.01) (0.04) (0.04) (0.02) (0.004) (0.003) =========================================================================================================================== Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 ___________________________________________________________________________________________________________________________ =========================================================================================================================== Total return(a) 1.12% 4.28% 4.01% 2.26% 0.44% 0.33% ___________________________________________________________________________________________________________________________ =========================================================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $2,235 $2,515 $2,341 $3,080 $ 6,076 $ 2,382 ___________________________________________________________________________________________________________________________ =========================================================================================================================== Ratio of expenses to average net assets 1.11%(b) 1.11% 1.15% 1.07% 1.00% 0.91% =========================================================================================================================== Ratio of net investment income to average net assets 2.25%(b) 4.20% 3.95% 2.21% 0.42% 0.34% ___________________________________________________________________________________________________________________________ ===========================================================================================================================
(a) Includes adjustments in accordance with accounting principles generally accepted in the United States of America. Total returns are not annualized for periods less than one year and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. (b) Ratios are annualized and based on average daily net assets of $2,412,003. NOTE 9--LEGAL PROCEEDINGS Terms used in the Legal Proceedings Note are defined terms solely for the purpose of this note. 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 Invesco Aim and IADI (Order No. 05-1318). The WVASC makes findings of fact that Invesco Aim and IADI 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 Invesco Aim and IADI violated the West Virginia securities laws. The WVASC orders Invesco Aim and IADI 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. By agreement with the Commissioner of Securities, Invesco Aim's time to respond to that Order has been indefinitely suspended. Civil lawsuits, including purported class action and shareholder derivative suits, have been filed against certain of the AIM Funds, Invesco Funds Group, Inc. ("IFG"), Invesco Aim, IADI 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; and - that certain AIM Funds inadequately employed fair value pricing. These lawsuits allege as theories of recovery, depending on the lawsuit, violations of various provisions of the Federal and state securities laws Employee Retirement Income Security Act of 1974, as amended ("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. The case pending in Illinois State Court regarding fair value pricing was dismissed with prejudice on May 6, 2008. 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 Invesco 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 ERISA purportedly brought on behalf of participants in the Invesco 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 Invesco defendants' motion to dismiss the Amended Class Action Complaint for Violations of ERISA and dismissed such Complaint. Plaintiff appealed this ruling. On June 16, 2008, the Fourth Court of Appeals reversed the dismissal and remanded this lawsuit back to the MDL Court for further proceedings. IFG, Invesco Aim, IADI 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, Invesco Aim and IADI 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, Invesco Aim and/or related entities and individuals in the future. At the present time, management of Invesco 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 Invesco Aim, IADI or the Fund. AIM V.I. MONEY MARKET FUND CALCULATING YOUR ONGOING FUND EXPENSES EXAMPLE As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2008, through June 30, 2008. The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower. ACTUAL EXPENSES The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled "Actual Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
- --------------------------------------------------------------------------------------------------- HYPOTHETICAL (5% ANNUAL RETURN BEFORE ACTUAL EXPENSES) ------------------------------------------------------ BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE CLASS (01/01/08) (06/30/08)(1) PERIOD(2) (06/30/08) PERIOD(2) RATIO - --------------------------------------------------------------------------------------------------- Series I $1,000.00 $1,012.50 $4.30 $1,020.59 $4.32 0.86% - --------------------------------------------------------------------------------------------------- Series II 1,000.00 1,011.20 5.55 1,019.34 5.57 1.11 - ---------------------------------------------------------------------------------------------------
(1) The actual ending account value is based on the actual total return of the Fund for the period January 1, 2008, through June 30, 2008, 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 182/366 to reflect the most recent fiscal half year. AIM V.I. MONEY MARKET FUND APPROVAL OF INVESTMENT ADVISORY AGREEMENT The Board of Trustees (the Board) of AIM comparative performance and fee data ent weight to the various factors. The Variable Insurance Funds required under regarding the AIM Funds prepared by an Trustees recognized that the advisory the Investment Company Act of 1940 to independent company, Lipper, Inc. (Lipper), arrangements and resulting advisory fees approve annually the renewal of the AIM under the direction and supervision of the for the Fund and the other AIM Funds are V.I. Money Market Fund (the Fund) independent Senior Officer who also the result of years of review and investment advisory agreement with Invesco prepares a separate analysis of this negotiation between the Trustees and Aim Advisors, Inc. (Invesco Aim). During information for the Trustees. Each Invesco Aim, that the Trustees may focus contract renewal meetings held on June Sub-Committee then makes recommendations to a greater extent on certain aspects of 18-19, 2008, the Board as a whole and the to the Investments Committee regarding the these arrangements in some years than in disinterested or "independent" Trustees, performance, fees and expenses of their others, and that the Trustees' voting separately, approved the assigned funds. The Investments Committee deliberations and conclusions in a continuance of the Fund's investment considers each Sub-Committee's particular year may be based in part on advisory agreement for another year, recommendations and makes its own their deliberations and conclusions of effective July 1, 2008. In doing so, the recommendations regarding the performance, these same arrangements throughout the Board determined that the Fund's fees and expenses of the AIM Funds to the year and in prior years. investment advisory agreement is in the full Board. The Investments Committee also best interests of the Fund and its considers each Sub-Committee's FACTORS AND CONCLUSIONS AND SUMMARY OF shareholders and that the compensation to recommendations in making its annual INDEPENDENT WRITTEN FEE EVALUATION Invesco Aim under the Fund's investment recommendation to the Board whether to The discussion below serves as a summary advisory agreement is fair and reasonable. approve the continuance of each AIM Fund's of the Senior Officer's independent The independent Trustees met separately investment advisory agreement and written evaluation with respect to the during their evaluation of the Fund's sub-advisory agreements for another year. Fund's investment advisory agreement as investment advisory agreement with The independent Trustees are assisted well as a discussion of the material independent legal counsel from whom they in their annual evaluation of the Fund's factors and related conclusions that received independent legal advice, and the investment advisory agreement by the formed the basis for the Board's approval independent Trustees also received independent Senior Officer. One of the Fund's investment advisory assistance during their deliberations from responsibility of the Senior Officer is to agreement and sub-advisory agreements. the independent Senior Officer, a manage the process by which the AIM Funds' Unless otherwise stated, information set full-time officer of the AIM Funds who proposed management fees are negotiated forth below is as of June 19, 2008 and reports directly to the independent during the annual contract renewal process does not reflect any changes that may have Trustees. to ensure that they are negotiated in a occurred since that date, including but manner that is at arms' length and not limited to changes to the Fund's THE BOARD'S FUND EVALUATION PROCESS reasonable. Accordingly, the Senior performance, advisory fees, expense The Board's Investments Committee has Officer must either supervise a limitations and/or fee waivers. established three Sub-Committees that are competitive bidding process or prepare an responsible for overseeing the management independent written evaluation. The Senior I. Investment Advisory Agreement of a number of the series portfolios of Officer has recommended that an A. Nature, Extent and Quality of the AIM Funds. This Sub-Committee independent written evaluation be provided Services Provided by Invesco Aim structure permits the Trustees to focus on and, at the direction of the Board, has The Board reviewed the advisory services the performance of the AIM Funds that have prepared an independent written provided to the Fund by Invesco Aim under been assigned to them. The Sub-Committees evaluation. the Fund's investment advisory agreement, meet throughout the year to review the During the annual contract renewal the performance of Invesco Aim in performance of their assigned funds, and process, the Board considered the factors providing these services, and the the Sub-Committees review monthly and discussed below under the heading "Factors credentials and experience of the officers quarterly comparative performance and Conclusions and Summary of Independent and employees of Invesco Aim who provide information and periodic asset flow data Written Fee Evaluation" in evaluating the these services. The Board's review of the for their assigned funds. These materials fairness and reasonableness of the Fund's qualifications of Invesco Aim to provide are prepared under the direction and investment advisory agreement and these services included the Board's supervision of the independent Senior sub-advisory agreements at the contract consideration of Invesco Aim's portfolio Officer. Over the course of each year, the renewal meetings and at their meetings and product review process, various back Sub-Committees meet with portfolio throughout the year as part of their office support functions provided by managers for their assigned funds and ongoing oversight of the Fund. The Fund's Invesco Aim and its affiliates, and other members of management and review investment advisory agreement and Invesco Aim's equity and fixed income with these individuals the performance, sub-advisory agreements were considered trading operations. The Board concluded investment objective(s), policies, separately, although the Board also that the nature, extent and quality of the strategies and limitations of these funds. considered the common interests of all of advisory services provided to the Fund by In addition to their meetings the AIM Funds in their deliberations. The Invesco Aim were appropriate and that throughout the year, the Sub-Committees Board considered all of the information Invesco Aim currently is providing meet at designated contract renewal provided to them and did not identify any satisfactory advisory services in meetings each year to conduct an in-depth particular factor that was controlling. accordance with the terms of the Fund's review of the performance, fees and Each Trustee may have evaluated the investment advisory agreement. In expenses of their assigned funds. During information provided differently from one addition, based on their ongoing meetings the contract renewal process, the Trustees another and attributed differ- throughout the year with the Fund's receive portfolio manager or managers, the Board concluded that continued
AIM V.I. MONEY MARKET FUND these individuals are competent and able appropriate for the Board to continue to schedule or through advisory fee waivers to continue to carry out their monitor more closely the performance of or expense limitations. The Board noted responsibilities under the Fund's the Fund. Although the independent written that the Fund's contractual advisory fee investment advisory agreement. evaluation of the Fund's Senior Officer schedule includes one breakpoint but that, In determining whether to continue the only considered Fund performance through due to the Fund's asset level at the end Fund's investment advisory agreement, the the most recent calendar year, the Board of the past calendar year and the way in Board considered the prior relationship also reviewed more recent Fund performance which the breakpoint has been structured, between Invesco Aim and the Fund, as well and this review did not change their the Fund has yet to benefit from the as the Board's knowledge of Invesco Aim's conclusions. breakpoint. Based on this information, the operations, and concluded that it was Board concluded that the Fund's advisory beneficial to maintain the current C. Advisory Fees and Fee Waivers fees would reflect economies of scale at relationship, in part, because of such The Board compared the Fund's contractual higher asset levels. The Board also noted knowledge. The Board also considered the advisory fee rate to the contractual that the Fund shares directly in economies steps that Invesco Aim and its affiliates advisory fee rates of funds in the Fund's of scale through lower fees charged by have taken over the last several years to Lipper expense group that are not managed third party service providers based on the improve the quality and efficiency of the by Invesco Aim, at a common asset level combined size of all of the AIM Funds and services they provide to the AIM Funds in and as of the end of the past calendar affiliates. the areas of investment performance, year. The Board noted that the Fund's product line diversification, contractual advisory fee rate was below E. Profitability and Financial distribution, fund operations, shareholder the median contractual advisory fee rate Resources of Invesco Aim services and compliance. The Board of funds in its expense group. The Board The Board reviewed information from concluded that the quality and efficiency also reviewed the methodology used by Invesco Aim concerning the costs of the of the services Invesco Aim and its Lipper in determining contractual fee advisory and other services that Invesco affiliates provide to the AIM Funds in rates. Aim and its affiliates provide to the Fund each of these areas have generally The Board also compared the Fund's and the profitability of Invesco Aim and improved, and support the Board's approval effective fee rate (the advisory fee after its affiliates in providing these of the continuance of the Fund's any advisory fee waivers and before any services. The Board also reviewed investment advisory agreement. expense limitations/waivers) to the information concerning the financial advisory fee rates of other clients of condition of Invesco Aim and its B. Fund Performance Invesco Aim and its affiliates with affiliates. The Board also reviewed with The Board compared the Fund's performance investment strategies comparable to those Invesco Aim the methodology used to during the past one, three and five of the Fund, including one mutual fund prepare the profitability information. The calendar years to the performance of funds advised by Invesco Aim. The Board noted Board considered the overall profitability in the Fund's performance group that are that the Fund's rate was the same as the of Invesco Aim, as well as the not managed by Invesco Aim, and against rate for the other mutual funds. profitability of Invesco Aim in connection the performance of all funds in the Lipper The Board noted that Invesco Aim has with managing the Fund. The Board noted Variable Annuity Underlying Funds - Money contractually agreed to waive fees and/or that Invesco Aim continues to operate at a Market Index. The Board also reviewed the limit expenses of the Fund through at net profit, although increased expenses in criteria used by Invesco Aim to identify least April 30, 2010 in an amount recent years have reduced the the funds in the Fund's performance group necessary to limit total annual operating profitability of Invesco Aim and its for inclusion in the Lipper reports. The expenses to a specified percentage of affiliates. The Board concluded that the Board noted that the Fund's performance average daily net assets for each class of Fund's fees were fair and reasonable, and was in the fifth quintile of its the Fund. The Board considered the that the level of profits realized by performance group for the one, three and contractual nature of this fee waiver and Invesco Aim and its affiliates from five year periods (the first quintile noted that it remains in effect until at providing services to the Fund was not being the best performing funds and the least April 30, 2010. The Board also excessive in light of the nature, quality fifth quintile being the worst performing considered the effect this expense and extent of the services provided. The funds). The Board noted that the Fund's limitation would have on the Fund's Board considered whether Invesco Aim is performance was below the performance of estimated total expenses. financially sound and has the resources the Index for the one, three and five year After taking account of the Fund's necessary to perform its obligations under periods. Invesco Aim advised the Board contractual advisory fee rate, as well as the Fund's investment advisory agreement, that the Fund has historically been priced the comparative advisory fee information and concluded that Invesco Aim has the consistent with its role as a conduit to and the expense limitation discussed financial resources necessary to fulfill and from other Invesco Aim products. The above, the Board concluded that the Fund's these obligations. Board also considered the steps Invesco advisory fees were fair and reasonable. Aim has taken over the last several years F. Independent Written Evaluation of to improve the quality and efficiency of D. Economies of Scale and Breakpoints the Fund's Senior Officer the services that Invesco Aim provides to The Board considered the extent to which The Board noted that, at their direction, the AIM Funds. The Board concluded that there are economies of scale in Invesco the Senior Officer of the Fund, who is Invesco Aim continues to be responsive to Aim's provision of advisory services to independent of Invesco Aim and Invesco the Board's focus on fund performance. the Fund. The Board also considered Aim's affiliates, had prepared an However, due to the Fund's whether the Fund benefits from such independent written evaluation to assist underperformance, the Board also concluded economies of scale through contractual the Board in determining the that it would be breakpoints in the Fund's advisory fee reasonableness of the proposed management fees of the AIM Funds, including the Fund. The continued
AIM V.I. MONEY MARKET FUND Board noted that they had relied upon the The Board noted that Invesco Aim will B. Fund Performance Senior Officer's written evaluation receive advisory fees from these The Board did not view Fund performance as instead of a competitive bidding process. affiliated money market funds attributable a relevant factor in considering whether In determining whether to continue the to such investments, although Invesco Aim to approve the sub-advisory agreements for Fund's investment advisory agreement, the has contractually agreed to waive through the Fund, as no Affiliated Sub-Adviser Board considered the Senior Officer's at least April 30, 2010, the advisory fees served as a sub-adviser to the Fund prior written evaluation. payable by the Fund in an amount equal to to May 1, 2008. 100% of the net advisory fees Invesco Aim G. Collateral Benefits to Invesco Aim receives from the affiliated money market C. Sub-Advisory Fees and its Affiliates funds with respect to the Fund's The Board considered the services to be The Board considered various other investment of uninvested cash, but not provided by the Affiliated Sub-Advisers benefits received by Invesco Aim and its cash collateral. The Board considered the pursuant to the sub-advisory agreements affiliates resulting from Invesco Aim's contractual nature of this fee waiver and and the services to be provided by Invesco relationship with the Fund, including the noted that it remains in effect until at Aim pursuant to the Fund's investment fees received by Invesco Aim and its least April 30, 2010. The Board concluded advisory agreement, as well as the affiliates for their provision of that the Fund's investment of uninvested allocation of fees between Invesco Aim and administrative, transfer agency and cash and cash collateral from any the Affiliated Sub-Advisers pursuant to distribution services to the Fund. The securities lending arrangements in the the sub-advisory agreements. The Board Board considered the performance of affiliated money market funds is in the noted that the sub-advisory fees have no Invesco Aim and its affiliates in best interests of the Fund and its direct effect on the Fund or its providing these services and the shareholders. shareholders, as they are paid by Invesco organizational structure employed by Aim to the Affiliated Sub-Advisers, and Invesco Aim and its affiliates to provide II. Sub-Advisory Agreements that Invesco Aim and the Affiliated these services. The Board also considered A. Nature, Extent and Quality of Sub-Advisers are affiliates. After taking that these services are provided to the Services Provided by Affiliated account of the Fund's contractual Fund pursuant to written contracts which Sub-Advisors sub-advisory fee rate, as well as other are reviewed and approved on an annual The Board reviewed the services to be relevant factors, the Board concluded that basis by the Board. The Board concluded provided by Invesco Trimark Ltd., Invesco the Fund's sub-advisory fees were fair and that Invesco Aim and its affiliates were Asset Management Deutschland, GmbH, reasonable. providing these services in a satisfactory Invesco Asset Management Limited, Invesco manner and in accordance with the terms of Asset Management (Japan) Limited, Invesco D. Financial Resources of the their contracts, and were qualified to Australia Limited, Invesco Global Asset Affiliated Sub-Advisers continue to provide these services to the Management (N.A.), Inc., Invesco Hong Kong The Board considered whether each Fund. Limited, Invesco Institutional (N.A.), Affiliated Sub-Adviser is financially The Board considered the benefits Inc. and Invesco Senior Secured sound and has the resources necessary to realized by Invesco Aim as a result of Management, Inc. (collectively, the perform its obligations under its portfolio brokerage transactions executed "Affiliated Sub-Advisers") under the respective sub-advisory agreement, and through "soft dollar" arrangements. Under sub-advisory agreements and the concluded that each Affiliated Sub-Adviser these arrangements, portfolio brokerage credentials and experience of the officers has the financial resources necessary to commissions paid by the Fund and/or other and employees of the Affiliated fulfill these obligations. funds advised by Invesco Aim are used to Sub-Advisers who will provide these pay for research and execution services. services. The Board concluded that the The Board noted that soft dollar nature, extent and quality of the services arrangements shift the payment obligation to be provided by the Affiliated for the research and execution services Sub-Advisers were appropriate. The Board from Invesco Aim to the funds and noted that the Affiliated Sub-Advisers, therefore may reduce Invesco Aim's which have offices and personnel that are expenses. The Board also noted that geographically dispersed in financial research obtained through soft dollar centers around the world, have been formed arrangements may be used by Invesco Aim in in part for the purpose of researching and making investment decisions for the Fund compiling information and making and may therefore benefit Fund recommendations on the markets and shareholders. The Board concluded that economies of various countries and Invesco Aim's soft dollar arrangements securities of companies located in such were appropriate. The Board also concluded countries or on various types of that, based on their review and investments and investment techniques, and representations made by Invesco Aim, these providing investment advisory services. arrangements were consistent with The Board concluded that the sub-advisory regulatory requirements. agreements will benefit the Fund and its The Board considered the fact that the shareholders by permitting Invesco Aim to Fund's uninvested cash and cash collateral utilize the additional resources and from any securities lending arrangements talent of the Affiliated Sub-Advisers in may be invested in money market funds managing the Fund. advised by Invesco Aim pursuant to procedures approved by the Board.
AIM V.I. MONEY MARKET FUND PROXY RESULTS A Special Meeting ("Meeting") of Shareholders of AIM V.I. Money Market Fund, an investment portfolio of AIM Variable Insurance Funds, a Delaware statutory trust ("Trust"), was held on February 29, 2008. The Meeting was held for the following purposes: (1) Elect 13 trustees to the Board of Trustees of the Trust, each of whom will serve until his or her successor is elected and qualified. (2) Approve an amendment to the Trust's Agreement and Declaration of Trust that would permit the Board of Trustees of the Trust to terminate the Trust, the Fund, and each other series portfolio of the Trust, or a share class without a shareholder vote. (3) Approve a new sub-advisory agreement between Invesco Aim Advisors, Inc. and each of AIM Funds Management, Inc.; Invesco Asset Management Deutschland, GmbH; Invesco Asset Management Limited; Invesco Asset Management (Japan) Limited; Invesco Australia Limited; Invesco Global Asset Management (N.A.), Inc.; Invesco Hong Kong Limited; Invesco Institutional (N.A.), Inc.; and Invesco Senior Secured Management, Inc. The results of the voting on the above matters were as follows:
WITHHELD/ MATTERS VOTES FOR ABSTENTIONS** - ------------------------------------------------------------------------------------------------------------ (1)* Bob R. Baker.................................................... 474,883,590 19,741,622 Frank S. Bayley................................................. 474,653,109 19,972,103 James T. Bunch.................................................. 475,597,417 19,027,795 Bruce L. Crockett............................................... 474,900,579 19,724,633 Albert R. Dowden................................................ 474,749,929 19,875,283 Jack M. Fields.................................................. 475,205,840 19,419,372 Martin L. Flanagan.............................................. 475,248,336 19,376,876 Carl Frischling................................................. 474,453,674 20,171,538 Prema Mathai-Davis.............................................. 473,569,192 21,056,020 Lewis F. Pennock................................................ 475,072,501 19,552,711 Larry Soll, Ph.D................................................ 475,170,544 19,454,668 Raymond Stickel, Jr............................................. 475,420,825 19,204,387 Philip A. Taylor................................................ 475,640,570 18,984,642
VOTES WITHHELD/ VOTES FOR AGAINST ABSTENTIONS - -------------------------------------------------------------------------------------------------------------------- (2)* Approve an amendment to the Trust's Agreement and Declaration of Trust that would permit the Board of Trustees of the Trust to terminate the Trust, the Fund, and each other series portfolio of the Trust, or a share class without a shareholder vote........................ 438,131,484 35,586,925 20,906,803 (3) Approve a new sub-advisory agreement between Invesco Aim Advisors, Inc. and each of AIM Funds Management, Inc.; Invesco Asset Management Deutschland, GmbH; Invesco Asset Management Limited; Invesco Asset Management (Japan) Limited; Invesco Australia Limited; Invesco Global Asset Management (N.A.), Inc.; Invesco Hong Kong Limited; Invesco Institutional (N.A.), Inc.; and Invesco Senior Secured Management, Inc.......................... 42,952,415 4,778,438 2,032,753
* Proposals 1 and 2 required approval by a combined vote of all of the portfolios of AIM Variable Insurance Funds. ** Includes Broker Non-Votes. AIM V.I. MONEY MARKET FUND [INVESCO AIM LOGO] AIM V.I. SMALL CAP EQUITY FUND - SERVICE MARK - Semiannual Report to Shareholders - June 30, 2008 AIM Investments [MOUNTAIN GRAPHIC] became INVESCO AIM on March 31, 2008. For more details, go to invescoaim.com 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 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 Invesco Aim Web site, invescoaim.com. On the home page, scroll down and click on 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, 2008, is available at our Web site. Go to invescoaim.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 noted, all data provided by Invesco Aim. THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND PROSPECTUS AND VARIABLE PRODUCT PROSPECTUS, WHICH CONTAIN MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ EACH CAREFULLY BEFORE INVESTING. Invesco Aim Distributors, Inc. NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE FUND PERFORMANCE ======================================================================================= PERFORMANCE SUMMARY FUND VS. INDEXES Cumulative total returns, 12/31/07 to 6/30/08, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower. Series I Shares -4.64% Series II Shares -4.74 S&P 500 Index(TRIANGLE) (Broad Market Index) -11.90 Russell 2000 Index(TRIANGLE) (Style-Specific Index) -9.37 Lipper VUF Small-Cap Core Funds Index(TRIANGLE) (Peer Group Index) -7.92 (TRIANGLE)Lipper Inc. The S&P 500--REGISTERED TRADEMARK-- INDEX is a market capitalization-weighted index covering all major areas of the U.S. economy. It is not the 500 largest companies, but rather the most widely held 500 companies chosen with respect to market size, liquidity, and their industry. The RUSSELL 2000--REGISTERED TRADEMARK-- INDEX measures the performance of the 2,000 smallest companies in the Russell 3000--REGISTERED TRADEMARK-- Index, which represents approximately 8% of the total market capitalization of the Russell 3000 Index. The Russell 2000 Index and the Russell 3000 Index are trademarks/service marks of the Frank Russell Company. Russell--REGISTERED TRADEMARK-- is a trademark of the Frank Russell Company. The LIPPER VUF SMALL-CAP CORE FUNDS INDEX is an equally weighted representation of the largest variable insurance underlying funds in the Lipper Small-Cap Core Funds category. These funds typically have an average price-to-earnings ratio, price-to-book ratio, and three-year sales-per-share growth value, compared to the S&P SmallCap 600 Index. The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes. A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of an index of funds reflects fund expenses; performance of a market index does not. ======================================================================================= ========================================== AVERAGE ANNUAL TOTAL RETURNS THE NET ANNUAL FUND OPERATING EXPENSE VARIABLE PRODUCT. SALES CHARGES, EXPENSES As of 6/30/08 RATIO SET FORTH IN THE MOST RECENT FUND AND FEES, WHICH ARE DETERMINED BY THE PROSPECTUS AS OF THE DATE OF THIS REPORT VARIABLE PRODUCT ISSUERS, WILL VARY AND SERIES I SHARES FOR SERIES I AND SERIES II SHARES WAS WILL LOWER THE TOTAL RETURN. Inception (8/29/03) 10.01% 1.13% AND 1.38%, RESPECTIVELY.(1) THE THE MOST RECENT MONTH-END PERFORMANCE 1 Year -7.93 TOTAL ANNUAL FUND OPERATING EXPENSE RATIO DATA AT THE FUND LEVEL, EXCLUDING VARIABLE SET FORTH IN THE MOST RECENT FUND PRODUCT CHARGES, IS AVAILABLE ON THE SERIES II SHARES PROSPECTUS AS OF THE DATE OF THIS REPORT INVESCO AIM AUTOMATED INFORMATION LINE, Inception (8/29/03) 9.77% FOR SERIES I AND SERIES II SHARES WAS 866 702 4402. AS MENTIONED ABOVE, FOR THE 1 Year -8.16 1.13% AND 1.38%, RESPECTIVELY. THE EXPENSE MOST RECENT MONTH-END PERFORMANCE ========================================== RATIOS PRESENTED ABOVE MAY VARY FROM THE INCLUDING VARIABLE PRODUCT CHARGES, PLEASE EXPENSE RATIOS PRESENTED IN OTHER SECTIONS CONTACT YOUR VARIABLE PRODUCT ISSUER OR THE PERFORMANCE OF THE FUND'S SERIES I AND OF THIS REPORT THAT ARE BASED ON EXPENSES FINANCIAL ADVISOR. SERIES II SHARE CLASSES WILL DIFFER INCURRED DURING THE PERIOD COVERED BY THIS HAD THE ADVISOR NOT WAIVED FEES AND/OR PRIMARILY DUE TO DIFFERENT CLASS EXPENSES. REPORT. REIMBURSED EXPENSES IN THE PAST, THE PERFORMANCE DATA QUOTED REPRESENT AIM V.I. SMALL CAP EQUITY FUND, A PERFORMANCE WOULD HAVE BEEN LOWER. PAST PERFORMANCE AND CANNOT GUARANTEE SERIES PORTFOLIO OF AIM VARIABLE INSURANCE COMPARABLE FUTURE RESULTS; CURRENT FUNDS, IS CURRENTLY OFFERED THROUGH (1) Total annual operating expenses less PERFORMANCE MAY BE LOWER OR HIGHER. PLEASE INSURANCE COMPANIES ISSUING VARIABLE any contractual fee waivers and/or CONTACT YOUR VARIABLE PRODUCT ISSUER OR PRODUCTS. YOU CANNOT PURCHASE SHARES OF expense reimbursements by the advisor FINANCIAL ADVISOR FOR THE MOST RECENT THE FUND DIRECTLY. PERFORMANCE FIGURES in effect through at least April 30, MONTH-END VARIABLE PRODUCT PERFORMANCE. GIVEN REPRESENT THE FUND AND ARE NOT 2010. See current prospectus for more PERFORMANCE FIGURES REFLECT FUND EXPENSES, INTENDED TO REFLECT ACTUAL VARIABLE information. REINVESTED DISTRIBUTIONS AND CHANGES IN PRODUCT VALUES. THEY DO NOT REFLECT SALES PRINCIPAL VALUE WILL FLUCTUATE SO THAT YOU CONNECTION WITH A MAY HAVE A GAIN OR LOSS WHEN YOU SELL SHARES.
AIM V.I. SMALL CAP EQUITY FUND
PORTFOLIO COMPOSITION By sector, based on Net Assets as of June 30, 2008 - ------------------------------------------------------------------------- Information Technology 17.7% - ------------------------------------------------------------------------- Industrials 16.4 - ------------------------------------------------------------------------- Health Care 13.5 - ------------------------------------------------------------------------- Financials 11.6 - ------------------------------------------------------------------------- Consumer Discretionary 11.3 - ------------------------------------------------------------------------- Energy 9.4 - ------------------------------------------------------------------------- Materials 8.0 - ------------------------------------------------------------------------- Consumer Staples 4.2 - ------------------------------------------------------------------------- Telecommunication Services 2.6 - ------------------------------------------------------------------------- Utilities 2.1 - ------------------------------------------------------------------------- Money Market Funds Plus Other Assets Less Liabilities 3.2 _________________________________________________________________________ =========================================================================
SCHEDULE OF INVESTMENTS(a) June 30, 2008 (Unaudited)
SHARES VALUE - ------------------------------------------------------------------------------- COMMON STOCKS & OTHER EQUITY INTERESTS-96.76% AEROSPACE & DEFENSE-2.20% AAR CORP.(b) 78,128 $ 1,057,072 - ------------------------------------------------------------------------------- Aeroviroment Inc.(b) 34,297 932,192 - ------------------------------------------------------------------------------- Curtiss-Wright Corp. 52,246 2,337,486 =============================================================================== 4,326,750 =============================================================================== AIRLINES-0.77% Allegiant Travel Co.(b) 81,100 1,507,649 =============================================================================== APPAREL RETAIL-1.74% Citi Trends Inc.(b) 103,776 2,351,564 - ------------------------------------------------------------------------------- Tween Brands, Inc.(b) 65,096 1,071,480 =============================================================================== 3,423,044 =============================================================================== APPAREL, ACCESSORIES & LUXURY GOODS-1.68% Fossil, Inc.(b) 51,154 1,487,047 - ------------------------------------------------------------------------------- Volcom, Inc.(b) 75,777 1,813,343 =============================================================================== 3,300,390 =============================================================================== APPLICATION SOFTWARE-0.94% Blackbaud, Inc. 86,709 1,855,573 =============================================================================== ASSET MANAGEMENT & CUSTODY BANKS-1.73% Affiliated Managers Group, Inc.(b) 19,189 1,728,161 - ------------------------------------------------------------------------------- GAMCO Investors, Inc.-Class A 33,851 1,679,687 =============================================================================== 3,407,848 =============================================================================== BIOTECHNOLOGY-0.30% InterMune, Inc.(b)(c) 45,507 597,052 =============================================================================== CATALOG RETAIL-1.00% PC Mall, Inc.(b) 145,672 1,975,312 =============================================================================== COMMUNICATIONS EQUIPMENT-1.97% Arris Group Inc.(b) 225,138 1,902,416 - ------------------------------------------------------------------------------- Comtech Telecommunications Corp.(b) 40,318 1,975,582 =============================================================================== 3,877,998 =============================================================================== CONSTRUCTION MATERIALS-0.90% Texas Industries, Inc.(c) 31,400 1,762,482 =============================================================================== DATA PROCESSING & OUTSOURCED SERVICES-2.34% CyberSource Corp.(b) 117,444 1,964,838 - ------------------------------------------------------------------------------- Euronet Worldwide, Inc.(b) 64,216 1,085,250 - ------------------------------------------------------------------------------- Wright Express Corp.(b) 63,123 1,565,451 =============================================================================== 4,615,539 =============================================================================== DIVERSIFIED CHEMICALS-1.05% FMC Corp. 26,662 2,064,705 =============================================================================== DIVERSIFIED COMMERCIAL & PROFESSIONAL SERVICES-0.28% EnerNOC, Inc.(b)(c) 30,493 547,349 =============================================================================== DIVERSIFIED METALS & MINING-1.00% Compass Minerals International, Inc. 24,547 1,977,506 =============================================================================== EDUCATION SERVICES-1.00% Capella Education Co.(b) 32,865 1,960,397 ===============================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. SMALL CAP EQUITY FUND
SHARES VALUE - ------------------------------------------------------------------------------- ELECTRICAL COMPONENTS & EQUIPMENT-2.03% Belden Inc. 56,014 $ 1,897,754 - ------------------------------------------------------------------------------- General Cable Corp.(b) 34,484 2,098,352 =============================================================================== 3,996,106 =============================================================================== ELECTRONIC EQUIPMENT MANUFACTURERS-1.05% OSI Systems, Inc.(b) 60,729 1,300,815 - ------------------------------------------------------------------------------- Rofin-Sinar Technologies, Inc.(b) 25,438 768,228 =============================================================================== 2,069,043 =============================================================================== ELECTRONIC MANUFACTURING SERVICES-0.87% Methode Electronics, Inc. 163,875 1,712,494 =============================================================================== ENVIRONMENTAL & FACILITIES SERVICES-3.06% ABM Industries Inc 94,986 2,113,439 - ------------------------------------------------------------------------------- Team, Inc.(b) 60,797 2,086,553 - ------------------------------------------------------------------------------- Waste Connections, Inc.(b) 57,340 1,830,866 =============================================================================== 6,030,858 =============================================================================== FOOD RETAIL-0.90% Ruddick Corp. 51,634 1,771,563 =============================================================================== GAS UTILITIES-1.06% Energen Corp. 26,676 2,081,528 =============================================================================== GENERAL MERCHANDISE STORES-0.44% Pantry, Inc. (The)(b) 81,244 866,061 =============================================================================== HEALTH CARE DISTRIBUTORS-1.38% Owens & Minor, Inc. 59,329 2,710,742 =============================================================================== HEALTH CARE EQUIPMENT-2.11% Invacare Corp. 111,640 2,281,922 - ------------------------------------------------------------------------------- Quidel Corp.(b) 113,606 1,876,771 =============================================================================== 4,158,693 =============================================================================== HEALTH CARE FACILITIES-1.07% Skilled Healthcare Group Inc.-Class A(b) 156,762 2,103,746 =============================================================================== HEALTH CARE SERVICES-2.47% Cross Country Healthcare, Inc.(b) 122,433 1,764,260 - ------------------------------------------------------------------------------- Gentiva Health Services, Inc.(b) 132,425 2,522,696 - ------------------------------------------------------------------------------- IPC The Hospitalist Co.(b) 30,310 570,434 =============================================================================== 4,857,390 =============================================================================== HEALTH CARE SUPPLIES-0.96% Haemonetics Corp.(b) 34,004 1,885,862 =============================================================================== HEALTH CARE TECHNOLOGY-0.80% Omnicell, Inc.(b) 120,185 1,584,038 =============================================================================== HOME ENTERTAINMENT SOFTWARE-0.76% THQ Inc.(b) 73,526 1,489,637 =============================================================================== HOTELS, RESORTS & CRUISE LINES-0.62% Ambassadors Group, Inc. 17,953 267,859 - ------------------------------------------------------------------------------- Red Lion Hotels Corp.(b) 119,639 953,523 =============================================================================== 1,221,382 =============================================================================== HOUSEHOLD APPLIANCES-0.98% Snap-on Inc. 37,251 1,937,425 =============================================================================== HOUSEWARES & SPECIALTIES-1.03% Tupperware Brands Corp. 59,210 2,026,166 =============================================================================== HUMAN RESOURCE & EMPLOYMENT SERVICES-0.76% Kforce Inc.(b) 175,160 1,487,108 =============================================================================== INDUSTRIAL MACHINERY-5.05% Chart Industries, Inc.(b) 74,347 3,616,238 - ------------------------------------------------------------------------------- Kadant Inc.(b) 102,101 2,307,483 - ------------------------------------------------------------------------------- RBC Bearings Inc.(b) 53,307 1,776,189 - ------------------------------------------------------------------------------- Valmont Industries, Inc. 21,483 2,240,462 =============================================================================== 9,940,372 =============================================================================== INTEGRATED TELECOMMUNICATION SERVICES-2.62% Alaska Communications Systems Group Inc.(c) 170,111 2,031,125 - ------------------------------------------------------------------------------- Cincinnati Bell Inc.(b) 499,197 1,986,804 =============================================================================== NTELOS Holdings Corp.(c) 45,181 1,146,242 =============================================================================== 5,164,171 =============================================================================== INTERNET SOFTWARE & SERVICES-3.07% Ariba, Inc.(b) 227,249 3,342,833 - ------------------------------------------------------------------------------- DealerTrack Holdings Inc.(b) 46,103 650,513 - ------------------------------------------------------------------------------- Open Text Corp. (Canada)(b)(c) 63,537 2,039,538 =============================================================================== 6,032,884 =============================================================================== INVESTMENT BANKING & BROKERAGE-0.88% CMET Finance Holdings, Inc. (Acquired 12/08/03; Cost $20,000)(b)(d)(e) 200 2,656 - ------------------------------------------------------------------------------- KBW Inc.(b)(c) 83,799 1,724,583 =============================================================================== 1,727,239 =============================================================================== IT CONSULTING & OTHER SERVICES-0.97% CACI International Inc.-Class A(b) 41,885 1,917,076 =============================================================================== LIFE SCIENCES TOOLS & SERVICES-2.53% Bio-Rad Laboratories, Inc.-Class A(b) 19,194 1,552,603 - ------------------------------------------------------------------------------- Dionex Corp.(b) 21,855 1,450,516 - ------------------------------------------------------------------------------- eResearch Technology, Inc.(b) 113,313 1,976,179 =============================================================================== 4,979,298 =============================================================================== METAL & GLASS CONTAINERS-0.95% AptarGroup, Inc. 40,651 1,705,309 - ------------------------------------------------------------------------------- Bway Holding Co.(b) 17,939 154,455 =============================================================================== 1,859,764 ===============================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. SMALL CAP EQUITY FUND
SHARES VALUE - ------------------------------------------------------------------------------- MOVIES & ENTERTAINMENT-1.02% World Wrestling Entertainment, Inc.-Class A(c) 129,605 $ 2,004,989 =============================================================================== MULTI-UTILITIES-0.53% Avista Corp. 48,624 1,043,471 =============================================================================== OFFICE REIT'S-0.89% Alexandria Real Estate Equities, Inc.(c) 18,005 1,752,607 =============================================================================== OIL & GAS EQUIPMENT & SERVICES-4.48% Complete Production Services, Inc.(b) 72,654 2,646,059 - ------------------------------------------------------------------------------- Lufkin Industries, Inc. 18,971 1,579,905 - ------------------------------------------------------------------------------- NATCO Group Inc.-Class A(b) 48,069 2,621,203 - ------------------------------------------------------------------------------- Oceaneering International, Inc.(b) 25,688 1,979,260 =============================================================================== 8,826,427 =============================================================================== OIL & GAS EXPLORATION & PRODUCTION-4.87% Comstock Resources, Inc.(b) 36,434 3,076,123 - ------------------------------------------------------------------------------- Parallel Petroleum Corp.(b) 93,834 1,888,878 - ------------------------------------------------------------------------------- Penn Virginia Corp. 46,053 3,473,317 - ------------------------------------------------------------------------------- Venoco Inc.(b) 49,309 1,144,462 =============================================================================== 9,582,780 =============================================================================== PACKAGED FOODS & MEATS-2.18% Flowers Foods, Inc. 75,988 2,153,500 - ------------------------------------------------------------------------------- TreeHouse Foods, Inc.(b) 87,762 2,129,106 =============================================================================== 4,282,606 =============================================================================== PERSONAL PRODUCTS-1.16% Alberto-Culver Co. 87,033 2,286,357 =============================================================================== PHARMACEUTICALS-1.88% ViroPharma Inc.(b)(c) 152,801 1,689,979 - ------------------------------------------------------------------------------- VIVUS, Inc.(b)(c) 300,300 2,006,004 =============================================================================== 3,695,983 =============================================================================== PROPERTY & CASUALTY INSURANCE-1.82% Assured Guaranty Ltd.(c) 97,837 1,760,088 - ------------------------------------------------------------------------------- FPIC Insurance Group, Inc.(b) 40,359 1,829,070 =============================================================================== 3,589,158 =============================================================================== REGIONAL BANKS-4.49% BancFirst Corp. 25,367 1,085,707 - ------------------------------------------------------------------------------- Commerce Bancshares, Inc. 33,677 1,335,630 - ------------------------------------------------------------------------------- Community Trust Bancorp, Inc. 52,849 1,387,815 - ------------------------------------------------------------------------------- First Financial Bankshares, Inc.(c) 32,517 1,489,604 - ------------------------------------------------------------------------------- Glacier Bancorp, Inc.(c) 105,379 1,685,010 - ------------------------------------------------------------------------------- Sterling Bancshares, Inc. 204,900 1,862,541 =============================================================================== 8,846,307 =============================================================================== RESTAURANTS-1.74% DineEquity, Inc.(c) 47,319 1,767,838 - ------------------------------------------------------------------------------- Papa John's International, Inc.(b) 62,269 1,655,733 =============================================================================== 3,423,571 =============================================================================== SEMICONDUCTOR EQUIPMENT-2.04% ATMI, Inc.(b) 77,006 2,150,008 - ------------------------------------------------------------------------------- MKS Instruments, Inc.(b) 84,995 1,861,390 =============================================================================== 4,011,398 =============================================================================== SEMICONDUCTORS-2.31% DSP Group, Inc.(b) 112,219 785,533 - ------------------------------------------------------------------------------- Power Integrations, Inc.(b) 60,245 1,904,345 - ------------------------------------------------------------------------------- Semtech Corp.(b) 131,787 1,854,243 =============================================================================== 4,544,121 =============================================================================== SPECIALIZED REIT'S-1.77% LaSalle Hotel Properties 59,270 1,489,455 - ------------------------------------------------------------------------------- Senior Housing Properties Trust 48,800 953,064 - ------------------------------------------------------------------------------- Universal Health Realty Income Trust 34,577 1,037,310 =============================================================================== 3,479,829 =============================================================================== SPECIALTY CHEMICALS-2.36% A. Schulman, Inc. 91,082 2,097,619 - ------------------------------------------------------------------------------- H.B. Fuller Co. 86,887 1,949,744 - ------------------------------------------------------------------------------- Zep, Inc. 40,790 606,955 =============================================================================== 4,654,318 =============================================================================== SPECIALTY STORES-0.05% Ulta Salon, Cosmetics & Fragrance, Inc.(b)(c) 8,810 99,024 =============================================================================== STEEL-1.74% Carpenter Technology Corp. 31,257 1,364,368 - ------------------------------------------------------------------------------- Northwest Pipe Co.(b) 37,000 2,064,600 =============================================================================== 3,428,968 =============================================================================== SYSTEMS SOFTWARE-0.80% Double-Take Software, Inc.(b) 115,080 1,581,199 =============================================================================== TECHNOLOGY DISTRIBUTORS-0.54% Agilysys, Inc. 93,834 1,064,078 =============================================================================== TRUCKING-2.26% Landstar System, Inc. 40,638 2,244,031 - ------------------------------------------------------------------------------- Marten Transport, Ltd.(b) 138,159 2,206,399 =============================================================================== 4,450,430 =============================================================================== WATER UTILITIES-0.51% Cascal N.V. (United Kingdom)(b) 82,203 1,011,097 - ------------------------------------------------------------------------------- Total Common Stocks & Other Equity Interests (Cost $182,335,544) 190,468,958 ===============================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. SMALL CAP EQUITY FUND
SHARES VALUE - ------------------------------------------------------------------------------- MONEY MARKET FUNDS-2.49% Liquid Assets Portfolio-Institutional Class(f) 2,448,798 $ 2,448,798 - ------------------------------------------------------------------------------- Premier Portfolio-Institutional Class(f) 2,448,799 2,448,799 - ------------------------------------------------------------------------------- Total Money Market Funds (Cost $4,897,597) 4,897,597 =============================================================================== TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)-99.25% (Cost $187,233,141) 195,366,555 =============================================================================== INVESTMENTS PURCHASED WITH CASH COLLATERAL FROM SECURITIES ON LOAN MONEY MARKET FUNDS-7.65% Liquid Assets Portfolio-Institutional Class (Cost $15,068,095)(f)(g) 15,068,095 15,068,095 =============================================================================== TOTAL INVESTMENTS-106.90% (Cost $202,301,236) 210,434,650 =============================================================================== OTHER ASSETS LESS LIABILITIES-(6.90)% (13,588,479) =============================================================================== NET ASSETS-100.00% $196,846,171 _______________________________________________________________________________ ===============================================================================
Investment Abbreviations: REIT - Real Estate Investment Trust
Notes to Schedule of Investments: (a) Industry and/or sector 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 MSCI Inc. and Standard & Poor's. (b) Non-income producing security. (c) All or a portion of this security was out on loan at June 30, 2008. (d) Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended. The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The value of this security at June 30, 2008 represented less than 0.01% of the Fund's Net Assets. This security is considered to be illiquid. The Fund is limited to investing 15% of net assets in illiquid securities at the time of purchase. (e) Security fair valued in good faith in accordance with the procedures established by the Board of Trustees. The value of this security at June 30, 2008 represented less than 0.01% 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. (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 1I. See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. SMALL CAP EQUITY FUND STATEMENT OF ASSETS AND LIABILITIES June 30, 2008 (Unaudited) ASSETS: Investments, at value (Cost $182,335,544)* $190,468,958 - ------------------------------------------------------ Investments in affiliated money market funds (Cost $19,965,692) 19,965,692 ====================================================== Total investments (Cost $202,301,236) 210,434,650 ====================================================== Foreign currencies, at value (Cost $47) 53 - ------------------------------------------------------ Receivables for: Investments sold 3,402,170 - ------------------------------------------------------ Investments sold to affiliates 162,193 - ------------------------------------------------------ Fund shares sold 2,931,781 - ------------------------------------------------------ Dividends 174,147 - ------------------------------------------------------ Investment for trustee deferred compensation and retirement plans 22,765 - ------------------------------------------------------ Other assets 2,468 ====================================================== Total assets 217,130,227 ______________________________________________________ ====================================================== LIABILITIES: Payables for: Investments purchased 4,972,078 - ------------------------------------------------------ Fund shares reacquired 47,108 - ------------------------------------------------------ Collateral upon return of securities loaned 15,068,095 - ------------------------------------------------------ Accrued fees to affiliates 121,531 - ------------------------------------------------------ Accrued other operating expenses 47,240 - ------------------------------------------------------ Trustee deferred compensation and retirement plans 28,004 ====================================================== Total liabilities 20,284,056 ====================================================== Net assets applicable to shares outstanding $196,846,171 ______________________________________________________ ====================================================== NET ASSETS CONSIST OF: Shares of beneficial interest $191,142,767 - ------------------------------------------------------ Undistributed net investment income 4,248 - ------------------------------------------------------ Undistributed net realized gain (loss) (2,434,265) - ------------------------------------------------------ Unrealized appreciation 8,133,421 ====================================================== $196,846,171 ______________________________________________________ ====================================================== NET ASSETS: Series I $195,848,861 ______________________________________________________ ====================================================== Series II $ 997,310 ______________________________________________________ ====================================================== SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED NUMBER OF SHARES AUTHORIZED: Series I 13,226,559 ______________________________________________________ ====================================================== Series II 68,011 ______________________________________________________ ====================================================== Series I: Net asset value per share $ 14.81 ______________________________________________________ ====================================================== Series II: Net asset value per share $ 14.66 ______________________________________________________ ======================================================
* At June 30, 2008, securities with an aggregate value of $14,489,044 were on loan to brokers. STATEMENT OF OPERATIONS For the six months ended June 30, 2008 (Unaudited) INVESTMENT INCOME: Dividends $ 784,081 - ------------------------------------------------------ Dividends from affiliated money market funds (includes securities lending income of $96,108) 207,733 ====================================================== Total investment income 991,814 ====================================================== EXPENSES: Advisory fees 653,735 - ------------------------------------------------------ Administrative services fees 244,237 - ------------------------------------------------------ Custodian fees 13,182 - ------------------------------------------------------ Distribution fees -- Series II 206 - ------------------------------------------------------ Transfer agent fees 7,136 - ------------------------------------------------------ Trustees' and officer's fees and benefits 10,347 - ------------------------------------------------------ Other 41,296 ====================================================== Total expenses 970,139 ====================================================== Less: Fees waived and expense offset arrangement(s) (5,436) ====================================================== Net expenses 964,703 ====================================================== Net investment income 27,111 ====================================================== REALIZED AND UNREALIZED GAIN (LOSS) FROM: Net realized gain (loss) from investment securities (includes net gains from securities sold to affiliates of $1,130,657) (2,890,537) - ------------------------------------------------------ Change in net unrealized appreciation (depreciation) of: Investment securities (4,327,374) - ------------------------------------------------------ Foreign currencies (1) ====================================================== (4,327,375) ====================================================== Net realized and unrealized gain (loss) (7,217,912) ====================================================== Net increase (decrease) in net assets resulting from operations $(7,190,801) ______________________________________________________ ======================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. SMALL CAP EQUITY FUND STATEMENT OF CHANGES IN NET ASSETS For the six months ended June 30, 2008 and the year ended December 31, 2007 (Unaudited)
JUNE 30, DECEMBER 31, 2008 2007 - ------------------------------------------------------------------------------------------------------ OPERATIONS: Net investment income (loss) $ 27,111 $ (91,276) - ------------------------------------------------------------------------------------------------------ Net realized gain (loss) (2,890,537) 4,840,940 - ------------------------------------------------------------------------------------------------------ Change in net unrealized appreciation (depreciation) (4,327,375) (528,972) ====================================================================================================== Net increase (decrease) in net assets resulting from operations (7,190,801) 4,220,692 ====================================================================================================== Distributions to shareholders from net investment income -- Series I -- (69,477) ====================================================================================================== Distributions to shareholders from net realized gains: Series I -- (4,648,828) - ------------------------------------------------------------------------------------------------------ Series II -- (761) ====================================================================================================== Total distributions from net realized gains -- (4,649,589) ====================================================================================================== Share transactions-net: Series I 34,720,863 75,616,355 - ------------------------------------------------------------------------------------------------------ Series II 998,229 (897,270) ====================================================================================================== Net increase in net assets resulting from share transactions 35,719,092 74,719,085 ====================================================================================================== Net increase in net assets 28,528,291 74,220,711 ====================================================================================================== NET ASSETS: Beginning of period 168,317,880 94,097,169 ====================================================================================================== End of period (including undistributed net investment income (loss) of $4,248 and $(22,863), respectively) $196,846,171 $168,317,880 ______________________________________________________________________________________________________ ======================================================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. SMALL CAP EQUITY FUND NOTES TO FINANCIAL STATEMENTS June 30, 2008 (Unaudited) NOTE 1--SIGNIFICANT ACCOUNTING POLICIES AIM V.I. Small Cap Equity Fund (the "Fund") is a series portfolio of AIM Variable Insurance Funds (the "Trust"). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of twenty separate portfolios, (each constituting a "Fund"). 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 Fund or class will be voted on exclusively by the shareholders of such Fund 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 Fund 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. 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 prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. 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, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. 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, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. 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. Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer's assets, general economic conditions, interest rates, investor perceptions and market liquidity. 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. The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds as received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. AIM V.I. SMALL CAP EQUITY FUND 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, the investment advisor 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. The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. 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 by a significant amount. 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. SECURITIES LENDING -- 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 by the securities lending provider. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its sponsored agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds and is shown as such on the Schedule of Investments. 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. Dividends received on cash collateral investments for securities lending transactions, which are net of compensation to counterparties, is included in Dividends from affiliates on the Statement of Operations. The aggregate value of securities out on loan is shown as a footnote on the Statement of Assets and Liabilities. 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. AIM V.I. SMALL CAP EQUITY 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. NOTE 2--ADVISORY FEES AND OTHER FEES PAID TO AFFILIATES The Trust has entered into a master investment advisory agreement with Invesco Aim Advisors, Inc. (the "Advisor" or "Invesco Aim"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Advisor based on the annual rate of the Fund's average daily net assets as follows:
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% ___________________________________________________________________ ===================================================================
Under the terms of a master sub-advisory agreement approved by shareholders of the Fund on February 29, 2008, effective May 1, 2008, between the Advisor and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Global Asset Management (N.A.), Inc., Invesco Hong Kong Limited, Invesco Institutional (N.A.), Inc., Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the "Affiliated Sub-Advisors") the Advisor, not the Fund, may pay 40% of the fees paid to the Advisor to any such Affiliated Sub- Advisor(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Advisor(s). The Advisor 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, 2010. 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 Invesco Ltd. ("Invesco") 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. These credits are used to pay certain expenses incurred by the Fund. The Advisor did not waive fees and/or reimburse expenses during the period under this expense limitation. Further, the Advisor has contractually agreed, through at least April 30, 2010, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Advisor receives from the affiliated money market funds on investments by the Fund of uninvested cash (but not cash collateral from securities lending) in such affiliated money market funds. For the six months ended June 30, 2008, the Advisor waived advisory fees of $4,560. At the request of the Trustees of the Trust, Invesco agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the six months ended June 30, 2008, Invesco did not reimburse any expenses. The Trust has entered into a master administrative services agreement with Invesco Aim pursuant to which the Fund has agreed to pay Invesco Aim a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco Aim for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants' accounts. Pursuant to such agreement, for the six months ended June 30, 2008, Invesco Aim was paid $24,863 for accounting and fund administrative services and reimbursed $219,374 for services provided by insurance companies. The Trust has entered into a transfer agency and service agreement with Invesco Aim Investment Services, Inc. ("IAIS") pursuant to which the Fund has agreed to pay IAIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IAIS for certain expenses incurred by IAIS in the course of providing such services. For the six months ended June 30, 2008, 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 Invesco Aim Distributors, Inc. ("IADI") 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 IADI 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 AIM V.I. SMALL CAP EQUITY FUND 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 six months ended June 30, 2008, expenses incurred under the Plan are detailed in the Statement of Operations as distribution fees. Certain officers and trustees of the Trust are officers and directors of Invesco Aim, IAIS and/or IADI. NOTE 3--SUPPLEMENTAL INFORMATION The Fund adopted the provisions of Statement of Financial Accounting Standards No. 157, "Fair Value Measurements" (SFAS 157), effective with the beginning of the Fund's fiscal year. SFAS 157 establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (level 1) and the lowest priority to unobservable inputs (level 3) market prices are not readily available or are unreliable. Based on the inputs the securities or other instruments are tiered into three levels of hierarchy under SFAS 157. Changes in valuation methods may result in transfers in or out of an investment's assigned level within the hierarchy, Level 1--Quoted prices in an active market for identical assets. Level 2--Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk and others. Level 3--Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund's own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. Below is a summary of the tiered input levels, as of the end of the reporting period, June 30, 2008. The inputs or methods used for valuing securities may not be an indication of the risk associated with investing in those securities.
INVESTMENTS IN INPUT LEVEL SECURITIES - -------------------------------------- Level 1 $210,431,994 - -------------------------------------- Level 2 -- - -------------------------------------- Level 3 2,656 ====================================== $210,434,650 ______________________________________ ======================================
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS The Fund is permitted to purchase or sell securities from or to certain other AIM Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment advisor (or affiliated investment advisors), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the six months ended June 30, 2008, the Fund engaged in securities sales of $3,950,314, which resulted in net realized gains of $1,130,657, and securities purchases of $2,042,425. NOTE 5--EXPENSE OFFSET ARRANGEMENT The expense offset arrangement is comprised of custodian credits which result from periodic overnight cash balances at the custodian. For the six months ended June 30, 2008, the Fund received credits from this arrangement, which resulted in the reduction of the Fund's total expenses of $876. 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 certain Trustees and Officers of the Fund. 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, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund. During the six months ended June 30, 2008, the Fund paid legal fees of $1,686 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--CASH BALANCES The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The State Street Bank and Trust Company ("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 Invesco Aim, not to exceed the contractually agreed upon rate. AIM V.I. SMALL CAP EQUITY FUND NOTE 8--TAX INFORMATION The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund's fiscal year-end. The Fund did not have a capital loss carryforward as of December 31, 2007. 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 six months ended June 30, 2008 was $98,533,275 and $62,156,863, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period end.
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS - ------------------------------------------------------------------------------------------------ Aggregate unrealized appreciation of investment securities $ 26,951,636 - ------------------------------------------------------------------------------------------------ Aggregate unrealized (depreciation) of investment securities (19,040,204) ================================================================================================ Net unrealized appreciation of investment securities $ 7,911,432 ________________________________________________________________________________________________ ================================================================================================ Cost of investments for tax purposes is $202,523,218.
NOTE 10--SHARE INFORMATION
CHANGES IN SHARES OUTSTANDING - ------------------------------------------------------------------------------------------------------------------------ SIX MONTHS ENDED YEAR ENDED JUNE 30, DECEMBER 31, 2008(a) 2007 --------------------------- --------------------------- SHARES AMOUNT SHARES AMOUNT - ------------------------------------------------------------------------------------------------------------------------ Sold: Series I 3,554,827 $ 51,702,273 5,013,005 $ 80,543,288 - ------------------------------------------------------------------------------------------------------------------------ Series II 73,081 1,105,786 2,377 39,660 ======================================================================================================================== Issued as reinvestment of dividends: Series I -- -- 294,710 4,718,304 - ------------------------------------------------------------------------------------------------------------------------ Series II -- -- 48 761 ======================================================================================================================== Issued in connection with acquisitions:(b) Series I -- -- 1,275,124 20,411,826 - ------------------------------------------------------------------------------------------------------------------------ Series II -- -- 12,068 191,836 ======================================================================================================================== Reacquired: Series I (1,166,600) (16,981,410) (1,881,501) (30,057,063) - ------------------------------------------------------------------------------------------------------------------------ Series II (7,166) (107,557) (68,936) (1,129,527) ======================================================================================================================== 2,454,142 $ 35,719,092 4,646,895 $ 74,719,085 ________________________________________________________________________________________________________________________ ========================================================================================================================
(a) There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 86% 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, Invesco Aim and/or Invesco Aim affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco Aim and or Invesco 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. SMALL CAP EQUITY FUND NOTE 11--FINANCIAL HIGHLIGHTS The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
SERIES I ----------------------------------------------------------------------------------------- AUGUST 29, 2003 SIX MONTHS ENDED YEAR ENDED DECEMBER 31, (COMMENCEMENT DATE) JUNE 30, -------------------------------------------- TO DECEMBER 31, 2008 2007 2006 2005 2004 2003 - ----------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 15.53 $ 15.19 $ 13.46 $ 12.45 $ 11.38 $10.00 - ----------------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) --(a) (0.01)(a) (0.01)(a) (0.06)(a) (0.06)(a) (0.01) - ----------------------------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) (0.72) 0.81 2.37 1.07 1.13 1.41 =================================================================================================================================== Total from investment operations (0.72) 0.80 2.36 1.01 1.07 1.40 =================================================================================================================================== Less distributions: Dividends from net investment income -- (0.01) -- -- (0.00) (0.01) - ----------------------------------------------------------------------------------------------------------------------------------- Distributions from net realized gains -- (0.45) (0.63) -- -- (0.01) =================================================================================================================================== Total distributions -- (0.46) (0.63) -- (0.00) (0.02) =================================================================================================================================== Net asset value, end of period $ 14.81 $ 15.53 $ 15.19 $ 13.46 $ 12.45 $11.38 ___________________________________________________________________________________________________________________________________ =================================================================================================================================== Total return(b) (4.64)% 5.19% 17.44% 8.11% 9.41% 13.94% ___________________________________________________________________________________________________________________________________ =================================================================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $195,849 $168,286 $93,243 $42,752 $25,964 $2,231 ___________________________________________________________________________________________________________________________________ =================================================================================================================================== Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 1.10%(d) 1.12% 1.15% 1.22% 1.30% 1.32%(c) - ----------------------------------------------------------------------------------------------------------------------------------- Without fee waivers and/or expense reimbursements 1.11%(d) 1.15% 1.33% 1.57% 2.01% 12.86%(c) =================================================================================================================================== Ratio of net investment income (loss) to average net assets 0.03%(d) (0.07)% (0.06)% (0.44)% (0.56)% (0.44)%(c) ___________________________________________________________________________________________________________________________________ =================================================================================================================================== Portfolio turnover rate(e) 36% 45% 52% 70% 156% 26% ___________________________________________________________________________________________________________________________________ ===================================================================================================================================
(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) Annualized. (d) Ratios are annualized and based on average daily net assets of $176,297,671. (e) Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year. For the period ending December 31, 2007, the portfolio turnover calculation excludes the value of securities purchased of $17,709,035 and sold of $19,432,514 in the effort to realign the Fund's portfolio holdings after the reorganization of AIM V.I. Small Cap Growth into the Fund.
SERIES II ------------------------------------------------------------------------------------ AUGUST 29, 2003 SIX MONTHS ENDED YEAR ENDED DECEMBER 31, (COMMENCEMENT DATE) JUNE 30, --------------------------------------- TO DECEMBER 31, 2008 2007 2006 2005 2004 2003 - ------------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $15.39 $15.10 $13.41 $12.43 $11.38 $10.00 - ------------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) (0.01)(a) (0.05)(a) (0.04)(a) (0.08)(a) (0.08)(a) (0.02) - ------------------------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) (0.72) 0.79 2.36 1.06 1.13 1.41 =============================================================================================================================== Total from investment operations (0.73) 0.74 2.32 0.98 1.05 1.39 =============================================================================================================================== Less distributions: Dividends from net investment income -- -- -- -- (0.00) (0.00) - ------------------------------------------------------------------------------------------------------------------------------- Distributions from net realized gains -- (0.45) (0.63) -- -- (0.01) =============================================================================================================================== Total distributions -- (0.45) (0.63) -- (0.00) (0.01) =============================================================================================================================== Net asset value, end of period $14.66 $15.39 $15.10 $13.41 $12.43 $11.38 _______________________________________________________________________________________________________________________________ =============================================================================================================================== Total return(b) 4.74% 4.84% 17.20% 7.88% 9.23% 13.88% _______________________________________________________________________________________________________________________________ =============================================================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $ 997 $ 32 $ 854 $ 679 $ 622 $ 569 _______________________________________________________________________________________________________________________________ =============================================================================================================================== Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 1.35%(d) 1.37% 1.40% 1.42% 1.45% 1.47%(c) - ------------------------------------------------------------------------------------------------------------------------------- Without fee waivers and/or expense reimbursements 1.36%(d) 1.40% 1.58% 1.82% 2.26% 13.11%(c) =============================================================================================================================== Ratio of net investment income (loss) to average net assets (0.22)%(d) (0.32)% (0.31)% (0.64)% (0.71)% (0.59)%(c) _______________________________________________________________________________________________________________________________ =============================================================================================================================== Portfolio turnover rate(e) 36% 45% 52% 70% 156% 26% _______________________________________________________________________________________________________________________________ ===============================================================================================================================
(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) Annualized. (d) Ratios are annualized and based on average daily net assets of $165.887. (e) Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year. For the period ending December 31, 2007, the portfolio turnover calculation excludes the value of securities purchased of $17,709,035 and sold of $19,432,514 in the effort to realign the Fund's portfolio holdings after the reorganization of AIM V.I. Small Cap Growth into the Fund. AIM V.I. SMALL CAP EQUITY FUND NOTE 12--LEGAL PROCEEDINGS Terms used in the Legal Proceedings Note are defined terms solely for the purpose of this note. 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 Invesco Aim and IADI (Order No. 05-1318). The WVASC makes findings of fact that Invesco Aim and IADI 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 Invesco Aim and IADI violated the West Virginia securities laws. The WVASC orders Invesco Aim and IADI 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. By agreement with the Commissioner of Securities, Invesco Aim's time to respond to that Order has been indefinitely suspended. Civil lawsuits, including purported class action and shareholder derivative suits, have been filed against certain of the AIM Funds, Invesco Funds Group, Inc. ("IFG"), Invesco Aim, IADI 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; and - that certain AIM Funds inadequately employed fair value pricing. These lawsuits allege as theories of recovery, depending on the lawsuit, violations of various provisions of the Federal and state securities laws Employee Retirement Income Security Act of 1974, as amended ("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. The case pending in Illinois State Court regarding fair value pricing was dismissed with prejudice on May 6, 2008. 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 Invesco 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 ERISA purportedly brought on behalf of participants in the Invesco 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 Invesco defendants' motion to dismiss the Amended Class Action Complaint for Violations of ERISA and dismissed such Complaint. Plaintiff appealed this ruling. On June 16, 2008, the Fourth Court of Appeals reversed the dismissal and remanded this lawsuit back to the MDL Court for further proceedings. IFG, Invesco Aim, IADI 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, Invesco Aim and IADI 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, Invesco Aim and/or related entities and individuals in the future. At the present time, management of Invesco 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 Invesco Aim, IADI or the Fund. AIM V.I. SMALL CAP EQUITY FUND NOTE 12--LEGAL PROCEEDINGS--(CONTINUED) CALCULATING YOUR ONGOING FUND EXPENSES EXAMPLE As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2008, through June 30, 2008. The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower. ACTUAL EXPENSES The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled "Actual Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
- --------------------------------------------------------------------------------------------------- HYPOTHETICAL (5% ANNUAL RETURN BEFORE ACTUAL EXPENSES) ------------------------------------------------------ BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE CLASS (01/01/08) (06/30/08)(1) PERIOD(2) (06/30/08) PERIOD(2) RATIO - --------------------------------------------------------------------------------------------------- Series I $1,000.00 $953.60 $5.34 $1,019.39 $5.52 1.10% - --------------------------------------------------------------------------------------------------- Series II 1,000.00 952.60 6.55 1,018.15 6.77 1.35 - ---------------------------------------------------------------------------------------------------
(1) The actual ending account value is based on the actual total return of the Fund for the period January 1, 2008, through June 30, 2008, 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 182/366 to reflect the most recent fiscal half year. AIM V.I. SMALL CAP EQUITY FUND APPROVAL OF INVESTMENT ADVISORY AGREEMENT The Board of Trustees (the Board) of AIM renewal process, the Trustees receive from one another and attributed different Variable Insurance Funds is required under comparative performance and fee data weight to the various factors. The the Investment Company Act of 1940 to regarding the AIM Funds prepared by an Trustees recognized that the advisory approve annually the renewal of the AIM independent company, Lipper, Inc. arrangements and resulting advisory fees V.I. Small Cap Equity Fund (the Fund) (Lipper), under the direction and for the Fund and the other AIM Funds are investment advisory agreement with Invesco supervision of the independent Senior the result of years of review and Aim Advisors, Inc. (Invesco Aim). During Officer who also prepares a separate negotiation between the Trustees and contract renewal meetings held on June analysis of this information for the Invesco Aim, that the Trustees may focus 18-19, 2008, the Board as a whole and the Trustees. Each Sub-Committee then makes to a greater extent on certain aspects of disinterested or "independent" Trustees, recommendations to the Investments these arrangements in some years than in voting separately, approved the Committee regarding the performance, fees others, and that the Trustees' continuance of the Fund's investment and expenses of their assigned funds. The deliberations and conclusions in a advisory agreement for another year, Investments Committee considers each particular year may be based in part on effective July 1, 2008. In doing so, the Sub-Committee's recommendations and makes their deliberations and conclusions of Board determined that the Fund's its own recommendations regarding the these same arrangements throughout the investment advisory agreement is in the performance, fees and expenses of the AIM year and in prior years. best interests of the Fund and its Funds to the full Board. The Investments shareholders and that the compensation to Committee also considers each FACTORS AND CONCLUSIONS AND SUMMARY OF Invesco Aim under the Fund's investment Sub-Committee's recommendations in making INDEPENDENT WRITTEN FEE EVALUATION advisory agreement is fair and reasonable. its annual recommendation to the Board The discussion below serves as a summary The independent Trustees met separately whether to approve the continuance of each of the Senior Officer's independent during their evaluation of the Fund's AIM Fund's investment advisory agreement written evaluation with respect to the investment advisory agreement with and sub-advisory agreements for another Fund's investment advisory agreement as independent legal counsel from whom they year. well as a discussion of the material received independent legal advice, and the The independent Trustees are assisted factors and related conclusions that independent Trustees also received in their annual evaluation of the Fund's formed the basis for the Board's approval assistance during their deliberations from investment advisory agreement by the of the Fund's investment advisory the independent Senior Officer, a independent Senior Officer. One agreement and sub-advisory agreements. full-time officer of the AIM Funds who responsibility of the Senior Officer is to Unless otherwise stated, information set reports directly to the independent manage the process by which the AIM Funds' forth below is as of June 19, 2008 and Trustees. proposed management fees are negotiated does not reflect any changes that may have during the annual contract renewal process occurred since that date, including but THE BOARD'S FUND EVALUATION PROCESS to ensure that they are negotiated in a not limited to changes to the Fund's The Board's Investments Committee has manner that is at arms' length and performance, advisory fees, expense established three Sub-Committees that are reasonable. Accordingly, the Senior limitations and/or fee waivers. responsible for overseeing the management Officer must either supervise a of a number of the series portfolios of competitive bidding process or prepare an I. Investment Advisory Agreement the AIM Funds. This Sub-Committee independent written evaluation. The Senior A. Nature, Extent and Quality of structure permits the Trustees to focus on Officer has recommended that an Services Provided by Invesco Aim the performance of the AIM Funds that have independent written evaluation be provided The Board reviewed the advisory services been assigned to them. The Sub-Committees and, at the direction of the Board, has provided to the Fund by Invesco Aim under meet throughout the year to review the prepared an independent written the Fund's investment advisory agreement, performance of their assigned funds, and evaluation. the performance of Invesco Aim in the Sub-Committees review monthly and During the annual contract renewal providing these services, and the quarterly comparative performance process, the Board considered the factors credentials and experience of the officers information and periodic asset flow data discussed below under the heading "Factors and employees of Invesco Aim who provide for their assigned funds. These materials and Conclusions and Summary of Independent these services. The Board's review of the are prepared under the direction and Written Fee Evaluation" in evaluating the qualifications of Invesco Aim to provide supervision of the independent Senior fairness and reasonableness of the Fund's these services included the Board's Officer. Over the course of each year, the investment advisory agreement and consideration of Invesco Aim's portfolio Sub-Committees meet with portfolio sub-advisory agreements at the contract and product review process, various back managers for their assigned funds and renewal meetings and at their meetings office support functions provided by other members of management and review throughout the year as part of their Invesco Aim, and Invesco Aim's equity and with these individuals the performance, ongoing oversight of the Fund. The Fund's fixed income trading operations. The Board investment objective(s), policies, investment advisory agreement and concluded that the nature, extent and strategies and limitations of these funds. sub-advisory agreements were considered quality of the advisory services provided In addition to their meetings separately, although the Board also to the Fund by Invesco Aim were throughout the year, the Sub-Committees considered the common interests of all of appropriate and that Invesco Aim currently meet at designated contract renewal the AIM Funds in their deliberations. The is providing satisfactory advisory meetings each year to conduct an in-depth Board considered all of the information services in accordance with the terms of review of the performance, fees and provided to them and did not identify any the Fund's investment advisory agreement. expenses of their assigned funds. During particular factor that was controlling. In addition, based on their ongoing the contract Each Trustee may have evaluated the meetings throughout the year with the information provided differently Fund's portfolio manager or managers, continued
AIM V.I. SMALL CAP EQUITY FUND the Board concluded that these individuals review did not change their conclusions. from the breakpoints. Based on this are competent and able to continue to information, the Board concluded that the carry out their responsibilities under the C. Advisory Fees and Fee Waivers Fund's advisory fees would appropriately Fund's investment advisory agreement. The Board compared the Fund's contractual reflect economies of scale at higher asset In determining whether to continue the advisory fee rate to the contractual levels. The Board also noted that the Fund Fund's investment advisory agreement, the advisory fee rates of funds in the Fund's shares directly in economies of scale Board considered the prior relationship expense group that are not managed by through lower fees charged by third party between Invesco Aim and the Fund, as well Invesco Aim, at a common asset level and service providers based on the combined as the Board's knowledge of Invesco Aim's as of the end of the past calendar year. size of all of the AIM Funds and operations, and concluded that it was The Board noted that the Fund's affiliates. beneficial to maintain the current contractual advisory fee rate was below relationship, in part, because of such the median contractual advisory fee rate E. Profitability and Financial knowledge. The Board also considered the of funds in its expense group. The Board Resources of Invesco Aim steps that Invesco Aim and its affiliates also reviewed the methodology used by The Board reviewed information from have taken over the last several years to Lipper in determining contractual fee Invesco Aim concerning the costs of the improve the quality and efficiency of the rates. advisory and other services that Invesco services they provide to the AIM Funds in The Board also compared the Fund's Aim and its affiliates provide to the Fund the areas of investment performance, effective fee rate (the advisory fee after and the profitability of Invesco Aim and product line diversification, any advisory fee waivers and before any its affiliates in providing these distribution, fund operations, shareholder expense limitations/waivers) to the services. The Board also reviewed services and compliance. The Board advisory fee rates of other clients of information concerning the financial concluded that the quality and efficiency Invesco Aim and its affiliates with condition of Invesco Aim and its of the services Invesco Aim and its investment strategies comparable to those affiliates. The Board also reviewed with affiliates provide to the AIM Funds in of the Fund, including two mutual funds Invesco Aim the methodology used to each of these areas have generally advised by Invesco Aim. The Board noted prepare the profitability information. The improved, and support the Board's approval that the Fund's rate was above the rates Board considered the overall profitability of the continuance of the Fund's for the two mutual funds. of Invesco Aim, as well as the investment advisory agreement. The Board noted that Invesco Aim has profitability of Invesco Aim in connection contractually agreed to waive fees and/or with managing the Fund. The Board noted B. Fund Performance limit expenses of the Fund through at that Invesco Aim continues to operate at a The Board compared the Fund's performance least April 30, 2010 in an amount net profit, although increased expenses in during the past one and three calendar necessary to limit total annual operating recent years have reduced the years to the performance of funds in the expenses to a specified percentage of profitability of Invesco Aim and its Fund's performance group that are not average daily net assets for each class of affiliates. The Board concluded that the managed by Invesco Aim, and against the the Fund. The Board considered the Fund's fees were fair and reasonable, and performance of all funds in the Lipper contractual nature of this fee waiver and that the level of profits realized by Variable Annuity Underlying Funds - noted that it remains in effect until at Invesco Aim and its affiliates from Small-Cap Core Index. The Board also least April 30, 2010. The Board also providing services to the Fund was not reviewed the criteria used by Invesco Aim considered the effect this expense excessive in light of the nature, quality to identify the funds in the Fund's limitation would have on the Fund's and extent of the services provided. The performance group for inclusion in the estimated total expenses. Board considered whether Invesco Aim is Lipper reports. The Board noted that the After taking account of the Fund's financially sound and has the resources Fund's performance was in the first contractual advisory fee rate, as well as necessary to perform its obligations under quintile of its performance group for the the comparative advisory fee information the Fund's investment advisory agreement, one year period and the second quintile and the expense limitation discussed and concluded that Invesco Aim has the for the three year period (the first above, the Board concluded that the Fund's financial resources necessary to fulfill quintile being the best performing funds advisory fees were fair and reasonable. these obligations. and the fifth quintile being the worst performing funds). The Board noted that D. Economies of Scale and Breakpoints F. Independent Written Evaluation of the Fund's performance was above the The Board considered the extent to which the Fund's Senior Officer performance of the Index for the one and there are economies of scale in Invesco The Board noted that, at their direction, three year periods. The Board also Aim's provision of advisory services to the Senior Officer of the Fund, who is considered the steps Invesco Aim has taken the Fund. The Board also considered independent of Invesco Aim and Invesco over the last several years to improve the whether the Fund benefits from such Aim's affiliates, had prepared an quality and efficiency of the services economies of scale through contractual independent written evaluation to assist that Invesco Aim provides to the AIM breakpoints in the Fund's advisory fee the Board in determining the Funds. The Board concluded that Invesco schedule or through advisory fee waivers reasonableness of the proposed management Aim continues to be responsive to the or expense limitations. The Board noted fees of the AIM Funds, including the Fund. Board's focus on fund performance. that the Fund's contractual advisory fee The Board noted that they had relied upon Although the independent written schedule includes seven breakpoints but the Senior Officer's written evaluation evaluation of the Fund's Senior Officer that, due to the Fund's asset level at the instead of a competitive bidding process. only considered Fund performance through end of the past calendar year and the way In determining whether to continue the the most recent calendar year, the Board in which the breakpoints have been Fund's investment advisory agreement, the also reviewed more recent Fund performance structured, the Fund has yet to benefit Board considered the Senior Officer's and this written evaluation. continued
AIM V.I. SMALL CAP EQUITY FUND G. Collateral Benefits to Invesco Aim to 100% of the net advisory fees Invesco C. Sub-Advisory Fees and its Affiliates Aim receives from the affiliated money The Board considered the services to be The Board considered various other market funds with respect to the Fund's provided by the Affiliated Sub-Advisers benefits received by Invesco Aim and its investment of uninvested cash, but not pursuant to the sub-advisory agreements affiliates resulting from Invesco Aim's cash collateral. The Board considered the and the services to be provided by Invesco relationship with the Fund, including the contractual nature of this fee waiver and Aim pursuant to the Fund's investment fees received by Invesco Aim and its noted that it remains in effect until at advisory agreement, as well as the affiliates for their provision of least April 30, 2010. The Board concluded allocation of fees between Invesco Aim and administrative, transfer agency and that the Fund's investment of uninvested the Affiliated Sub-Advisers pursuant to distribution services to the Fund. The cash and cash collateral from any the sub-advisory agreements. The Board Board considered the performance of securities lending arrangements in the noted that the sub-advisory fees have no Invesco Aim and its affiliates in affiliated money market funds is in the direct effect on the Fund or its providing these services and the best interests of the Fund and its shareholders, as they are paid by Invesco organizational structure employed by shareholders. Aim to the Affiliated Sub-Advisers, and Invesco Aim and its affiliates to provide that Invesco Aim and the Affiliated these services. The Board also considered II. Sub-Advisory Agreements Sub-Advisers are affiliates. After taking that these services are provided to the A. Nature, Extent and Quality of account of the Fund's contractual Fund pursuant to written contracts which Services Provided by Affiliated sub-advisory fee rate, as well as other are reviewed and approved on an annual Sub-Advisers relevant factors, the Board concluded that basis by the Board. The Board concluded The Board reviewed the services to be the Fund's sub-advisory fees were fair and that Invesco Aim and its affiliates were provided by Invesco Trimark Ltd., Invesco reasonable. providing these services in a satisfactory Asset Management Deutschland, GmbH, manner and in accordance with the terms of Invesco Asset Management Limited, Invesco D. Financial Resources of the their contracts, and were qualified to Asset Management (Japan) Limited, Invesco Affiliated Sub-Advisers continue to provide these services to the Australia Limited, Invesco Global Asset The Board considered whether each Fund. Management (N.A.), Inc., Invesco Hong Kong Affiliated Sub-Adviser is financially The Board considered the benefits Limited, Invesco Institutional (N.A.), sound and has the resources necessary to realized by Invesco Aim as a result of Inc. and Invesco Senior Secured perform its obligations under its portfolio brokerage transactions executed Management, Inc. (collectively, the respective sub-advisory agreement, and through "soft dollar" arrangements. Under "Affiliated Sub-Advisers") under the concluded that each Affiliated Sub-Adviser these arrangements, portfolio brokerage sub-advisory agreements and the has the financial resources necessary to commissions paid by the Fund and/or other credentials and experience of the officers fulfill these obligations. funds advised by Invesco Aim are used to and employees of the Affiliated pay for research and execution services. Sub-Advisers who will provide these The Board noted that soft dollar services. The Board concluded that the arrangements shift the payment obligation nature, extent and quality of the services for the research and execution services to be provided by the Affiliated from Invesco Aim to the funds and Sub-Advisers were appropriate. The Board therefore may reduce Invesco Aim's noted that the Affiliated Sub-Advisers, expenses. The Board also noted that which have offices and personnel that are research obtained through soft dollar geographically dispersed in financial arrangements may be used by Invesco Aim in centers around the world, have been formed making investment decisions for the Fund in part for the purpose of researching and and may therefore benefit Fund compiling information and making shareholders. The Board concluded that recommendations on the markets and Invesco Aim's soft dollar arrangements economies of various countries and were appropriate. The Board also concluded securities of companies located in such that, based on their review and countries or on various types of representations made by Invesco Aim, these investments and investment techniques, and arrangements were consistent with providing investment advisory services. regulatory requirements. The Board concluded that the sub-advisory The Board considered the fact that the agreements will benefit the Fund and its Fund's uninvested cash and cash collateral shareholders by permitting Invesco Aim to from any securities lending arrangements utilize the additional resources and may be invested in money market funds talent of the Affiliated Sub-Advisers in advised by Invesco Aim pursuant to managing the Fund. procedures approved by the Board. The Board noted that Invesco Aim will receive B. Fund Performance advisory fees from these affiliated money The Board did not view Fund performance as market funds attributable to such a relevant factor in considering whether investments, although Invesco Aim has to approve the sub-advisory agreements for contractually agreed to waive through at the Fund, as no Affiliated Sub-Adviser least April 30, 2010, the advisory fees currently manages any portion of the payable by the Fund in an amount equal Fund's assets.
AIM V.I. SMALL CAP EQUITY FUND PROXY RESULTS A Special Meeting ("Meeting") of Shareholders of AIM V.I. Small Cap Equity Fund, an investment portfolio of AIM Variable Insurance Funds, a Delaware statutory trust ("Trust"), was held on February 29, 2008. The Meeting was held for the following purposes: (1) Elect 13 trustees to the Board of Trustees of the Trust, each of whom will serve until his or her successor is elected and qualified. (2) Approve an amendment to the Trust's Agreement and Declaration of Trust that would permit the Board of Trustees of the Trust to terminate the Trust, the Fund, and each other series portfolio of the Trust, or a share class without a shareholder vote. (3) Approve a new sub-advisory agreement between Invesco Aim Advisors, Inc. and each of AIM Funds Management, Inc.; Invesco Asset Management Deutschland, GmbH; Invesco Asset Management Limited; Invesco Asset Management (Japan) Limited; Invesco Australia Limited; Invesco Global Asset Management (N.A.), Inc.; Invesco Hong Kong Limited; Invesco Institutional (N.A.), Inc.; and Invesco Senior Secured Management, Inc. The results of the voting on the above matters were as follows:
WITHHELD/ MATTERS VOTES FOR ABSTENTIONS** - ------------------------------------------------------------------------------------------------------------ (1)* Bob R. Baker.................................................... 474,883,590 19,741,622 Frank S. Bayley................................................. 474,653,109 19,972,103 James T. Bunch.................................................. 475,597,417 19,027,795 Bruce L. Crockett............................................... 474,900,579 19,724,633 Albert R. Dowden................................................ 474,749,929 19,875,283 Jack M. Fields.................................................. 475,205,840 19,419,372 Martin L. Flanagan.............................................. 475,248,336 19,376,876 Carl Frischling................................................. 474,453,674 20,171,538 Prema Mathai-Davis.............................................. 473,569,192 21,056,020 Lewis F. Pennock................................................ 475,072,501 19,552,711 Larry Soll, Ph.D................................................ 475,170,544 19,454,668 Raymond Stickel, Jr............................................. 475,420,825 19,204,387 Philip A. Taylor................................................ 475,640,570 18,984,642
VOTES WITHHELD/ VOTES FOR AGAINST ABSTENTIONS - -------------------------------------------------------------------------------------------------------------------- (2)* Approve an amendment to the Trust's Agreement and Declaration of Trust that would permit the Board of Trustees of the Trust to terminate the Trust, the Fund, and each other series portfolio of the Trust, or a share class without a shareholder vote........................ 438,131,484 35,586,925 20,906,803 (3) Approve a new sub-advisory agreement between Invesco Aim Advisors, Inc. and each of AIM Funds Management, Inc.; Invesco Asset Management Deutschland, GmbH; Invesco Asset Management Limited; Invesco Asset Management (Japan) Limited; Invesco Australia Limited; Invesco Global Asset Management (N.A.), Inc.; Invesco Hong Kong Limited; Invesco Institutional (N.A.), Inc.; and Invesco Senior Secured Management, Inc.......................... 9,094,939 470,850 438,017
* Proposals 1 and 2 required approval by a combined vote of all of the portfolios of AIM Variable Insurance Funds. ** Includes Broker Non-Votes. AIM V.I. SMALL CAP EQUITY FUND [INVESCO AIM LOGO] AIM V.I. TECHNOLOGY FUND - SERVICE MARK - Semiannual Report to Shareholders - June 30, 2008 AIM Investments [MOUNTAIN GRAPHIC] became INVESCO AIM on March 31, 2008. For more details, go to invescoaim.com 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 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 Invesco Aim Web site, invescoaim.com. On the home page, scroll down and click on 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, 2008, is available at our Web site. Go to invescoaim.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 noted, all data provided by Invesco Aim. THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND PROSPECTUS AND VARIABLE PRODUCT PROSPECTUS, WHICH CONTAIN MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ EACH CAREFULLY BEFORE INVESTING. Invesco Aim Distributors, Inc. NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE FUND PERFORMANCE ======================================================================================= PERFORMANCE SUMMARY FUND VS. INDEXES Cumulative total returns, 12/31/07 to 6/30/08, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower. Series I Shares -12.19% Series II Shares -12.31 S&P 500 Index(TRIANGLE) (Broad Market Index) -11.90 S&P North American Technology Sector Index(TRIANGLE) (Style-Specific Index) -12.16 Lipper VUF Science & Technology Funds Category Average(TRIANGLE) (Peer Group) -14.13 (TRIANGLE)Lipper Inc. The S&P 500--REGISTERED TRADEMARK-- INDEX is a market capitalization-weighted index covering all major areas of the U.S. economy. It is not the 500 largest companies, but rather the most widely held 500 companies chosen with respect to market size, liquidity, and their industry. The S&P NORTH AMERICAN TECHNOLOGY SECTOR INDEX is a modified capitalization-weighted index composed of companies involved in the technology industry. The LIPPER VUF SCIENCE & TECHNOLOGY FUNDS CATEGORY AVERAGE represents an average of all of the variable insurance underlying funds in the Lipper Science & Technology Funds category. These funds invest at least 65% of their portfolios in science and technology stocks. The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes. A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of an index of funds reflects fund expenses; performance of a market index does not. ======================================================================================= ========================================== AVERAGE ANNUAL TOTAL RETURNS CURRENT PERFORMANCE MAY BE LOWER OR SALES CHARGES, EXPENSES AND FEES ASSESSED As of 6/30/08 HIGHER. PLEASE CONTACT YOUR VARIABLE IN CONNECTION WITH A VARIABLE PRODUCT. PRODUCT ISSUER OR FINANCIAL ADVISOR FOR SALES CHARGES, EXPENSES AND FEES, WHICH SERIES I SHARES THE MOST RECENT MONTH-END VARIABLE PRODUCT ARE DETERMINED BY THE VARIABLE PRODUCT Inception (5/20/97) 2.65% PERFORMANCE. PERFORMANCE FIGURES REFLECT ISSUERS, WILL VARY AND WILL LOWER THE 10 Years -0.23 FUND EXPENSES, REINVESTED DISTRIBUTIONS TOTAL RETURN. 5 Years 6.36 AND CHANGES IN NET ASSET VALUE. INVESTMENT THE MOST RECENT MONTH-END PERFORMANCE 1 Year -11.42 RETURN AND PRINCIPAL VALUE WILL FLUCTUATE DATA AT THE FUND LEVEL, EXCLUDING VARIABLE SO THAT YOU MAY HAVE A GAIN OR LOSS WHEN PRODUCT CHARGES, IS AVAILABLE ON THE SERIES II SHARES YOU SELL SHARES. INVESCO AIM AUTOMATED INFORMATION LINE, 10 Years -0.49% THE TOTAL ANNUAL FUND OPERATING EXPENSE 866 702 4402. AS MENTIONED ABOVE, FOR THE 5 Years 6.08 RATIO SET FORTH IN THE MOST RECENT FUND MOST RECENT MONTH-END PERFORMANCE 1 Year -11.66 PROSPECTUS AS OF THE DATE OF THIS REPORT INCLUDING VARIABLE PRODUCT CHARGES, PLEASE ========================================== FOR SERIES I AND SERIES II SHARES WAS CONTACT YOUR VARIABLE PRODUCT ISSUER OR 1.11% AND 1.36%, RESPECTIVELY. THE EXPENSE FINANCIAL ADVISOR. SERIES II SHARES' INCEPTION DATE IS APRIL RATIOS PRESENTED ABOVE MAY VARY FROM THE 30, 2004. RETURNS SINCE THAT DATE ARE EXPENSE RATIOS PRESENTED IN OTHER SECTIONS HISTORICAL. ALL OTHER RETURNS ARE THE OF THIS REPORT THAT ARE BASED ON EXPENSES BLENDED RETURNS OF THE HISTORICAL INCURRED DURING THE PERIOD COVERED BY THIS PERFORMANCE OF SERIES II SHARES SINCE REPORT. THEIR INCEPTION AND THE RESTATED AIM V.I. TECHNOLOGY FUND, A SERIES HISTORICAL PERFORMANCE OF SERIES I SHARES PORTFOLIO OF AIM VARIABLE INSURANCE FUNDS, (FOR PERIODS PRIOR TO INCEPTION OF SERIES IS CURRENTLY OFFERED THROUGH INSURANCE II SHARES) ADJUSTED TO REFLECT THE RULE COMPANIES ISSUING VARIABLE PRODUCTS. YOU 12B-1 FEES APPLICABLE TO SERIES II SHARES. CANNOT PURCHASE SHARES OF THE FUND THE INCEPTION DATE OF SERIES I SHARES IS DIRECTLY. PERFORMANCE FIGURES GIVEN MAY 20, 1997. THE PERFORMANCE OF THE REPRESENT THE FUND AND ARE NOT INTENDED TO FUND'S SERIES I AND SERIES II SHARE REFLECT ACTUAL VARIABLE PRODUCT VALUES. CLASSES WILL DIFFER PRIMARILY DUE TO THEY DO NOT REFLECT DIFFERENT CLASS EXPENSES. THE PERFORMANCE DATA QUOTED REPRESENT PAST PERFORMANCE AND CANNOT GUARANTEE COMPARABLE FUTURE RESULTS;
AIM V.I. TECHNOLOGY FUND PORTFOLIO COMPOSITION By sector, based on Net Assets as of June 30, 2008 - ------------------------------------------------------------------------ Information Technology 84.2% - ------------------------------------------------------------------------ Telecommunication Services 3.1 - ------------------------------------------------------------------------ Consumer Discretionary 1.8 - ------------------------------------------------------------------------ Financials 1.1 - ------------------------------------------------------------------------ Money Market Funds, US Treasury Bills Plus Other Assets Less Liabilities 9.8 ________________________________________________________________________ ========================================================================
SCHEDULE OF INVESTMENTS(a) June 30, 2008 (Unaudited)
SHARES VALUE - -------------------------------------------------------------------------------- COMMON STOCKS & OTHER EQUITY INTERESTS-90.21% ADVERTISING-0.75% Focus Media Holding Ltd.-ADR (China)(b)(c) 34,394 $ 953,402 ================================================================================ APPLICATION SOFTWARE-8.31% Adobe Systems Inc.(c) 110,111 4,337,272 - -------------------------------------------------------------------------------- Amdocs Ltd.(c) 83,261 2,449,539 - -------------------------------------------------------------------------------- ANSYS, Inc.(b)(c) 31,509 1,484,704 - -------------------------------------------------------------------------------- Autodesk, Inc.(b)(c) 38,320 1,295,599 - -------------------------------------------------------------------------------- Nuance Communications, Inc.(b)(c) 63,396 993,415 ================================================================================ 10,560,529 ================================================================================ COMMUNICATIONS EQUIPMENT-16.28% Brocade Communications Systems, Inc.(c) 93,241 768,306 - -------------------------------------------------------------------------------- Cisco Systems, Inc.(b)(c) 197,161 4,585,965 - -------------------------------------------------------------------------------- CommScope, Inc.(b)(c) 31,050 1,638,508 - -------------------------------------------------------------------------------- Corning Inc. 111,857 2,578,304 - -------------------------------------------------------------------------------- Foundry Networks, Inc.(b)(c) 127,522 1,507,310 - -------------------------------------------------------------------------------- Harris Corp. 12,701 641,273 - -------------------------------------------------------------------------------- NICE Systems Ltd.-ADR (Israel)(c) 53,062 1,569,043 - -------------------------------------------------------------------------------- Nokia Oyj-ADR (Finland) 121,996 2,988,902 - -------------------------------------------------------------------------------- Nortel Networks Corp. (Canada)(b)(c) 2,727 22,416 - -------------------------------------------------------------------------------- Polycom, Inc.(b)(c) 66,766 1,626,420 - -------------------------------------------------------------------------------- QUALCOMM Inc. 31,421 1,394,150 - -------------------------------------------------------------------------------- Research In Motion Ltd. (Canada)(b)(c) 11,784 1,377,550 ================================================================================ 20,698,147 ================================================================================ COMPUTER HARDWARE-8.42% Apple Inc.(c) 27,818 4,657,846 - -------------------------------------------------------------------------------- Dell Inc.(b)(c) 37,146 812,754 - -------------------------------------------------------------------------------- Hewlett-Packard Co. 102,380 4,526,220 - -------------------------------------------------------------------------------- Teradata Corp.(c) 30,505 705,886 ================================================================================ 10,702,706 ================================================================================ COMPUTER STORAGE & PERIPHERALS-3.41% EMC Corp.(b)(c) 159,411 2,341,747 - -------------------------------------------------------------------------------- NetApp, Inc.(b)(c) 60,985 1,320,935 - -------------------------------------------------------------------------------- Seagate Technology 34,867 667,006 ================================================================================ 4,329,688 ================================================================================ DATA PROCESSING & OUTSOURCED SERVICES-0.89% Alliance Data Systems Corp.(b)(c) 20,017 1,131,961 ================================================================================ ELECTRONIC EQUIPMENT MANUFACTURERS-1.63% Amphenol Corp.-Class A(b) 30,433 1,365,833 - -------------------------------------------------------------------------------- Dolby Laboratories Inc.-Class A(c) 17,575 708,273 ================================================================================ 2,074,106 ================================================================================ ELECTRONIC MANUFACTURING SERVICES-1.06% Hon Hai Precision Industry Co., Ltd. (Taiwan)(c) 273,249 1,345,544 ================================================================================ HOME ENTERTAINMENT SOFTWARE-5.60% Activision Blizzard, Inc.(c) 126,163 4,298,373 - -------------------------------------------------------------------------------- Nintendo Co., Ltd. (Japan)(d) 5,000 2,814,409 ================================================================================ 7,112,782 ================================================================================ INTERNET RETAIL-0.99% Amazon.com, Inc.(b)(c) 17,187 1,260,323 ================================================================================ INTERNET SOFTWARE & SERVICES-8.47% Akamai Technologies, Inc.(b)(c) 18,189 632,795 - -------------------------------------------------------------------------------- DivX, Inc.(c) 55,779 409,418 - -------------------------------------------------------------------------------- eBay Inc.(b)(c) 75,573 2,065,410 - -------------------------------------------------------------------------------- Google Inc.-Class A(c) 8,159 4,295,061 - -------------------------------------------------------------------------------- Omniture, Inc.(b)(c) 41,913 778,324 - -------------------------------------------------------------------------------- ValueClick, Inc.(b)(c) 104,747 1,586,917 - -------------------------------------------------------------------------------- Yahoo! Inc.(b)(c) 48,213 996,081 ================================================================================ 10,764,006 ================================================================================ IT CONSULTING & OTHER SERVICES-1.76% Cognizant Technology Solutions Corp.-Class A(b)(c) 68,829 2,237,631 ================================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. TECHNOLOGY FUND
SHARES VALUE - -------------------------------------------------------------------------------- OTHER DIVERSIFIED FINANCIAL SERVICES-1.13% BlueStream Ventures L.P. (Acquired 08/03/00- 06/13/08; Cost $3,149,655)(c)(e)(f)(g) -- $ 1,433,903 ================================================================================ SEMICONDUCTOR EQUIPMENT-4.96% Applied Materials, Inc. 85,220 1,626,850 - -------------------------------------------------------------------------------- ASML Holding N.V.-New York Shares (Netherlands) 27,900 680,760 - -------------------------------------------------------------------------------- FormFactor Inc.(b)(c) 66,695 1,229,189 - -------------------------------------------------------------------------------- KLA-Tencor Corp.(b) 16,284 662,921 - -------------------------------------------------------------------------------- MEMC Electronic Materials, Inc.(b)(c) 20,552 1,264,770 - -------------------------------------------------------------------------------- Varian Semiconductor Equipment Associates, Inc.(b)(c) 24,033 836,829 ================================================================================ 6,301,319 ================================================================================ SEMICONDUCTORS-13.14% Broadcom Corp.-Class A(b)(c) 99,482 2,714,864 - -------------------------------------------------------------------------------- Intel Corp. 125,426 2,694,151 - -------------------------------------------------------------------------------- Marvell Technology Group Ltd.(b)(c) 112,226 1,981,911 - -------------------------------------------------------------------------------- National Semiconductor Corp.(b) 69,234 1,422,066 - -------------------------------------------------------------------------------- NVIDIA Corp.(c) 134,795 2,523,363 - -------------------------------------------------------------------------------- ON Semiconductor Corp.(b)(c) 237,367 2,176,655 - -------------------------------------------------------------------------------- Supertex, Inc.(b)(c) 25,091 585,624 - -------------------------------------------------------------------------------- Texas Instruments Inc. 92,314 2,599,562 ================================================================================ 16,698,196 ================================================================================ SYSTEMS SOFTWARE-10.29% Check Point Software Technologies Ltd. (Israel)(c) 82,672 1,956,846 - -------------------------------------------------------------------------------- McAfee Inc.(c) 103,831 3,533,369 - -------------------------------------------------------------------------------- Microsoft Corp. 153,928 4,234,559 - -------------------------------------------------------------------------------- Oracle Corp.(b)(c) 95,987 2,015,727 - -------------------------------------------------------------------------------- Red Hat, Inc.(b)(c) 64,911 1,343,009 ================================================================================ 13,083,510 ================================================================================ WIRELESS TELECOMMUNICATION SERVICES-3.12% America Movil SAB de C.V.-Series L-ADR (Mexico) 24,475 1,291,056 - -------------------------------------------------------------------------------- American Tower Corp.-Class A(b)(c) 63,441 2,680,383 ================================================================================ 3,971,439 ================================================================================ Total Common Stocks & Other Equity Interests (Cost $111,024,078) 114,659,192 ================================================================================ PRINCIPAL AMOUNT U.S. TREASURY SECURITIES-0.16% U.S. TREASURY BILLS-0.16% 1.26%, 09/11/08(h)(i) $ 110,000 109,635 - -------------------------------------------------------------------------------- 1.48%, 09/18/08(h)(i) 85,000 84,668 ================================================================================ Total U.S. Treasury Securities (Cost $194,447) 194,303 ================================================================================ SHARES MONEY MARKET FUNDS-9.42% Liquid Assets Portfolio-Institutional Class(j) 5,987,650 5,987,650 - -------------------------------------------------------------------------------- Premier Portfolio-Institutional Class(j) 5,987,650 5,987,650 ================================================================================ Total Money Market Funds (Cost $11,975,300) 11,975,300 ================================================================================ TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)-99.79% (Cost $123,193,825) 126,828,795 ================================================================================ INVESTMENTS PURCHASED WITH CASH COLLATERAL FROM SECURITIES ON LOAN MONEY MARKET FUNDS-26.83% Liquid Assets Portfolio-Institutional Class (Cost $34,105,600)(j)(k) 34,105,600 34,105,600 ================================================================================ TOTAL INVESTMENTS-126.62% (Cost $157,299,425) 160,934,395 ================================================================================ OTHER ASSETS LESS LIABILITIES-(26.62)% (33,830,961) ================================================================================ NET ASSETS-100.00% $127,103,434 ________________________________________________________________________________ ================================================================================
Investment Abbreviations: ADR - American Depositary Receipt
Notes to Schedule of Investments: (a) Industry and/or sector 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 MSCI Inc. and Standard & Poor's. (b) All or a portion of this security was out on loan at June 30, 2008. (c) Non-income producing security. (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 June 30, 2008 represented 2.21% of the Fund's Net Assets. See Note 1A. (e) Security fair valued in good faith in accordance with the procedures established by the Board of Trustees. The value of this security at June 30, 2008 represented 1.13% of the Fund's Net Assets. See Note 1A. (f) The Fund has a remaining commitment of $33,750 to purchase additional interests in BlueStream Ventures L.P., which is subject to the terms of the limited partnership agreement. (g) Security purchased or received in a transaction exempt from registration under the Securities Act of 1933, as amended. The security may be resold pursuant to an exemption from registration under the 1933 Act, typically to qualified institutional buyers. The value of this security at June 30, 2008 represented 1.13% of the Fund's Net Assets. This security is considered to be illiquid. The Fund is limited to investing 15% of net assets in illiquid securities at the time of purchase. (h) In accordance with the procedures established by the Board of Trustees, security fair valued based on an evaluated quote provided by an independent pricing service. The aggregate value of these securities at June 30, 2008 was $194,303, which represented 0.15% of the Fund's Net Assets. See Note 1A. (i) Security traded on a discount basis. The interest rate shown represents the discount rate at the time of purchase by the Fund. (j) The money market fund and the Fund are affiliated by having the same investment advisor. (k) 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 1J. See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. TECHNOLOGY FUND STATEMENT OF ASSETS AND LIABILITIES June 30, 2008 (Unaudited) ASSETS: Investments, at value (Cost $111,218,525)* $ 114,853,495 - ------------------------------------------------------- Investments in affiliated money market funds (Cost $46,080,900) 46,080,900 ======================================================= Total investments (Cost $157,299,425) 160,934,395 ======================================================= Foreign currencies, at value (Cost $608,316) 616,756 - ------------------------------------------------------- Receivables for: Investments sold 540,302 - ------------------------------------------------------- Fund shares sold 155,915 - ------------------------------------------------------- Dividends 50,796 - ------------------------------------------------------- Investment for trustee deferred compensation and retirement plans 40,862 - ------------------------------------------------------- Other assets 4,396 ======================================================= Total assets 162,343,422 _______________________________________________________ ======================================================= LIABILITIES: Payables for: Investments purchased 603,838 - ------------------------------------------------------- Fund shares reacquired 338,505 - ------------------------------------------------------- Collateral upon return of securities loaned 34,105,600 - ------------------------------------------------------- Accrued fees to affiliates 88,391 - ------------------------------------------------------- Accrued other operating expenses 49,952 - ------------------------------------------------------- Trustee deferred compensation and retirement plans 53,702 ======================================================= Total liabilities 35,239,988 ======================================================= Net assets applicable to shares outstanding $ 127,103,434 _______________________________________________________ ======================================================= NET ASSETS CONSIST OF: Shares of beneficial interest $ 564,549,425 - ------------------------------------------------------- Undistributed net investment income (loss) (218,202) - ------------------------------------------------------- Undistributed net realized gain (loss) (440,868,252) - ------------------------------------------------------- Unrealized appreciation 3,640,463 ======================================================= $ 127,103,434 _______________________________________________________ ======================================================= NET ASSETS: Series I $ 127,011,400 _______________________________________________________ ======================================================= Series II $ 92,034 _______________________________________________________ ======================================================= SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED NUMBER OF SHARES AUTHORIZED: Series I 9,578,834 _______________________________________________________ ======================================================= Series II 7,022 _______________________________________________________ ======================================================= Series I: Net asset value per share $ 13.26 _______________________________________________________ ======================================================= Series II: Net asset value per share $ 13.11 _______________________________________________________ =======================================================
* At June 30, 2008, securities with an aggregate value of $32,926,650 were on loan to brokers. STATEMENT OF OPERATIONS For the six months ended June 30, 2008 (Unaudited) INVESTMENT INCOME: Dividends (net of foreign withholding taxes of $19,106) $ 301,020 - ------------------------------------------------------ Dividends from affiliated money market funds (includes securities lending income of $44,213) 288,720 ====================================================== Total investment income 589,740 ====================================================== EXPENSES: Advisory fees 496,540 - ------------------------------------------------------ Administrative services fees 187,703 - ------------------------------------------------------ Custodian fees 10,085 - ------------------------------------------------------ Distribution fees -- Series II 120 - ------------------------------------------------------ Transfer agent fees 16,137 - ------------------------------------------------------ Trustees' and officer's fees and benefits 9,950 - ------------------------------------------------------ Other 52,549 ====================================================== Total expenses 773,084 ====================================================== Less: Fees waived and expense offset arrangement(s) (9,421) ====================================================== Net expenses 763,663 ====================================================== Net investment income (loss) (173,923) ====================================================== REALIZED AND UNREALIZED GAIN (LOSS) FROM: Net realized gain from: Investment securities (includes net gains (losses) from securities sold to affiliates of $(62,661)) 1,812,736 - ------------------------------------------------------ Foreign currencies 4,446 - ------------------------------------------------------ Futures contracts 303,041 ====================================================== 2,120,223 ====================================================== Change in net unrealized appreciation (depreciation) of: Investment securities (21,460,727) - ------------------------------------------------------ Foreign currencies 5,233 ====================================================== (21,455,494) ====================================================== Net realized and unrealized gain (loss) (19,335,271) ====================================================== Net increase (decrease) in net assets resulting from operations $(19,509,194) ______________________________________________________ ======================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. TECHNOLOGY FUND STATEMENT OF CHANGES IN NET ASSETS For the six months ended June 30, 2008 and the year ended December 31, 2007 (Unaudited)
JUNE 30, DECEMBER 31, 2008 2007 - --------------------------------------------------------------------------------------- OPERATIONS: Net investment income (loss) $ (173,923) $ (638,699) - --------------------------------------------------------------------------------------- Net realized gain 2,120,223 13,189,887 - --------------------------------------------------------------------------------------- Change in net unrealized appreciation (depreciation) (21,455,494) (112,456) ======================================================================================= Net increase (decrease) in net assets resulting from operations (19,509,194) 12,438,732 ======================================================================================= Share transactions-net: Series I (12,234,641) (27,010,839) - --------------------------------------------------------------------------------------- Series II (21,230) (14,017) ======================================================================================= Net increase (decrease) in net assets resulting from share transactions (12,255,871) (27,024,856) ======================================================================================= Net increase (decrease) in net assets (31,765,065) (14,586,124) _______________________________________________________________________________________ ======================================================================================= NET ASSETS: Beginning of period 158,868,499 173,454,623 - --------------------------------------------------------------------------------------- End of period (including undistributed net investment income (loss) of $(218,202) and $(44,279), respectively) $127,103,434 $158,868,499 _______________________________________________________________________________________ =======================================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. TECHNOLOGY FUND NOTES TO FINANCIAL STATEMENTS June 30, 2008 (Unaudited) NOTE 1--SIGNIFICANT ACCOUNTING POLICIES AIM V.I. Technology Fund (the "Fund") is a series portfolio of AIM Variable Insurance Funds (the "Trust"). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of twenty separate portfolios, (each constituting a "Fund"). 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 Fund or class will be voted on exclusively by the shareholders of such Fund 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 Fund 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. 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 prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. 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, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. 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, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. 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. Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer's assets, general economic conditions, interest rates, investor perceptions and market liquidity. 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. The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds as received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. AIM V.I. TECHNOLOGY FUND 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, the investment advisor 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. The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. 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 by a significant amount. 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. OTHER RISKS -- The Fund's investments are concentrated in a comparatively narrow segment of the economy. Consequently, the Fund may tend to be more volatile than other mutual funds, and the value of the Fund's investments may tend to rise and fall more rapidly. Many of the products and services offered in technology-related industries are subject to rapid obsolescence, which may lower the value of the securities of the companies in this sector. J. SECURITIES LENDING -- 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 by the securities lending provider. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its sponsored agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds and is shown as such on the Schedule of Investments. 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. Dividends received on cash collateral investments for securities lending transactions, which are net of compensation to counterparties, is included in Dividends from affiliates on the Statement of Operations. The aggregate value of securities out on loan is shown as a footnote on the Statement of Assets and Liabilities. 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 AIM V.I. TECHNOLOGY FUND (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. L. 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. M. 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 recalculating the value of the contracts on a daily basis. 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. N. COLLATERAL -- To the extent the Fund has pledged or segregated a security as collateral and that security is subsequently sold, it is the Fund's practice to replace such collateral no later than the next business day. 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 Invesco Aim Advisors, Inc. (the "Advisor" or "Invesco Aim"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Advisor based on the annual rate of the Fund's average daily net assets as follows:
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% ___________________________________________________________________ ===================================================================
Under the terms of a master sub-advisory agreement approved by shareholders of the Fund on February 29, 2008, effective May 1, 2008, between the Advisor and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Global Asset Management (N.A.), Inc., Invesco Hong Kong Limited, Invesco Institutional (N.A.), Inc., Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the "Affiliated Sub-Advisors") the Advisor, not the Fund, may pay 40% of the fees paid to the Advisor to any such Affiliated Sub- Advisor(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Advisor(s). The Advisor 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, 2010. 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 Invesco Ltd. ("Invesco") 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. These credits are used to pay certain expenses incurred by the Fund. The Advisor did not waive fees and/or reimburse expenses during the period under this expense limitation. Further, the Advisor has contractually agreed, through at least April 30, 2010, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Advisor receives from the affiliated money market funds on investments by the Fund of uninvested cash (but not cash collateral from securities lending) in such affiliated money market funds. For the six months ended June 30, 2008, the Advisor waived advisory fees of $9,267. AIM V.I. TECHNOLOGY FUND At the request of the Trustees of the Trust, Invesco agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the six months ended June 30, 2008, Invesco did not reimburse any expenses. The Trust has entered into a master administrative services agreement with Invesco Aim pursuant to which the Fund has agreed to pay Invesco Aim a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco Aim for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants' accounts. Pursuant to such agreement, for the six months ended June 30, 2008, Invesco Aim was paid $24,863 for accounting and fund administrative services and reimbursed $162,840 for services provided by insurance companies. The Trust has entered into a transfer agency and service agreement with Invesco Aim Investment Services, Inc. ("IAIS") pursuant to which the Fund has agreed to pay IAIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IAIS for certain expenses incurred by IAIS in the course of providing such services. For the six months ended June 30, 2008, 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 Invesco Aim Distributors, Inc. ("IADI") 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 IADI 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 six months ended June 30, 2008, expenses incurred under the Plan are detailed in the Statement of Operations as distribution fees. Certain officers and trustees of the Trust are officers and directors of Invesco Aim, IAIS and/or IADI. NOTE 3--SUPPLEMENTAL INFORMATION The Fund adopted the provisions of Statement of Financial Accounting Standards No. 157, "Fair Value Measurements" (SFAS 157), effective with the beginning of the Fund's fiscal year. SFAS 157 establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (level 1) and the lowest priority to unobservable inputs (level 3) market prices are not readily available or are unreliable. Based on the inputs the securities or other instruments are tiered into three levels of hierarchy under SFAS 157. Changes in valuation methods may result in transfers in or out of an investment's assigned level within the hierarchy, Level 1--Quoted prices in an active market for identical assets. Level 2--Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk and others. Level 3--Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund's own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. Below is a summary of the tiered input levels, as of the end of the reporting period, June 30, 2008. The inputs or methods used for valuing securities may not be an indication of the risk associated with investing in those securities.
INVESTMENTS IN INPUT LEVEL SECURITIES - -------------------------------------- Level 1 $156,491,780 - -------------------------------------- Level 2 3,008,712 - -------------------------------------- Level 3 1,433,903 ====================================== $160,934,395 ______________________________________ ======================================
NOTE 4--SECURITY TRANSACTIONS WITH AFFILIATED FUNDS The Fund is permitted to purchase or sell securities from or to certain other AIM Funds under specified conditions outlined in procedures adopted by the Board of Trustees of the Trust. The procedures have been designed to ensure that any purchase or sale of securities by the Fund from or to another fund or portfolio that is or could be considered an affiliate by virtue of having a common investment advisor (or affiliated investment advisors), common Trustees and/or common officers complies with Rule 17a-7 of the 1940 Act. Further, as defined under the procedures, each transaction is effected at the current market price. Pursuant to these procedures, for the six months ended June 30, 2008, the Fund engaged in securities sales of $497,969, which resulted in net realized gains (losses) of $(62,661), and securities purchases of $250,476. NOTE 5--EXPENSE OFFSET ARRANGEMENT The expense offset arrangement is comprised of custodian credits which result from periodic overnight cash balances at the custodian. For the six months ended June 30, 2008, the Fund received credits from this arrangement, which resulted in the reduction of the Fund's total expenses of $154. 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 certain Trustees and Officers of the Fund. 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, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund. During the six months ended June 30, 2008, the Fund paid legal fees of $1,688 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--CASH BALANCES The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The State Street Bank and Trust Company ("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 Invesco Aim, not to exceed the contractually agreed upon rate. NOTE 8--TAX INFORMATION The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund's fiscal year-end. Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions. Under these limitation rules, the Fund is limited as to utilizing $442,360,803 of capital loss carryforward in the fiscal year ended December 31, 2008. The Fund had a capital loss carryforward as of December 31, 2007 which expires as follows:
CAPITAL LOSS EXPIRATION CARRYFORWARD* - ------------------------------------------------------------------------------- December 31, 2008 $256,455,919 - ------------------------------------------------------------------------------- December 31, 2009 153,547,080 - ------------------------------------------------------------------------------- December 31, 2010 33,793,499 =============================================================================== Total capital loss carryforward $443,796,498 _______________________________________________________________________________ =============================================================================== * 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 six months ended June 30, 2008 was $51,577,751 and $59,935,231, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period end.
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS - ------------------------------------------------------------------------------- Aggregate unrealized appreciation of investment securities $ 16,834,055 - ------------------------------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (12,074,335) =============================================================================== Net unrealized appreciation of investment securities $ 4,759,720 _______________________________________________________________________________ =============================================================================== Cost of investments for tax purposes is $156,174,675.
AIM V.I. TECHNOLOGY FUND NOTE 10--SHARE INFORMATION
CHANGES IN SHARES OUTSTANDING - ------------------------------------------------------------------------------------------------------------------------ SIX MONTHS ENDED YEAR ENDED JUNE 30, 2008(a) DECEMBER 31, 2007 --------------------------- --------------------------- SHARES AMOUNT SHARES AMOUNT - ------------------------------------------------------------------------------------------------------------------------ Sold: Series I 1,155,559 $ 15,643,001 2,069,689 $ 31,052,670 - ------------------------------------------------------------------------------------------------------------------------ Series II 86 1,129 1,031 14,874 - ------------------------------------------------------------------------------------------------------------------------ Reacquired: Series I (2,087,891) (27,877,642) (3,920,382) (58,063,509) - ------------------------------------------------------------------------------------------------------------------------ Series II (1,744) (22,359) (1,948) (28,891) ======================================================================================================================== (933,990) $(12,255,871) (1,851,610) $(27,024,856) ________________________________________________________________________________________________________________________ ========================================================================================================================
(a) There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate 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, Invesco Aim and/or Invesco Aim affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco Aim and or Invesco 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--FINANCIAL HIGHLIGHTS The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
SERIES I --------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ------------------------------------------------------------ 2008 2007 2006 2005 2004 2003 - ---------------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 15.10 $ 14.02 $ 12.69 $ 12.42 $ 11.87 $ 8.17 - ---------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) (0.02) (0.06) (0.08) (0.07) (0.04)(a) (0.08) - ---------------------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) (1.82) 1.14 1.41 0.34 0.59 3.78 ============================================================================================================================ Total from investment operations (1.84) 1.08 1.33 0.27 0.55 3.70 ============================================================================================================================ Net asset value, end of period $ 13.26 $ 15.10 $ 14.02 $ 12.69 $ 12.42 $ 11.87 ____________________________________________________________________________________________________________________________ ============================================================================================================================ Total return(b) (12.19)% 7.70% 10.48% 2.17% 4.63% 45.29% ____________________________________________________________________________________________________________________________ ============================================================================================================================ Ratios/supplemental data: Net assets, end of period (000s omitted) $127,011 $158,739 $173,321 $190,700 $200,556 $171,546 ____________________________________________________________________________________________________________________________ ============================================================================================================================ With fee waivers and/or expense reimbursements 1.15%(c) 1.10% 1.12% 1.12% 1.15% 1.10% - ---------------------------------------------------------------------------------------------------------------------------- Without fee waivers and/or expense reimbursements 1.16%(c) 1.10% 1.12% 1.12% 1.15% 1.10% ============================================================================================================================ Ratio of net investment income (loss) to average net assets (0.26)%(c) (0.38)% (0.54)% (0.60)% (0.39)%(a) (0.85)% ____________________________________________________________________________________________________________________________ ============================================================================================================================ Portfolio turnover rate(d) 43% 59% 116% 114% 137% 89% ____________________________________________________________________________________________________________________________ ============================================================================================================================
(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) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. (c) Ratios are annualized and based on average daily net assets of $133,041,571. (d) Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year. AIM V.I. TECHNOLOGY FUND NOTE 11--FINANCIAL HIGHLIGHTS--(CONTINUED)
SERIES II ------------------------------------------------------------------- SIX MONTHS APRIL 30, 2004 ENDED YEAR ENDED DECEMBER 31, (COMMENCEMENT DATE) JUNE 30, ---------------------------- TO DECEMBER 31, 2008 2007 2006 2005 2004 - --------------------------------------------------------------------------------------------------------------------- Net asset value, beginning of period $ 14.95 $13.91 $12.62 $12.39 $11.09 - --------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) (0.04) (0.10) (0.12) (0.11) (0.05)(a) - --------------------------------------------------------------------------------------------------------------------- Net gains (losses) on securities (both realized and unrealized) (1.80) 1.14 1.41 0.34 1.35 ===================================================================================================================== Total from investment operations (1.84) 1.04 1.29 0.23 1.30 ===================================================================================================================== Net asset value, end of period $ 13.11 $14.95 $13.91 $12.62 $12.39 _____________________________________________________________________________________________________________________ ===================================================================================================================== Total return(b) (12.31)% 7.48% 10.22% 1.86% 11.72% _____________________________________________________________________________________________________________________ ===================================================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $ 92 $ 130 $ 134 $ 142 $ 166 _____________________________________________________________________________________________________________________ ===================================================================================================================== Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 1.40%(c) 1.35% 1.37% 1.37% 1.40%(d) - --------------------------------------------------------------------------------------------------------------------- Without fee waivers and/or expense reimbursements 1.41%(c) 1.35% 1.37% 1.37% 1.40%(d) ===================================================================================================================== Ratio of net investment income (loss) to average net assets (0.51)%(c) (0.63)% (0.79)% (0.85)% (0.64)%(a)(d) _____________________________________________________________________________________________________________________ ===================================================================================================================== Portfolio turnover rate(e) 43% 59% 116% 114% 137% _____________________________________________________________________________________________________________________ =====================================================================================================================
(a) Net investment income (loss) per share and the ratio of net investment income (loss) to average net assets include a special cash dividend received of $3.00 per share owned of Microsoft Corp. on December 2, 2004. Net investment income (loss) per share and the ratio of net investment income (loss) to average net assets excluding the special dividend are $(0.10) and (1.07)%, respectively. (b) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. (c) Ratios are annualized and based on average daily net assets of $96,521. (d) Annualized. (e) Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year. NOTE 12--LEGAL PROCEEDINGS Terms used in the Legal Proceedings Note are defined terms solely for the purpose of this note. 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 Invesco Aim and IADI (Order No. 05-1318). The WVASC makes findings of fact that Invesco Aim and IADI 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 Invesco Aim and IADI violated the West Virginia securities laws. The WVASC orders Invesco Aim and IADI 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. By agreement with the Commissioner of Securities, Invesco Aim's time to respond to that Order has been indefinitely suspended. Civil lawsuits, including purported class action and shareholder derivative suits, have been filed against certain of the AIM Funds, Invesco Funds Group, Inc. ("IFG"), Invesco Aim, IADI 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; and - that certain AIM Funds inadequately employed fair value pricing. These lawsuits allege as theories of recovery, depending on the lawsuit, violations of various provisions of the Federal and state securities laws Employee Retirement Income Security Act of 1974, as amended ("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. The case pending in Illinois State Court regarding fair value pricing was dismissed with prejudice on May 6, 2008. 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 Invesco 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 ERISA purportedly brought on behalf of participants in the Invesco 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 Invesco defendants' motion to dismiss the Amended Class Action Complaint for Violations of ERISA and dismissed such Complaint. Plaintiff appealed this ruling. On June 16, 2008, the Fourth Court of Appeals reversed the dismissal and remanded this lawsuit back to the MDL Court for further proceedings. AIM V.I. TECHNOLOGY FUND NOTE 12--LEGAL PROCEEDINGS--(CONTINUED) IFG, Invesco Aim, IADI 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, Invesco Aim and IADI 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, Invesco Aim and/or related entities and individuals in the future. At the present time, management of Invesco 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 Invesco Aim, IADI or the Fund. AIM V.I. TECHNOLOGY FUND CALCULATING YOUR ONGOING FUND EXPENSES EXAMPLE As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2008, through June 30, 2008. The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower. ACTUAL EXPENSES The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled "Actual Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
- --------------------------------------------------------------------------------------------------- HYPOTHETICAL (5% ANNUAL RETURN BEFORE ACTUAL EXPENSES) ------------------------------------------------------ BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE CLASS (01/01/08) (06/30/08)(1) PERIOD(2) (06/30/08) PERIOD(2) RATIO - --------------------------------------------------------------------------------------------------- Series I $1,000.00 $878.10 $5.37 $1,019.14 $5.77 1.15% - --------------------------------------------------------------------------------------------------- Series II 1,000.00 876.90 6.53 1,017.90 7.02 1.40 - ---------------------------------------------------------------------------------------------------
(1) The actual ending account value is based on the actual total return of the Fund for the period January 1, 2008, through June 30, 2008, 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 182/366 to reflect the most recent fiscal half year. AIM V.I. TECHNOLOGY FUND APPROVAL OF INVESTMENT ADVISORY AGREEMENT The Board of Trustees (the Board) of AIM renewal process, the Trustees receive from one another and attributed different Variable Insurance Funds is required under comparative performance and fee data weight to the various factors. The the Investment Company Act of 1940 to regarding the AIM Funds prepared by an Trustees recognized that the advisory approve annually the renewal of the AIM independent company, Lipper, Inc. arrangements and resulting advisory fees V.I. Technology Fund (the Fund) investment (Lipper), under the direction and for the Fund and the other AIM Funds are advisory agreement with Invesco Aim supervision of the independent Senior the result of years of review and Advisors, Inc. (Invesco Aim). During Officer who also prepares a separate negotiation between the Trustees and contract renewal meetings held on June analysis of this information for the Invesco Aim, that the Trustees may focus 18-19, 2008, the Board as a whole and the Trustees. Each Sub-Committee then makes to a greater extent on certain aspects of disinterested or "independent" Trustees, recommendations to the Investments these arrangements in some years than in voting separately, approved the Committee regarding the performance, fees others, and that the Trustees' continuance of the Fund's investment and expenses of their assigned funds. The deliberations and conclusions in a advisory agreement for another year, Investments Committee considers each particular year may be based in part on effective July 1, 2008. In doing so, the Sub-Committee's recommendations and makes their deliberations and conclusions of Board determined that the Fund's its own recommendations regarding the these same arrangements throughout the investment advisory agreement is in the performance, fees and expenses of the AIM year and in prior years. best interests of the Fund and its Funds to the full Board. The Investments shareholders and that the compensation to Committee also considers each FACTORS AND CONCLUSIONS AND SUMMARY OF Invesco Aim under the Fund's investment Sub-Committee's recommendations in making INDEPENDENT WRITTEN FEE EVALUATION advisory agreement is fair and reasonable. its annual recommendation to the Board The discussion below serves as a summary The independent Trustees met separately whether to approve the continuance of each of the Senior Officer's independent during their evaluation of the Fund's AIM Fund's investment advisory agreement written evaluation with respect to the investment advisory agreement with and sub-advisory agreements for another Fund's investment advisory agreement as independent legal counsel from whom they year. well as a discussion of the material received independent legal advice, and the The independent Trustees are assisted factors and related conclusions that independent Trustees also received in their annual evaluation of the Fund's formed the basis for the Board's approval assistance during their deliberations from investment advisory agreement by the of the Fund's investment advisory the independent Senior Officer, a independent Senior Officer. One agreement and sub-advisory agreements. full-time officer of the AIM Funds who responsibility of the Senior Officer is to Unless otherwise stated, information set reports directly to the independent manage the process by which the AIM Funds' forth below is as of June 19, 2008 and Trustees. proposed management fees are negotiated does not reflect any changes that may have during the annual contract renewal process occurred since that date, including but THE BOARD'S FUND EVALUATION PROCESS to ensure that they are negotiated in a not limited to changes to the Fund's The Board's Investments Committee has manner that is at arms' length and performance, advisory fees, expense established three Sub-Committees that are reasonable. Accordingly, the Senior limitations and/or fee waivers. responsible for overseeing the management Officer must either supervise a of a number of the series portfolios of competitive bidding process or prepare an I. Investment Advisory Agreement the AIM Funds. This Sub-Committee independent written evaluation. The Senior A. Nature, Extent and Quality of structure permits the Trustees to focus on Officer has recommended that an Services Provided by Invesco Aim the performance of the AIM Funds that have independent written evaluation be provided The Board reviewed the advisory services been assigned to them. The Sub-Committees and, at the direction of the Board, has provided to the Fund by Invesco Aim under meet throughout the year to review the prepared an independent written the Fund's investment advisory agreement, performance of their assigned funds, and evaluation. the performance of Invesco Aim in the Sub-Committees review monthly and During the annual contract renewal providing these services, and the quarterly comparative performance process, the Board considered the factors credentials and experience of the officers information and periodic asset flow data discussed below under the heading "Factors and employees of Invesco Aim who provide for their assigned funds. These materials and Conclusions and Summary of Independent these services. The Board's review of the are prepared under the direction and Written Fee Evaluation" in evaluating the qualifications of Invesco Aim to provide supervision of the independent Senior fairness and reasonableness of the Fund's these services included the Board's Officer. Over the course of each year, the investment advisory agreement and consideration of Invesco Aim's portfolio Sub-Committees meet with portfolio sub-advisory agreements at the contract and product review process, various back managers for their assigned funds and renewal meetings and at their meetings office support functions provided by other members of management and review throughout the year as part of their Invesco Aim, and Invesco Aim's equity and with these individuals the performance, ongoing oversight of the Fund. The Fund's fixed income trading operations. The Board investment objective(s), policies, investment advisory agreement and concluded that the nature, extent and strategies and limitations of these funds. sub-advisory agreements were considered quality of the advisory services provided In addition to their meetings separately, although the Board also to the Fund by Invesco Aim were throughout the year, the Sub-Committees considered the common interests of all of appropriate and that Invesco Aim currently meet at designated contract renewal the AIM Funds in their deliberations. The is providing satisfactory advisory meetings each year to conduct an in-depth Board considered all of the information services in accordance with the terms of review of the performance, fees and provided to them and did not identify any the Fund's investment advisory agreement. expenses of their assigned funds. During particular factor that was controlling. In addition, based on their ongoing the contract Each Trustee may have evaluated the meetings throughout the year with the information provided differently Fund's portfolio manager or managers, continued
AIM V.I. TECHNOLOGY FUND the Board concluded that these individuals focus on fund performance. However, due to economies of scale through contractual are competent and able to continue to the Fund's underperformance, the Board breakpoints in the Fund's advisory fee carry out their responsibilities under the also concluded that it would be schedule or through advisory fee waivers Fund's investment advisory agreement. appropriate for the Board to continue to or expense limitations. The Board noted In determining whether to continue the monitor more closely the performance of that the Fund's contractual advisory fee Fund's investment advisory agreement, the the Fund. Although the independent written schedule includes seven breakpoints but Board considered the prior relationship evaluation of the Fund's Senior Officer that, due to the Fund's asset level at the between Invesco Aim and the Fund, as well only considered Fund performance through end of the past calendar year and the way as the Board's knowledge of Invesco Aim's the most recent calendar year, the Board in which the breakpoints have been operations, and concluded that it was also reviewed more recent Fund performance structured, the Fund has yet to benefit beneficial to maintain the current and this review did not change their from the breakpoints. Based on this relationship, in part, because of such conclusions. information, the Board concluded that the knowledge. The Board also considered the Fund's advisory fees would appropriately steps that Invesco Aim and its affiliates C. Advisory Fees and Fee Waivers reflect economies of scale at higher asset have taken over the last several years to The Board compared the Fund's contractual levels. The Board also noted that the Fund improve the quality and efficiency of the advisory fee rate to the contractual shares directly in economies of scale services they provide to the AIM Funds in advisory fee rates of funds in the Fund's through lower fees charged by third party the areas of investment performance, expense group that are not managed by service providers based on the combined product line diversification, Invesco Aim, at a common asset level and size of all of the AIM Funds and distribution, fund operations, shareholder as of the end of the past calendar year. affiliates. services and compliance. The Board The Board noted that the Fund's concluded that the quality and efficiency contractual advisory fee rate was at the E. Profitability and Financial of the services Invesco Aim and its median contractual advisory fee rate of Resources of Invesco Aim affiliates provide to the AIM Funds in funds in its expense group. The Board also The Board reviewed information from each of these areas have generally reviewed the methodology used by Lipper in Invesco Aim concerning the costs of the improved, and support the Board's approval determining contractual fee rates. advisory and other services that Invesco of the continuance of the Fund's The Board also compared the Fund's Aim and its affiliates provide to the Fund investment advisory agreement. effective fee rate (the advisory fee after and the profitability of Invesco Aim and any advisory fee waivers and before any its affiliates in providing these B. Fund Performance expense limitations/waivers) to the services. The Board also reviewed The Board compared the Fund's performance advisory fee rates of other clients of information concerning the financial during the past one, three and five Invesco Aim and its affiliates with condition of Invesco Aim and its calendar years to the performance of funds investment strategies comparable to those affiliates. The Board also reviewed with in the Fund's performance group that are of the Fund, including one mutual fund Invesco Aim the methodology used to not managed by Invesco Aim, and against advised by Invesco Aim. The Board noted prepare the profitability information. The the performance of all funds in the Lipper that the Fund's rate was above the rate Board considered the overall profitability Variable Annuity Underlying Funds -- for the mutual fund. of Invesco Aim, as well as the Science & Technology Index. The Board also The Board noted that Invesco Aim has profitability of Invesco Aim in connection reviewed the criteria used by Invesco Aim contractually agreed to waive fees and/or with managing the Fund. The Board noted to identify the funds in the Fund's limit expenses of the Fund through at that Invesco Aim continues to operate at a performance group for inclusion in the least April 30, 2010 in an amount net profit, although increased expenses in Lipper reports. The Board noted that the necessary to limit total annual operating recent years have reduced the Fund's performance was in the fifth expenses to a specified percentage of profitability of Invesco Aim and its quintile of its performance group for the average daily net assets for each class of affiliates. The Board concluded that the one, three and five year periods (the the Fund. The Board considered the Fund's fees were fair and reasonable, and first quintile being the best performing contractual nature of this fee waiver and that the level of profits realized by funds and the fifth quintile being the noted that it remains in effect until at Invesco Aim and its affiliates from worst performing funds). The Board noted least April 30, 2010. The Board also providing services to the Fund was not that the Fund's performance was below the considered the effect this expense excessive in light of the nature, quality performance of the Index for the one, limitation would have on the Fund's and extent of the services provided. The three and five year periods. The Board estimated total expenses. Board considered whether Invesco Aim is noted that Invesco Aim made changes to the After taking account of the Fund's financially sound and has the resources Fund's portfolio management team in 2006, contractual advisory fee rate, as well as necessary to perform its obligations under 2007 and 2008, which need more time to be the comparative advisory fee information the Fund's investment advisory agreement, evaluated before a conclusion can be and the expense limitation discussed and concluded that Invesco Aim has the reached that the changes have adequately above, the Board concluded that the Fund's financial resources necessary to fulfill addressed the Fund's underperformance. The advisory fees were fair and reasonable. these obligations. Board also considered the steps Invesco Aim has taken over the last several years D. Economies of Scale and Breakpoints F. Independent Written Evaluation of to improve the quality and efficiency of The Board considered the extent to which the Fund's Senior Officer the services that Invesco Aim provides to there are economies of scale in Invesco The Board noted that, at their direction, the AIM Funds. The Board concluded that Aim's provision of advisory services to the Senior Officer of the Fund, who is Invesco Aim continues to be responsive to the Fund. The Board also considered independent of Invesco Aim and Invesco the Board's whether the Fund benefits from such Aim's affiliates, had prepared an independent written evaluation to assist the continued
AIM V.I. TECHNOLOGY FUND Board in determining the reasonableness of ments may be invested in money market and talent of the Affiliated Sub-Advisers the proposed management fees of the AIM funds advised by Invesco Aim pursuant to in managing the Fund. Funds, including the Fund. The Board noted procedures approved by the Board. The that they had relied upon the Senior Board noted that Invesco Aim will receive B. Fund Performance Officer's written evaluation instead of a advisory fees from these affiliated money The Board did not view Fund performance as competitive bidding process. In market funds attributable to such a relevant factor in considering whether determining whether to continue the Fund's investments, although Invesco Aim has to approve the sub-advisory agreements for investment advisory agreement, the Board contractually agreed to waive through at the Fund, as no Affiliated Sub-Adviser considered the Senior Officer's written least April 30, 2010, the advisory fees currently manages any portion of the evaluation. payable by the Fund in an amount equal to Fund's assets. 100% of the net advisory fees Invesco Aim G. Collateral Benefits to Invesco Aim receives from the affiliated money market C. Sub-Advisory Fees and its Affiliates funds with respect to the Fund's The Board considered the services to be The Board considered various other investment of uninvested cash, but not provided by the Affiliated Sub-Advisers benefits received by Invesco Aim and its cash collateral. The Board considered the pursuant to the sub-advisory agreements affiliates resulting from Invesco Aim's contractual nature of this fee waiver and and the services to be provided by Invesco relationship with the Fund, including the noted that it remains in effect until at Aim pursuant to the Fund's investment fees received by Invesco Aim and its least April 30, 2010. The Board concluded advisory agreement, as well as the affiliates for their provision of that the Fund's investment of uninvested allocation of fees between Invesco Aim and administrative, transfer agency and cash and cash collateral from any the Affiliated Sub-Advisers pursuant to distribution services to the Fund. The securities lending arrangements in the the sub-advisory agreements. The Board Board considered the performance of affiliated money market funds is in the noted that the sub-advisory fees have no Invesco Aim and its affiliates in best interests of the Fund and its direct effect on the Fund or its providing these services and the shareholders. shareholders, as they are paid by Invesco organizational structure employed by Aim to the Affiliated Sub-Advisers, and Invesco Aim and its affiliates to provide II. Sub-Advisory Agreements that Invesco Aim and the Affiliated these services. The Board also considered A. Nature, Extent and Quality of Sub-Advisers are affiliates. After taking that these services are provided to the Services Provided by Affiliated account of the Fund's contractual Fund pursuant to written contracts which Sub-Advisers sub-advisory fee rate, as well as other are reviewed and approved on an annual The Board reviewed the services to be relevant factors, the Board concluded that basis by the Board. The Board concluded provided by Invesco Trimark Ltd., Invesco the Fund's sub-advisory fees were fair and that Invesco Aim and its affiliates were Asset Management Deutschland, GmbH, reasonable. providing these services in a satisfactory Invesco Asset Management Limited, Invesco manner and in accordance with the terms of Asset Management (Japan) Limited, Invesco D. Financial Resources of the their contracts, and were qualified to Australia Limited, Invesco Global Asset Affiliated Sub-Advisers continue to provide these services to the Management (N.A.), Inc., Invesco Hong Kong The Board considered whether each Fund. Limited, Invesco Institutional (N.A.), Affiliated Sub-Adviser is financially The Board considered the benefits Inc. and Invesco Senior Secured sound and has the resources necessary to realized by Invesco Aim as a result of Management, Inc. (collectively, the perform its obligations under its portfolio brokerage transactions executed "Affiliated Sub-Advisers") under the respective sub-advisory agreement, and through "soft dollar" arrangements. Under sub-advisory agreements and the concluded that each Affiliated Sub-Adviser these arrangements, portfolio brokerage credentials and experience of the officers has the financial resources necessary to commissions paid by the Fund and/or other and employees of the Affiliated fulfill these obligations. funds advised by Invesco Aim are used to Sub-Advisers who will provide these pay for research and execution services. services. The Board concluded that the The Board noted that soft dollar nature, extent and quality of the services arrangements shift the payment obligation to be provided by the Affiliated for the research and execution services Sub-Advisers were appropriate. The Board from Invesco Aim to the funds and noted that the Affiliated Sub-Advisers, therefore may reduce Invesco Aim's which have offices and personnel that are expenses. The Board also noted that geographically dispersed in financial research obtained through soft dollar centers around the world, have been formed arrangements may be used by Invesco Aim in in part for the purpose of researching and making investment decisions for the Fund compiling information and making and may therefore benefit Fund recommendations on the markets and shareholders. The Board concluded that economies of various countries and Invesco Aim's soft dollar arrangements securities of companies located in such were appropriate. The Board also concluded countries or on various types of that, based on their review and investments and investment techniques, and representations made by Invesco Aim, these providing investment advisory services. arrangements were consistent with The Board concluded that the sub-advisory regulatory requirements. agreements will benefit the Fund and its The Board considered the fact that the shareholders by permitting Invesco Aim to Fund's uninvested cash and cash collateral utilize the additional resources from any securities lending arrange-
AIM V.I. TECHNOLOGY FUND PROXY RESULTS A Special Meeting ("Meeting") of Shareholders of AIM V.I. Technology Fund, an investment portfolio of AIM Variable Insurance Funds, a Delaware statutory trust ("Trust"), was held on February 29, 2008. The Meeting was held for the following purposes: (1) Elect 13 trustees to the Board of Trustees of the Trust, each of whom will serve until his or her successor is elected and qualified. (2) Approve an amendment to the Trust's Agreement and Declaration of Trust that would permit the Board of Trustees of the Trust to terminate the Trust, the Fund, and each other series portfolio of the Trust, or a share class without a shareholder vote. (3) Approve a new sub-advisory agreement between Invesco Aim Advisors, Inc. and each of AIM Funds Management, Inc.; Invesco Asset Management Deutschland, GmbH; Invesco Asset Management Limited; Invesco Asset Management (Japan) Limited; Invesco Australia Limited; Invesco Global Asset Management (N.A.), Inc.; Invesco Hong Kong Limited; Invesco Institutional (N.A.), Inc.; and Invesco Senior Secured Management, Inc. (4)(a) Approve modification of fundamental restriction on issuer diversification. (4)(b) Approve modification of fundamental restrictions on issuing senior securities and borrowing money. (4)(c) Approve modification of fundamental restriction on underwriting securities. (4)(d) Approve modification of fundamental restriction on industry concentration. (4)(e) Approve modification of fundamental restriction on real estate investments. (4)(f) Approve modification of fundamental restriction on purchasing or selling commodities. (4)(g) Approve modification of fundamental restriction on making loans. (4)(h) Approve modification of fundamental restriction on investments in investment companies. (5) Approve making the investment objective of the fund non-fundamental. The results of the voting on the above matters were as follows:
WITHHELD/ MATTERS VOTES FOR ABSTENTIONS** - ---------------------------------------------------------------------------------------------------------- (1)* Bob R. Baker 474,883,590 19,741,622 Frank S. Bayley.................................................... 474,653,109 19,972,103 James T. Bunch..................................................... 475,597,417 19,027,795 Bruce L. Crockett.................................................. 474,900,579 19,724,633 Albert R. Dowden................................................... 474,749,929 19,875,283 Jack M. Fields..................................................... 475,205,840 19,419,372 Martin L. Flanagan................................................. 475,248,336 19,376,876 Carl Frischling.................................................... 474,453,674 20,171,538 Prema Mathai-Davis................................................. 473,569,192 21,056,020 Lewis F. Pennock................................................... 475,072,501 19,552,711 Larry Soll, Ph.D................................................... 475,170,544 19,454,668 Raymond Stickel, Jr................................................ 475,420,825 19,204,387 Philip A. Taylor................................................... 475,640,570 18,984,642
VOTES WITHHELD/ VOTES FOR AGAINST ABSTENTIONS - ---------------------------------------------------------------------------------------------------------------- (2)* Approve an amendment to the Trust's Agreement and Declaration of Trust that would permit the Board of Trustees of the Trust to terminate the Trust, the Fund, and each other series portfolio of the Trust, or a share class without a shareholder vote.................................. 438,131,484 35,586,925 20,906,803 (3) Approve a new sub-advisory agreement between Invesco Aim Advisors, Inc. and each of AIM Funds Management, Inc.; Invesco Asset Management Deutschland, GmbH; Invesco Asset Management Limited; Invesco Asset Management (Japan) Limited; Invesco Australia Limited; Invesco Global Asset Management (N.A.), Inc.; Invesco Hong Kong Limited; Invesco Institutional (N.A.), Inc.; and Invesco Senior Secured Management, Inc............................................. 9,820,806 241,551 220,907 (4)(a) Approve modification of fundamental restriction on issuer diversification............................................. 9,898,337 228,208 156,719 (4)(b) Approve modification of fundamental restrictions on issuing senior securities and borrowing money....................... 9,898,337 229,138 155,789 (4)(c) Approve modification of fundamental restriction on underwriting securities..................................... 9,866,533 260,827 155,904 (4)(d) Approve modification of fundamental restriction on industry concentration............................................... 9,904,593 222,882 155,789 (4)(e) Approve modification of fundamental restriction on real estate investments.......................................... 9,904,479 222,996 155,789 (4)(f) Approve modification of fundamental restriction on purchasing or selling commodities........................... 9,898,337 228,208 156,719 (4)(g) Approve modification of fundamental restriction on making loans....................................................... 9,904,593 221,838 156,833 (4)(h) Approve modification of fundamental restriction on investments in investment companies......................... 9,898,336 229,024 155,904 (5) Approve making the investment objective of the fund non- fundamental................................................. 9,779,883 264,159 239,222
* Proposals 1 and 2 required approval by a combined vote of all of the portfolios of AIM Variable Insurance Funds. ** Includes Broker Non-Votes. AIM V.I. TECHNOLOGY FUND [INVESCO AIM LOGO] AIM V.I. UTILITIES FUND - SERVICE MARK - Semiannual Report to Shareholders - June 30, 2008 AIM Investments [MOUNTAIN GRAPHIC] became INVESCO AIM on March 31, 2008. For more details, go to invescoaim.com 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 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 Invesco Aim Web site, invescoaim.com. On the home page, scroll down and click on 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, 2008, is available at our Web site. Go to invescoaim.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 noted, all data provided by Invesco Aim. THIS REPORT MUST BE ACCOMPANIED OR PRECEDED BY A CURRENTLY EFFECTIVE FUND PROSPECTUS AND VARIABLE PRODUCT PROSPECTUS, WHICH CONTAIN MORE COMPLETE INFORMATION, INCLUDING SALES CHARGES AND EXPENSES. INVESTORS SHOULD READ EACH CAREFULLY BEFORE INVESTING. Invesco Aim Distributors, Inc. NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE FUND PERFORMANCE ======================================================================================= PERFORMANCE SUMMARY FUND VS. INDEXES Cumulative total returns, 12/31/07 to 6/30/08, excluding variable product issuer charges. If variable product issuer charges were included, returns would be lower. Series I Shares -3.00% Series II Shares -3.11 S&P 500 Index(TRIANGLE) (Broad Market Index) -11.90 Lipper VUF Utility Funds Category Average(TRIANGLE) (Peer Group) -3.59 (TRIANGLE) Lipper Inc. The S&P 500--REGISTERED TRADEMARK-- INDEX is a market capitalization-weighted index covering all major areas of the U.S. economy. It is not the 500 largest companies, but rather the most widely held 500 companies chosen with respect to market size, liquidity, and their industry. The LIPPER VUF UTILITY FUNDS CATEGORY AVERAGE represents an average of all of the variable insurance underlying funds in the Lipper Utility Funds category. These funds invest primarily in the equity securities of domestic and foreign companies providing utilities. The Fund is not managed to track the performance of any particular index, including the indexes defined here, and consequently, the performance of the Fund may deviate significantly from the performance of the indexes. A direct investment cannot be made in an index. Unless otherwise indicated, index results include reinvested dividends, and they do not reflect sales charges. Performance of an index of funds reflects fund expenses; performance of a market index does not. ======================================================================================= ========================================== AVERAGE ANNUAL TOTAL RETURNS HIGHER. PLEASE CONTACT YOUR VARIABLE GIVEN REPRESENT THE FUND AND ARE NOT As of 6/30/08 PRODUCT ISSUER OR FINANCIAL ADVISOR FOR INTENDED TO REFLECT ACTUAL VARIABLE THE MOST RECENT MONTH-END VARIABLE PRODUCT PRODUCT VALUES. THEY DO NOT REFLECT SALES SERIES I SHARES PERFORMANCE. PERFORMANCE FIGURES REFLECT CHARGES, EXPENSES AND FEES ASSESSED IN Inception (12/30/94) 9.01% FUND EXPENSES, REINVESTED DISTRIBUTIONS CONNECTION WITH A VARIABLE PRODUCT. SALES 10 Years 6.50 AND CHANGES IN NET ASSET VALUE. INVESTMENT CHARGES, EXPENSES AND FEES, WHICH ARE 5 Years 17.87 RETURN AND PRINCIPAL VALUE WILL FLUCTUATE DETERMINED BY THE VARIABLE PRODUCT 1 Year 3.77 SO THAT YOU MAY HAVE A GAIN OR LOSS WHEN ISSUERS, WILL VARY AND WILL LOWER THE YOU SELL SHARES. TOTAL RETURN. SERIES II SHARES THE NET ANNUAL FUND OPERATING EXPENSE THE MOST RECENT MONTH-END PERFORMANCE 10 Years 6.25 RATIO SET FORTH IN THE MOST RECENT FUND DATA AT THE FUND LEVEL, EXCLUDING VARIABLE 5 Years 17.60 PROSPECTUS AS OF THE DATE OF THIS REPORT PRODUCT CHARGES, IS AVAILABLE ON THE 1 Year 3.59 FOR SERIES I AND SERIES II SHARES WAS INVESCO AIM AUTOMATED INFORMATION LINE, ========================================== 0.93% AND 1.18%, RESPECTIVELY.(1) THE 866 702 4402. AS MENTIONED ABOVE, FOR THE SERIES II SHARES' INCEPTION DATE IS APRIL TOTAL ANNUAL FUND OPERATING EXPENSE RATIO MOST RECENT MONTH-END PERFORMANCE 30, 2004. RETURNS SINCE THAT DATE ARE SET FORTH IN THE MOST RECENT FUND INCLUDING VARIABLE PRODUCT CHARGES, PLEASE HISTORICAL. ALL OTHER RETURNS ARE THE PROSPECTUS AS OF THE DATE OF THIS REPORT CONTACT YOUR VARIABLE PRODUCT ISSUER OR BLENDED RETURNS OF THE HISTORICAL FOR SERIES I AND SERIES II SHARES WAS FINANCIAL ADVISOR. PERFORMANCE OF SERIES II SHARES SINCE 0.94% AND 1.19%, RESPECTIVELY. THE EXPENSE THEIR INCEPTION AND THE RESTATED RATIOS PRESENTED ABOVE MAY VARY FROM THE (1) Total annual operating expenses less HISTORICAL PERFORMANCE OF SERIES I SHARES EXPENSE RATIOS PRESENTED IN OTHER SECTIONS any contractual fee waivers and/or (FOR PERIODS PRIOR TO INCEPTION OF SERIES OF THIS REPORT THAT ARE BASED ON EXPENSES expense reimbursements by the advisor II SHARES) ADJUSTED TO REFLECT THE RULE INCURRED DURING THE PERIOD COVERED BY THIS in effect through at least April 30, 12B-1 FEES APPLICABLE TO SERIES II SHARES. REPORT. 2010. See current prospectus for more THE INCEPTION DATE OF SERIES I SHARES IS AIM V.I. UTILITIES FUND, A SERIES information. DECEMBER 30, 1994. THE PERFORMANCE OF THE PORTFOLIO OF AIM VARIABLE INSURANCE FUNDS, FUND'S SERIES I AND SERIES II SHARE IS CURRENTLY OFFERED THROUGH INSURANCE CLASSES WILL DIFFER PRIMARILY DUE TO COMPANIES ISSUING VARIABLE PRODUCTS. YOU DIFFERENT CLASS EXPENSES. CANNOT PURCHASE SHARES OF THE FUND THE PERFORMANCE DATA QUOTED REPRESENT DIRECTLY. PERFORMANCE FIGURES PAST PERFORMANCE AND CANNOT GUARANTEE COMPARABLE FUTURE RESULTS; CURRENT PERFORMANCE MAY BE LOWER OR
AIM V.I. UTILITIES FUND PORTFOLIO COMPOSITION By industry, based on Net Assets as of June 30, 2008 - ------------------------------------------------------------------------- Electric Utilities 34.4% - ------------------------------------------------------------------------- Multi-Utilities 24.8 - ------------------------------------------------------------------------- Gas Utilities 12.3 - ------------------------------------------------------------------------- Integrated Telecommunication Services 11.7 - ------------------------------------------------------------------------- Oil & Gas Storage & Transportation 8.4 - ------------------------------------------------------------------------- Independent Power Producers & Energy Traders 6.3 - ------------------------------------------------------------------------- Money Market Funds Plus Other Assets Less Liabilities 2.1 _________________________________________________________________________ =========================================================================
SCHEDULE OF INVESTMENTS(a) June 30, 2008 (Unaudited)
SHARES VALUE - ------------------------------------------------------------------------------ COMMON STOCKS-97.94% ELECTRIC UTILITIES-34.39% Duke Energy Corp. 165,000 $ 2,867,700 - ------------------------------------------------------------------------------ E.ON A.G. (Germany)(b) 22,000 4,430,302 - ------------------------------------------------------------------------------ Edison International 98,000 5,035,240 - ------------------------------------------------------------------------------ Enel S.p.A. (Italy)(b)(c) 189,000 1,793,337 - ------------------------------------------------------------------------------ Entergy Corp. 48,000 5,783,040 - ------------------------------------------------------------------------------ Exelon Corp. 82,000 7,376,720 - ------------------------------------------------------------------------------ FirstEnergy Corp. 58,000 4,775,140 - ------------------------------------------------------------------------------ FPL Group, Inc. 91,000 5,967,780 - ------------------------------------------------------------------------------ Pepco Holdings, Inc. 128,000 3,283,200 - ------------------------------------------------------------------------------ Portland General Electric Co. 90,000 2,026,800 - ------------------------------------------------------------------------------ PPL Corp. 89,000 4,652,030 - ------------------------------------------------------------------------------ Southern Co. 49,000 1,711,080 ============================================================================== 49,702,369 ============================================================================== GAS UTILITIES-12.30% AGL Resources Inc. 90,000 3,112,200 - ------------------------------------------------------------------------------ Equitable Resources, Inc. 78,000 5,386,680 - ------------------------------------------------------------------------------ ONEOK, Inc. 78,000 3,808,740 - ------------------------------------------------------------------------------ Questar Corp. 77,000 5,470,080 ============================================================================== 17,777,700 ============================================================================== INDEPENDENT POWER PRODUCERS & ENERGY TRADERS-6.34% Constellation Energy Group Inc. 49,000 4,022,900 - ------------------------------------------------------------------------------ NRG Energy, Inc.(d) 120,000 5,148,000 ============================================================================== 9,170,900 ============================================================================== INTEGRATED TELECOMMUNICATION SERVICES-11.71% Alaska Communications Systems Group Inc. 375,000 4,477,500 - ------------------------------------------------------------------------------ AT&T Inc. 231,000 7,782,390 - ------------------------------------------------------------------------------ Verizon Communications Inc. 132,000 4,672,800 ============================================================================== 16,932,690 ============================================================================== MULTI-UTILITIES-24.76% Ameren Corp. 87,000 3,674,010 - ------------------------------------------------------------------------------ CMS Energy Corp. 245,000 3,650,500 - ------------------------------------------------------------------------------ Dominion Resources, Inc. 82,000 3,894,180 - ------------------------------------------------------------------------------ National Grid PLC (United Kingdom)(b) 215,000 2,817,590 - ------------------------------------------------------------------------------ OGE Energy Corp. 26,000 824,460 - ------------------------------------------------------------------------------ PG&E Corp. 93,000 3,691,170 - ------------------------------------------------------------------------------ Public Service Enterprise Group Inc. 76,000 3,490,680 - ------------------------------------------------------------------------------ SCANA Corp. 25,000 925,000 - ------------------------------------------------------------------------------ Sempra Energy 91,000 5,136,950 - ------------------------------------------------------------------------------ Veolia Environnement (France)(b) 42,000 2,340,043 - ------------------------------------------------------------------------------ Wisconsin Energy Corp. 49,000 2,215,780 - ------------------------------------------------------------------------------ Xcel Energy, Inc. 156,000 3,130,920 ============================================================================== 35,791,283 ============================================================================== OIL & GAS STORAGE & TRANSPORTATION-8.44% El Paso Corp. 283,000 6,152,420 - ------------------------------------------------------------------------------ Williams Cos., Inc. (The) 150,000 6,046,500 ============================================================================== 12,198,920 ============================================================================== Total Common Stocks (Cost $98,451,203) 141,573,862 ==============================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. UTILITIES FUND
SHARES VALUE - ------------------------------------------------------------------------------ MONEY MARKET FUNDS-2.34% Liquid Assets Portfolio-Institutional Class(e) 1,690,843 $ 1,690,843 - ------------------------------------------------------------------------------ Premier Portfolio-Institutional Class(e) 1,690,843 1,690,843 ============================================================================== Total Money Market Funds (Cost $3,381,686) 3,381,686 ============================================================================== TOTAL INVESTMENTS (excluding investments purchased with cash collateral from securities on loan)-100.28% (Cost $101,832,889) 144,955,548 ============================================================================== INVESTMENTS PURCHASED WITH CASH COLLATERAL FROM SECURITIES ON LOAN MONEY MARKET FUNDS-0.99% Liquid Assets Portfolio-Institutional Class(e)(f) 1,424,375 1,424,375 ============================================================================== TOTAL INVESTMENTS-101.27% (Cost $103,257,264) 146,379,923 ============================================================================== OTHER ASSETS LESS LIABILITIES-(1.27)% (1,842,499) ============================================================================== NET ASSETS-100.00% $144,537,424 ______________________________________________________________________________ ==============================================================================
Notes to Schedule of Investments: (a) Industry and/or sector 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 MSCI Inc. and Standard & Poor's. (b) In accordance with the procedures established by the Board of Trustees, the foreign security is fair valued using adjusted closing market prices. The aggregate value of these securities at June 30, 2008 was $11,381,272, which represented 7.87% of the Fund's Net Assets. See Note 1A. (c) All or a portion of this security was out on loan at June 30, 2008. (d) Non-income producing security. (e) The money market fund and the Fund are affiliated by having the same investment advisor. (f) 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 1J. See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. UTILITIES FUND STATEMENT OF ASSETS AND LIABILITIES June 30, 2008 (Unaudited) ASSETS: Investments, at value (Cost $98,451,203)* $141,573,862 - ------------------------------------------------------ Investments in affiliated money market funds (Cost $4,806,061) 4,806,061 ====================================================== Total investments (Cost $103,257,264) 146,379,923 ====================================================== Foreign currencies, at value (Cost $18,805) 18,888 - ------------------------------------------------------ Receivables for: Fund shares sold 30,689 - ------------------------------------------------------ Dividends 532,479 - ------------------------------------------------------ Investment for trustee deferred compensation and retirement plans 43,601 - ------------------------------------------------------ Other assets 45 ====================================================== Total assets 147,005,625 ______________________________________________________ ====================================================== LIABILITIES: Payables for: Investments purchased 509,099 - ------------------------------------------------------ Fund shares reacquired 361,875 - ------------------------------------------------------ Collateral upon return of securities loaned 1,424,375 - ------------------------------------------------------ Accrued fees to affiliates 87,120 - ------------------------------------------------------ Accrued other operating expenses 32,283 - ------------------------------------------------------ Trustee deferred compensation and retirement plans 53,449 ====================================================== Total liabilities 2,468,201 ====================================================== Net assets applicable to shares outstanding $144,537,424 ______________________________________________________ ====================================================== NET ASSETS CONSIST OF: Shares of beneficial interest $ 84,872,851 - ------------------------------------------------------ Undistributed net investment income 4,797,929 - ------------------------------------------------------ Undistributed net realized gain 11,729,209 - ------------------------------------------------------ Unrealized appreciation 43,137,435 ====================================================== $144,537,424 ______________________________________________________ ====================================================== NET ASSETS: Series I $141,841,629 ______________________________________________________ ====================================================== Series II $ 2,695,795 ______________________________________________________ ====================================================== SHARES OUTSTANDING, $0.001 PAR VALUE PER SHARE, UNLIMITED NUMBER OF SHARES AUTHORIZED: Series I 6,099,523 ______________________________________________________ ====================================================== Series II 116,924 ______________________________________________________ ====================================================== Series I: Net asset value per share $ 23.25 ______________________________________________________ ====================================================== Series II: Net asset value per share $ 23.06 ______________________________________________________ ======================================================
* At June 30, 2008, securities with an aggregate value of $1,348,553 were on loan to brokers. STATEMENT OF OPERATIONS For the six months ended June 30, 2008 (Unaudited) INVESTMENT INCOME: Dividends (net of foreign withholding taxes of $47,697) $ 2,386,886 - ------------------------------------------------------ Dividends from affiliated money market funds (includes securities lending income of $33,850) 99,046 ====================================================== Total investment income 2,485,932 ====================================================== EXPENSES: Advisory fees 443,437 - ------------------------------------------------------ Administrative services fees 194,229 - ------------------------------------------------------ Custodian fees 6,734 - ------------------------------------------------------ Distribution fees -- Series II 3,373 - ------------------------------------------------------ Transfer agent fees 9,425 - ------------------------------------------------------ Trustees' and officer's fees and benefits 10,283 - ------------------------------------------------------ Other 25,083 ====================================================== Total expenses 692,564 ====================================================== Less: Fees waived (4,165) ====================================================== Net expenses 688,399 ====================================================== Net investment income 1,797,533 ====================================================== REALIZED AND UNREALIZED GAIN (LOSS) FROM: Net realized gain from: Investment securities 2,497,551 - ------------------------------------------------------ Foreign currencies 1,233 ====================================================== 2,498,784 ====================================================== Change in net unrealized appreciation (depreciation) of: Investment securities (9,682,124) - ------------------------------------------------------ Foreign currencies 8,605 ====================================================== (9,673,519) ====================================================== Net realized and unrealized gain (loss) (7,174,735) ====================================================== Net increase (decrease) in net assets resulting from operations $(5,377,202) ______________________________________________________ ======================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. UTILITIES FUND STATEMENT OF CHANGES IN NET ASSETS For the six months ended June 30, 2008 and the year ended December 31, 2007 (Unaudited)
JUNE 30, DECEMBER 31, 2008 2007 - -------------------------------------------------------------------------------------------------------- OPERATIONS: Net investment income $ 1,797,533 $ 3,053,887 - -------------------------------------------------------------------------------------------------------- Net realized gain 2,498,784 12,120,624 - -------------------------------------------------------------------------------------------------------- Change in net unrealized appreciation (depreciation) (9,673,519) 12,996,939 ======================================================================================================== Net increase (decrease) in net assets resulting from operations (5,377,202) 28,171,450 ======================================================================================================== Distributions to shareholders from net investment income: Series I -- (2,819,765) - -------------------------------------------------------------------------------------------------------- Series II -- (60,178) ======================================================================================================== Total distributions from net investment income -- (2,879,943) ======================================================================================================== Distributions to shareholders from net realized gains: Series I -- (7,308,544) - -------------------------------------------------------------------------------------------------------- Series II -- (167,024) ======================================================================================================== Total distributions from net realized gains -- (7,475,568) ======================================================================================================== Share transactions-net: Series I (8,648,895) (820,698) - -------------------------------------------------------------------------------------------------------- Series II (477,094) 504,038 ======================================================================================================== Net increase (decrease) in net assets resulting from share transactions (9,125,989) (316,660) ======================================================================================================== Net increase (decrease) in net assets (14,503,191) 17,499,279 ======================================================================================================== NET ASSETS: Beginning of period 159,040,615 141,541,336 ======================================================================================================== End of period (including undistributed net investment income of $4,797,929 and $3,000,396, respectively) $144,537,424 $159,040,615 ________________________________________________________________________________________________________ ========================================================================================================
See accompanying Notes to Financial Statements which are an integral part of the financial statements. AIM V.I. UTILITIES FUND NOTES TO FINANCIAL STATEMENTS June 30, 2008 (Unaudited) NOTE 1--SIGNIFICANT ACCOUNTING POLICIES AIM V.I. Utilities Fund (the "Fund") is a series portfolio of AIM Variable Insurance Funds (the "Trust"). The Trust is a Delaware statutory trust registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end series management investment company consisting of twenty separate portfolios, (each constituting a "Fund"). 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 Fund or class will be voted on exclusively by the shareholders of such Fund 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 Fund 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 objectives are capital growth and income. 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 prices furnished by independent pricing services or market makers. When such securities are valued by an independent pricing service they may be considered fair valued. 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, including commercial paper, having 60 days or less to maturity are recorded at amortized cost which approximates value. Debt securities are subject to interest rate and credit risks. In addition, all debt securities involve some risk of default with respect to interest and/or principal payments. 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, American Depositary Receipts and domestic and foreign index futures. Foreign securities may have additional risks including exchange rate changes, potential for sharply devalued currencies and high inflation, political and economical upheaval, the relative lack of issuer information, relatively low market liquidity and the potential lack of strict financial and accounting controls and standards. 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. Valuations change in response to many factors including the historical and prospective earnings of the issuer, the value of the issuer's assets, general economic conditions, interest rates, investor perceptions and market liquidity. 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. AIM V.I. UTILITIES FUND The Fund may periodically participate in litigation related to Fund investments. As such, the Fund may receive proceeds from litigation settlements. Any proceeds as received are included in the Statement of Operations as realized gain/loss for investments no longer held and as unrealized gain/loss for investments still held. 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, the investment advisor 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. The Fund files tax returns in the U.S. Federal jurisdiction and certain other jurisdictions. Generally the Fund is subject to examinations by such taxing authorities for up to three years after the filing of the return for the tax period. 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 by a significant amount. 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. OTHER RISKS -- The Fund's investments are concentrated in a comparatively narrow segment of the economy. Consequently, the Fund may tend to be more volatile than other mutual funds, and the value of the Fund's investments may tend to rise and fall more rapidly. A large percentage of the Fund's assets may be invested in securities of a limited number of companies, each investment has a greater effect on the Fund's overall performance, and any change in the value of those securities could significantly affect the value of your investment in the Fund. Government regulation, difficulties in obtaining adequate financing and investment return, environmental issues, prices of fuel for generation of electricity, availability of natural gas, risks associated with power marketing and trading, and risks associated with nuclear power facilities may adversely affect the market value of the Fund's holdings. J. SECURITIES LENDING -- 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 by the securities lending provider. Such collateral will be cash or debt securities issued or guaranteed by the U.S. Government or any of its sponsored agencies. Cash collateral received in connection with these loans is invested in short-term money market instruments or affiliated money market funds and is shown as such on the Schedule of Investments. 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. Dividends received on cash collateral investments for securities lending transactions, which are net of compensation to counterparties, is included in Dividends from affiliates on the Statement of Operations. The aggregate value of securities out on loan is shown as a footnote on the Statement of Assets and Liabilities. 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 AIM V.I. UTILITIES FUND 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. L. 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 Invesco Aim Advisors, Inc. (the "Advisor" or "Invesco Aim"). Under the terms of the investment advisory agreement, the Fund pays an advisory fee to the Advisor based on the annual rate of 0.60% of the Fund's average daily net assets. Under the terms of a master sub-advisory agreement approved by shareholders of the Fund on February 29, 2008, effective May 1, 2008, between the Advisor and each of Invesco Asset Management Deutschland GmbH, Invesco Asset Management Limited, Invesco Asset Management (Japan) Limited, Invesco Australia Limited, Invesco Global Asset Management (N.A.), Inc., Invesco Hong Kong Limited, Invesco Institutional (N.A.), Inc., Invesco Senior Secured Management, Inc. and Invesco Trimark Ltd. (collectively, the "Affiliated Sub-Advisors") the Advisor, not the Fund, may pay 40% of the fees paid to the Advisor to any such Affiliated Sub- Advisor(s) that provide discretionary investment management services to the Fund based on the percentage of assets allocated to such Sub-Advisor(s). The Advisor 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, 2010. 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 Invesco Ltd. ("Invesco") 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. These credits are used to pay certain expenses incurred by the Fund. To the extent that the annualized expense ratio does not exceed the expense limitation, the Advisor will retain its ability to be reimbursed for such fee waivers or reimbursements prior to the end of each fiscal year. Further, the Advisor has contractually agreed, through at least April 30, 2010, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees the Advisor receives from the affiliated money market funds on investments by the Fund of uninvested cash (but not cash collateral from securities lending) in such affiliated money market funds. For the six months ended June 30, 2008, the Advisor waived advisory fees of $4,165. At the request of the Trustees of the Trust, Invesco agreed to reimburse expenses incurred by the Fund in connection with market timing matters in the AIM Funds, which may include legal, audit, shareholder reporting, communications and trustee expenses. For the six months ended June 30, 2008, Invesco did not reimburse any expenses. The Trust has entered into a master administrative services agreement with Invesco Aim pursuant to which the Fund has agreed to pay Invesco Aim a fee for costs incurred in providing accounting services and fund administrative services to the Fund and to reimburse Invesco Aim for administrative services fees paid to insurance companies that have agreed to provide services to the participants of separate accounts. These administrative services provided by the insurance companies may include, among other things: the printing of prospectuses, financial reports and proxy statements and the delivery of the same to existing participants; the maintenance of master accounts; the facilitation of purchases and redemptions requested by the participants; and the servicing of participants' accounts. Pursuant to such agreement, for the six months ended June 30, 2008, Invesco Aim was paid $24,863 for accounting and fund administrative services and reimbursed $169,366 for services provided by insurance companies. The Trust has entered into a transfer agency and service agreement with Invesco Aim Investment Services, Inc. ("IAIS") pursuant to which the Fund has agreed to pay IAIS a fee for providing transfer agency and shareholder services to the Fund and reimburse IAIS for certain expenses incurred by IAIS in the course of providing such services. For the six months ended June 30, 2008, 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 Invesco Aim Distributors, Inc. ("IADI") 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 IADI 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 AIM V.I. UTILITIES FUND Series II shares of the Fund. For the six months ended June 30, 2008, expenses incurred under the Plan are detailed in the Statement of Operations as distribution fees. Certain officers and trustees of the Trust are officers and directors of Invesco Aim, IAIS and/or IADI. NOTE 3--SUPPLEMENTAL INFORMATION The Fund adopted the provisions of Statement of Financial Accounting Standards No. 157, "Fair Value Measurements" (SFAS 157), effective with the beginning of the Fund's fiscal year. SFAS 157 establishes a hierarchy that prioritizes the inputs to valuation methods giving the highest priority to readily available unadjusted quoted prices in an active market for identical assets (level 1) and the lowest priority to unobservable inputs (level 3) market prices are not readily available or are unreliable. Based on the inputs the securities or other instruments are tiered into three levels of hierarchy under SFAS 157. Changes in valuation methods may result in transfers in or out of an investment's assigned level within the hierarchy, Level 1 -- Quoted prices in an active market for identical assets. Level 2 -- Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants may use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk and others. Level 3 -- Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund's own assumptions about the factors market participants would use in determining fair value of the securities or instruments and would be based on the best available information. Below is a summary of the tiered input levels, as of the end of the reporting period, June 30, 2008. The inputs or methods used for valuing securities may not be an indication of the risk associated with investing in those securities.
INVESTMENTS IN INPUT LEVEL SECURITIES - ------------------------------------ Level 1 $134,998,651 - ------------------------------------ Level 2 11,381,272 - ------------------------------------ Level 3 -- ==================================== $146,379,923 ____________________________________ ====================================
NOTE 4--TRUSTEES' AND OFFICER'S FEES AND BENEFITS "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to pay remuneration to certain Trustees and Officers of the Fund. 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, certain current Trustees are eligible to participate in a retirement plan that provides for benefits to be paid upon retirement to Trustees over a period of time based on the number of years of service. The Fund may have certain former Trustees who also participate in a retirement plan and receive benefits under such plan. "Trustees' and Officer's Fees and Benefits" include amounts accrued by the Fund to fund such retirement benefits. Obligations under the deferred compensation and retirement plans represent unsecured claims against the general assets of the Fund. During the six months ended June 30, 2008, the Fund paid legal fees of $1,679 for services rendered by Kramer, Levin, Naftalis & Frankel LLP as counsel to the Independent Trustees. A member of that firm is a Trustee of the Trust. NOTE 5--CASH BALANCES The Fund is permitted to temporarily carry a negative or overdrawn balance in its account with The State Street Bank and Trust Company ("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 Invesco Aim, not to exceed the contractually agreed upon rate. AIM V.I. UTILITIES FUND NOTE 6--TAX INFORMATION The amount and character of income and gains to be distributed are determined in accordance with income tax regulations, which may differ from generally accepted accounting principles. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryforward) under income tax regulations. The tax character of distributions paid during the year and the tax components of net assets will be reported at the Fund's fiscal year-end. Capital loss carryforward is calculated and reported as of a specific date. Results of transactions and other activity after that date may affect the amount of capital loss carryforward actually available for the Fund to utilize. The ability to utilize capital loss carryforward in the future may be limited under the Internal Revenue Code and related regulations based on the results of future transactions. Under these limitation rules, the Fund is limited as to utilizing $919,463 of capital loss carryforward in the fiscal year ended December 31, 2008. The Fund had a capital loss carryforward as of December 31, 2007 which expires as follows:
CAPITAL LOSS EXPIRATION CARRYFORWARD* - --------------------------------------------------------------------------------- December 31, 2009 $1,839,286 _________________________________________________________________________________ =================================================================================
* Capital loss carryforward as of the date listed above is reduced for limitations, if any, to the extent required by the Internal Revenue Code. NOTE 7--INVESTMENT SECURITIES The aggregate amount of investment securities (other than short-term securities, U.S. Treasury obligations and money market funds, if any) purchased and sold by the Fund during the six months ended June 30, 2008 was $17,273,713 and $23,290,622, respectively. Cost of investments on a tax basis includes the adjustments for financial reporting purposes as of the most recently completed Federal income tax reporting period end.
UNREALIZED APPRECIATION (DEPRECIATION) OF INVESTMENT SECURITIES ON A TAX BASIS - ----------------------------------------------------------------------------------------------- Aggregate unrealized appreciation of investment securities $45,387,999 - ----------------------------------------------------------------------------------------------- Aggregate unrealized (depreciation) of investment securities (2,424,165) =============================================================================================== Net unrealized appreciation of investment securities $42,963,834 _______________________________________________________________________________________________ =============================================================================================== Cost of investments for tax purposes is $103,416,089.
NOTE 8--SHARE INFORMATION
CHANGES IN SHARES OUTSTANDING - ------------------------------------------------------------------------------------------------------------------------ SIX MONTHS ENDED YEAR ENDED JUNE 30, 2008(a) DECEMBER 31, 2007 --------------------------- --------------------------- SHARES AMOUNT SHARES AMOUNT - ------------------------------------------------------------------------------------------------------------------------ Sold: Series I 797,449 $ 18,347,815 2,496,664 $ 59,127,619 - ------------------------------------------------------------------------------------------------------------------------ Series II 15,238 342,475 47,500 1,114,914 ======================================================================================================================== Issued as reinvestment of dividends: Series I -- -- 416,289 10,128,309 - ------------------------------------------------------------------------------------------------------------------------ Series II -- -- 9,404 227,202 ======================================================================================================================== Reacquired: Series I (1,195,105) (26,996,710) (2,965,731) (70,076,626) - ------------------------------------------------------------------------------------------------------------------------ Series II (36,683) (819,569) (35,116) (838,078) ======================================================================================================================== (419,101) $ (9,125,989) (30,990) $ (316,660) ________________________________________________________________________________________________________________________ ========================================================================================================================
(a) There are entities that are record owners of more than 5% of the outstanding shares of the Fund and in the aggregate own 61% 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, Invesco Aim and/or Invesco Aim affiliates may make payments to these entities, which are considered to be related to the Fund, for providing services to the Fund, Invesco Aim and or Invesco 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. UTILITIES FUND NOTE 9--FINANCIAL HIGHLIGHTS The following schedule presents financial highlights for a share of the Fund outstanding throughout the periods indicated.
SERIES I -------------------------------------------------------------------------------- SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ----------------------------------------------------------- 2008 2007 2006 2005 2004 2003 - ------------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $ 23.97 $ 21.23 $ 17.83 $ 15.61 $ 12.95 $ 11.16 - ------------------------------------------------------------------------------------------------------------------------------ Income from investment operations: Net investment income(a) 0.28 0.47 0.47 0.42 0.42 0.33 - ------------------------------------------------------------------------------------------------------------------------------ Net gains (losses) on securities (both realized and unrealized) (1.00) 3.94 4.06 2.21 2.57 1.60 ============================================================================================================================== Total from investment operations (0.72) 4.41 4.53 2.63 2.99 1.93 ============================================================================================================================== Less distributions: Dividends from net investment income -- (0.47) (0.70) (0.41) (0.33) (0.14) - ------------------------------------------------------------------------------------------------------------------------------ Distributions from net realized gains -- (1.20) (0.43) -- -- -- ============================================================================================================================== Total distributions -- (1.67) (1.13) (0.41) (0.33) (0.14) ============================================================================================================================== Net asset value, end of period $ 23.25 $ 23.97 $ 21.23 $ 17.83 $ 15.61 $ 12.95 ______________________________________________________________________________________________________________________________ ============================================================================================================================== Total return(b) (3.00)% 20.64% 25.46% 16.83% 23.65% 17.38% ______________________________________________________________________________________________________________________________ ============================================================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $141,842 $155,748 $139,080 $114,104 $159,554 $62,510 ______________________________________________________________________________________________________________________________ ============================================================================================================================== Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 0.93%(c) 0.93% 0.93% 0.93% 1.01% 1.08% - ------------------------------------------------------------------------------------------------------------------------------ Without fee waivers and/or expense reimbursements 0.94%(c) 0.94% 0.96% 0.96% 1.01% 1.08% ============================================================================================================================== Ratio of net investment income to average net assets 2.44%(c) 1.97% 2.40% 2.49% 3.09% 2.84% ______________________________________________________________________________________________________________________________ ============================================================================================================================== Portfolio turnover rate(d) 12% 30% 38% 49% 52% 58% ______________________________________________________________________________________________________________________________ ==============================================================================================================================
(a) Calculated using average shares outstanding. (b) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. (c) Ratios are annualized and based on average daily net assets of $145,911,705. (d) Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year. AIM V.I. UTILITIES FUND NOTE 9--FINANCIAL HIGHLIGHTS--(CONTINUED)
SERIES II ------------------------------------------------------------------------- APRIL 30, 2004 SIX MONTHS ENDED YEAR ENDED DECEMBER 31, (COMMENCEMENT DATE) JUNE 30, ---------------------------- TO DECEMBER 31, 2008 2007 2006 2005 2004 - ------------------------------------------------------------------------------------------------------------------------ Net asset value, beginning of period $23.80 $21.12 $17.76 $15.57 $12.63 - ------------------------------------------------------------------------------------------------------------------------ Income from investment operations: Net investment income(a) 0.25 0.41 0.42 0.38 0.26 - ------------------------------------------------------------------------------------------------------------------------ Net gains (losses) on securities (both realized and unrealized) (0.99) 3.91 4.06 2.20 2.68 ======================================================================================================================== Total from investment operations (0.74) 4.32 4.48 2.58 2.94 ======================================================================================================================== Less distributions: Dividends from net investment income -- (0.44) (0.69) (0.39) -- - ------------------------------------------------------------------------------------------------------------------------ Distributions from net realized gains -- (1.20) (0.43) -- -- ======================================================================================================================== Total distributions -- (1.64) (1.12) (0.39) -- ======================================================================================================================== Net asset value, end of period $23.06 $23.80 $21.12 $17.76 $15.57 ________________________________________________________________________________________________________________________ ======================================================================================================================== Total return(b) (3.11)% 20.32% 25.25% 16.55% 23.28% ________________________________________________________________________________________________________________________ ======================================================================================================================== Ratios/supplemental data: Net assets, end of period (000s omitted) $2,696 $3,293 $2,462 $ 801 $ 602 ________________________________________________________________________________________________________________________ ======================================================================================================================== Ratio of expenses to average net assets: With fee waivers and/or expense reimbursements 1.18%(c) 1.18% 1.18% 1.18% 1.28%(d) - ------------------------------------------------------------------------------------------------------------------------ Without fee waivers and/or expense reimbursements 1.19%(c) 1.19% 1.21% 1.21% 1.28%(d) ======================================================================================================================== Ratio of net investment income to average net assets 2.19%(c) 1.72% 2.15% 2.24% 2.82%(d) ________________________________________________________________________________________________________________________ ======================================================================================================================== Portfolio turnover rate(e) 12% 30% 38% 49% 52% ________________________________________________________________________________________________________________________ ========================================================================================================================
(a) Calculated using average shares outstanding. (b) Includes adjustments in accordance with accounting principles generally accepted in the United States of America and as such, the net asset value for financial reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. Total returns are not annualized for periods less than one year and do not reflect charges assessed in connection with a variable product, which if included would reduce total returns. (c) Ratios are annualized and based on average daily net assets of $2,712,812. (d) Annualized. (e) Portfolio turnover is calculated at the fund level and is not annualized for periods less than one year. NOTE 10--LEGAL PROCEEDINGS Terms used in the Legal Proceedings Note are defined terms solely for the purpose of this note. 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 Invesco Aim and IADI (Order No. 05- 1318). The WVASC makes findings of fact that Invesco Aim and IADI 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 Invesco Aim and IADI violated the West Virginia securities laws. The WVASC orders Invesco Aim and IADI 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. By agreement with the Commissioner of Securities, Invesco Aim's time to respond to that Order has been indefinitely suspended. Civil lawsuits, including purported class action and shareholder derivative suits, have been filed against certain of the AIM Funds, Invesco Funds Group, Inc. ("IFG"), Invesco Aim, IADI 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; and - that certain AIM Funds inadequately employed fair value pricing. These lawsuits allege as theories of recovery, depending on the lawsuit, violations of various provisions of the Federal and state securities laws Employee Retirement Income Security Act of 1974, as amended ("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. The case pending in Illinois State Court regarding fair value pricing was dismissed with prejudice on May 6, 2008. 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 Invesco 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 ERISA purportedly brought on behalf of participants in the Invesco 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 AIM V.I. UTILITIES FUND NOTE 10--LEGAL PROCEEDINGS--(CONTINUED) remain nominal defendants in the Consolidated Amended Fund Derivative Complaint. On September 15, 2006, the MDL Court granted the Invesco defendants' motion to dismiss the Amended Class Action Complaint for Violations of ERISA and dismissed such Complaint. Plaintiff appealed this ruling. On June 16, 2008, the Fourth Court of Appeals reversed the dismissal and remanded this lawsuit back to the MDL Court for further proceedings. IFG, Invesco Aim, IADI 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, Invesco Aim and IADI 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, Invesco Aim and/or related entities and individuals in the future. At the present time, management of Invesco 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 Invesco Aim, IADI or the Fund. AIM V.I. UTILITIES FUND NOTE 10--LEGAL PROCEEDINGS--(CONTINUED) CALCULATING YOUR ONGOING FUND EXPENSES EXAMPLE As a shareholder of the Fund, you incur ongoing costs, including management fees; distribution and/or service fees (12b-1); and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period January 1, 2008, through June 30, 2008. The actual and hypothetical expenses in the examples below do not represent the effect of any fees or other expenses assessed in connection with a variable product; if they did, the expenses shown would be higher while the ending account values shown would be lower. ACTUAL EXPENSES The table below provides information about actual account values and actual expenses. You may use the information in this table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the table under the heading entitled "Actual Expenses Paid During Period" to estimate the expenses you paid on your account during this period. HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES The table below also provides information about hypothetical account values and hypothetical expenses based on the Fund's actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund's actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the hypothetical information is useful in comparing ongoing costs, and will not help you determine the relative total costs of owning different funds.
- --------------------------------------------------------------------------------------------------- HYPOTHETICAL (5% ANNUAL RETURN BEFORE ACTUAL EXPENSES) ------------------------------------------------------ BEGINNING ENDING EXPENSES ENDING EXPENSES ANNUALIZED ACCOUNT VALUE ACCOUNT VALUE PAID DURING ACCOUNT VALUE PAID DURING EXPENSE CLASS (01/01/08) (06/30/08)(1) PERIOD(2) (06/30/08) PERIOD(2) RATIO - --------------------------------------------------------------------------------------------------- Series I $1,000.00 $970.00 $4.56 $1,020.24 $4.67 0.93% - --------------------------------------------------------------------------------------------------- Series II 1,000.00 968.90 5.78 1,019.00 5.92 1.18 - ---------------------------------------------------------------------------------------------------
(1) The actual ending account value is based on the actual total return of the Fund for the period January 1, 2008, through June 30, 2008, 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 182/366 to reflect the most recent fiscal half year. AIM V.I. UTILITIES FUND APPROVAL OF INVESTMENT ADVISORY AGREEMENT The Board of Trustees (the Board) of AIM comparative performance and fee data ent weight to the various factors. The Variable Insurance Funds is required under regarding the AIM Funds prepared by an Trustees recognized that the advisory the Investment Company Act of 1940 to independent company, Lipper, Inc. arrangements and resulting advisory fees approve annually the renewal of the AIM (Lipper), under the direction and for the Fund and the other AIM Funds are V.I. Utilities Fund (the Fund) investment supervision of the independent Senior the result of years of review and advisory agreement with Invesco Aim Officer who also prepares a separate negotiation between the Trustees and Advisors, Inc. (Invesco Aim). During analysis of this information for the Invesco Aim, that the Trustees may focus contract renewal meetings held on June Trustees. Each Sub-Committee then makes to a greater extent on certain aspects of 18-19, 2008, the Board as a whole and the recommendations to the Investments these arrangements in some years than in disinterested or "independent" Trustees, Committee regarding the performance, fees others, and that the Trustees' voting separately, approved the and expenses of their assigned funds. The deliberations and conclusions in a continuance of the Fund's investment Investments Committee considers each particular year may be based in part on advisory agreement for another year, Sub-Committee's recommendations and makes their deliberations and conclusions of effective July 1, 2008. In doing so, the its own recommendations regarding the these same arrangements throughout the Board determined that the Fund's performance, fees and expenses of the AIM year and in prior years. investment advisory agreement is in the Funds to the full Board. The Investments best interests of the Fund and its Committee also considers each FACTORS AND CONCLUSIONS AND SUMMARY OF shareholders and that the compensation to Sub-Committee's recommendations in making INDEPENDENT WRITTEN FEE EVALUATION Invesco Aim under the Fund's investment its annual recommendation to the Board The discussion below serves as a summary advisory agreement is fair and reasonable. whether to approve the continuance of each of the Senior Officer's independent The independent Trustees met separately AIM Fund's investment advisory agreement written evaluation with respect to the during their evaluation of the Fund's and sub-advisory agreements for another Fund's investment advisory agreement as investment advisory agreement with year. well as a discussion of the material independent legal counsel from whom they The independent Trustees are assisted factors and related conclusions that received independent legal advice, and the in their annual evaluation of the Fund's formed the basis for the Board's approval independent Trustees also received investment advisory agreement by the of the Fund's investment advisory assistance during their deliberations from independent Senior Officer. One agreement and sub-advisory agreements. the independent Senior Officer, a responsibility of the Senior Officer is to Unless otherwise stated, information set full-time officer of the AIM Funds who manage the process by which the AIM Funds' forth below is as of June 19, 2008 and reports directly to the independent proposed management fees are negotiated does not reflect any changes that may have Trustees. during the annual contract renewal process occurred since that date, including but to ensure that they are negotiated in a not limited to changes to the Fund's THE BOARD'S FUND EVALUATION PROCESS manner that is at arms' length and performance, advisory fees, expense The Board's Investments Committee has reasonable. Accordingly, the Senior limitations and/or fee waivers. established three Sub-Committees that are Officer must either supervise a responsible for overseeing the management competitive bidding process or prepare an I. Investment Advisory Agreement of a number of the series portfolios of independent written evaluation. The Senior A. Nature, Extent and Quality of the AIM Funds. This Sub-Committee Officer has recommended that an Services Provided by Invesco Aim structure permits the Trustees to focus on independent written evaluation be provided The Board reviewed the advisory services the performance of the AIM Funds that have and, at the direction of the Board, has provided to the Fund by Invesco Aim under been assigned to them. The Sub-Committees prepared an independent written the Fund's investment advisory agreement, meet throughout the year to review the evaluation. the performance of Invesco Aim in performance of their assigned funds, and During the annual contract renewal providing these services, and the the Sub-Committees review monthly and process, the Board considered the factors credentials and experience of the officers quarterly comparative performance discussed below under the heading "Factors and employees of Invesco Aim who provide information and periodic asset flow data and Conclusions and Summary of Independent these services. The Board's review of the for their assigned funds. These materials Written Fee Evaluation" in evaluating the qualifications of Invesco Aim to provide are prepared under the direction and fairness and reasonableness of the Fund's these services included the Board's supervision of the independent Senior investment advisory agreement and consideration of Invesco Aim's portfolio Officer. Over the course of each year, the sub-advisory agreements at the contract and product review process, various back Sub-Committees meet with portfolio renewal meetings and at their meetings office support functions provided by managers for their assigned funds and throughout the year as part of their Invesco Aim and its affiliates, and other members of management and review ongoing oversight of the Fund. The Fund's Invesco Aim's equity and fixed income with these individuals the performance, investment advisory agreement and trading operations. The Board concluded investment objective(s), policies, sub-advisory agreements were considered that the nature, extent and quality of the strategies and limitations of these funds. separately, although the Board also advisory services provided to the Fund by In addition to their meetings considered the common interests of all of Invesco Aim were appropriate and that throughout the year, the Sub-Committees the AIM Funds in their deliberations. The Invesco Aim currently is providing meet at designated contract renewal Board considered all of the information satisfactory advisory services in meetings each year to conduct an in-depth provided to them and did not identify any accordance with the terms of the Fund's review of the performance, fees and particular factor that was controlling. investment advisory agreement. In expenses of their assigned funds. During Each Trustee may have evaluated the addition, based on their ongoing meetings the contract renewal process, the Trustees information provided differently from one throughout the year with the Fund's receive another and attributed differ portfolio manager or managers, the Board concluded that continued
AIM V.I. UTILITIES FUND these individuals are competent and able to the Board's focus on fund performance. or expense limitations. The Board noted to continue to carry out their Although the independent written that the Fund's contractual advisory fee responsibilities under the Fund's evaluation of the Fund's Senior Officer schedule does not include any breakpoints. investment advisory agreement. only considered Fund performance through The Board considered whether it would be In determining whether to continue the the most recent calendar year, the Board appropriate to add advisory fee Fund's investment advisory agreement, the also reviewed more recent Fund performance breakpoints for the Fund or whether, due Board considered the prior relationship and this review did not change their to the nature of the Fund and the advisory between Invesco Aim and the Fund, as well conclusions. fee structures of comparable funds, it was as the Board's knowledge of Invesco Aim's reasonable to structure the advisory fee operations, and concluded that it was C. Advisory Fees and Fee Waivers without breakpoints. Based on this review, beneficial to maintain the current The Board compared the Fund's contractual the Board concluded that it was not relationship, in part, because of such advisory fee rate to the contractual necessary to add breakpoints to the Fund's knowledge. The Board also considered the advisory fee rates of funds in the Fund's advisory fee schedule. Based on this steps that Invesco Aim and its affiliates Lipper expense group that are not managed information, the Board concluded that, have taken over the last several years to by Invesco Aim, at a common asset level absent breakpoints, the Fund's contractual improve the quality and efficiency of the and as of the end of the past calendar advisory fees remain constant and do not services they provide to the AIM Funds in year. The Board noted that the Fund's reflect economies of scale. The Board also the areas of investment performance, contractual advisory fee rate was below noted that the Fund shares directly in product line diversification, the median contractual advisory fee rate economies of scale through lower fees distribution, fund operations, shareholder of funds in its expense group. The Board charged by third party service providers services and compliance. The Board also reviewed the methodology used by based on the combined size of all of the concluded that the quality and efficiency Lipper in determining contractual fee AIM Funds and affiliates. of the services Invesco Aim and its rates. affiliates provide to the AIM Funds in The Board also compared the Fund's E. Profitability and Financial each of these areas have generally effective fee rate (the advisory fee after Resources of Invesco Aim improved, and support the Board's approval any advisory fee waivers and before any The Board reviewed information from of the continuance of the Fund's expense limitations/waivers) to the Invesco Aim concerning the costs of the investment advisory agreement. advisory fee rates of other clients of advisory and other services that Invesco Invesco Aim and its affiliates with Aim and its affiliates provide to the Fund B. Fund Performance investment strategies comparable to those and the profitability of Invesco Aim and Because there were only four funds of the Fund, including one mutual fund its affiliates in providing these identified by Invesco Aim in the Funds advised by Invesco Aim. The Board noted services. The Board also reviewed performance group for inclusion in the that the Fund's rate was below the rate information concerning the financial Lipper reports, the Board compared the for the other mutual fund. condition of Invesco Aim and its Fund's performance during the past one, The Board noted that Invesco Aim has affiliates. The Board also reviewed with three and five calendar years to the contractually agreed to waive fees and/or Invesco Aim the methodology used to performance of funds in the Fund's limit expenses of the Fund through at prepare the profitability information. The performance universe identified by Lipper, least April 30, 2010 in an amount Board considered the overall profitability and against the performance of all funds necessary to limit total annual operating of Invesco Aim, as well as the in the Lipper Variable Annuity Underlying expenses to a specified percentage of profitability of Invesco Aim in connection Funds - Utility Index. The Board also average daily net assets for each class of with managing the Fund. The Board noted reviewed the criteria used by Invesco Aim the Fund. The Board considered the that Invesco Aim continues to operate at a to identify the funds in the Fund's contractual nature of this fee waiver and net profit, although increased expenses in performance group for inclusion in the noted that it remains in effect until at recent years have reduced the Lipper reports and the methodology used by least April 30, 2010. The Board also profitability of Invesco Aim and its Lipper to identify the performance considered the effect this expense affiliates. The Board concluded that the universe. The Board noted that the Fund's limitation would have on the Fund's Fund's fees were fair and reasonable, and performance was in the third quintile of estimated total expenses. that the level of profits realized by its Lipper performance universe for the After taking account of the Fund's Invesco Aim and its affiliates from one and five year periods and the second contractual advisory fee rate, as well as providing services to the Fund was not quintile for the three year period (the the comparative advisory fee information excessive in light of the nature, quality first quintile being the best performing and the expense limitation discussed and extent of the services provided. The funds and the fifth quintile being the above, the Board concluded that the Fund's Board considered whether Invesco Aim is worst performing funds). The Board noted advisory fees were fair and reasonable. financially sound and has the resources that the Fund's performance was below the necessary to perform its obligations under performance of the Index for the one and D. Economies of Scale and Breakpoints the Fund's investment advisory agreement, five year periods and above the Index for The Board considered the extent to which and concluded that Invesco Aim has the the three year period. The Board also there are economies of scale in Invesco financial resources necessary to fulfill considered the steps Invesco Aim has taken Aim's provision of advisory services to these obligations. over the last several years to improve the the Fund. The Board also considered quality and efficiency of the services whether the Fund benefits from such F. Independent Written Evaluation of that Invesco Aim provides to the AIM economies of scale through contractual the Fund's Senior Officer Funds. The Board concluded that Invesco breakpoints in the Fund's advisory fee The Board noted that, at their direction, Aim continues to be responsive schedule or through advisory fee waivers the Senior Officer of the Fund, who is independent of Invesco Aim and Invesco continued
AIM V.I. UTILITIES FUND Aim's affiliates, had prepared an Fund's uninvested cash and cash collateral by permitting Invesco Aim to utilize the independent written evaluation to assist from any securities lending arrangements additional resources and talent of the the Board in determining the may be invested in money market funds Affiliated Sub-Advisers in managing the reasonableness of the proposed management advised by Invesco Aim pursuant to Fund. fees of the AIM Funds, including the Fund. procedures approved by the Board. The The Board noted that they had relied upon Board noted that Invesco Aim will receive B. Fund Performance the Senior Officer's written evaluation advisory fees from these affiliated money The Board did not view Fund performance as instead of a competitive bidding process. market funds attributable to such a relevant factor in considering whether In determining whether to continue the investments, although Invesco Aim has to approve the sub-advisory agreements for Fund's investment advisory agreement, the contractually agreed to waive through at the Fund, as no Affiliated Sub-Adviser Board considered the Senior Officer's least April 30, 2010, the advisory fees currently manages any portion of the written evaluation. payable by the Fund in an amount equal to Fund's assets. 100% of the net advisory fees Invesco Aim G. Collateral Benefits to Invesco Aim receives from the affiliated money market C. Sub-Advisory Fees and its Affiliates funds with respect to the Fund's The Board considered the services to be The Board considered various other investment of uninvested cash, but not provided by the Affiliated Sub-Advisers benefits received by Invesco Aim and its cash collateral. The Board considered the pursuant to the sub-advisory agreements affiliates resulting from Invesco Aim's contractual nature of this fee waiver and and the services to be provided by Invesco relationship with the Fund, including the noted that it remains in effect until at Aim pursuant to the Fund's investment fees received by Invesco Aim and its least April 30, 2010. The Board concluded advisory agreement, as well as the affiliates for their provision of that the Fund's investment of uninvested allocation of fees between Invesco Aim and administrative, transfer agency and cash and cash collateral from any the Affiliated Sub-Advisers pursuant to distribution services to the Fund. The securities lending arrangements in the the sub-advisory agreements. The Board Board considered the performance of affiliated money market funds is in the noted that the sub-advisory fees have no Invesco Aim and its affiliates in best interests of the Fund and its direct effect on the Fund or its providing these services and the shareholders. shareholders, as they are paid by Invesco organizational structure employed by Aim to the Affiliated Sub-Advisers, and Invesco Aim and its affiliates to provide II Sub-Advisory Agreements that Invesco Aim and the Affiliated these services. The Board also considered A. Nature, Extent and Quality of Sub-Advisers are affiliates. After taking that these services are provided to the Services Provided by Affiliated account of the Fund's contractual Fund pursuant to written contracts which Sub-Advisers sub-advisory fee rate, as well as other are reviewed and approved on an annual The Board reviewed the services to be relevant factors, the Board concluded that basis by the Board. The Board concluded provided by Invesco Trimark Ltd., Invesco the Fund's sub-advisory fees were fair and that Invesco Aim and its affiliates were Asset Management Deutschland, GmbH, reasonable. providing these services in a satisfactory Invesco Asset Management Limited, Invesco manner and in accordance with the terms of Asset Management (Japan) Limited, Invesco D. Financial Resources of the their contracts, and were qualified to Australia Limited, Invesco Global Asset Affiliated Sub-Advisers continue to provide these services to the Management (N.A.), Inc., Invesco Hong Kong The Board considered whether each Fund. Limited, Invesco Institutional (N.A.), Affiliated Sub-Adviser is financially The Board considered the benefits Inc. and Invesco Senior Secured sound and has the resources necessary to realized by Invesco Aim as a result of Management, Inc. (collectively, the perform its obligations under its portfolio brokerage transactions executed "Affiliated Sub-Advisers") under the respective sub-advisory agreement, and through "soft dollar" arrangements. Under sub-advisory agreements and the concluded that each Affiliated Sub-Adviser these arrangements, portfolio brokerage credentials and experience of the officers has the financial resources necessary to commissions paid by the Fund and/or other and employees of the Affiliated fulfill these obligations. funds advised by Invesco Aim are used to Sub-Advisers who will provide these pay for research and execution services. services. The Board concluded that the The Board noted that soft dollar nature, extent and quality of the services arrangements shift the payment obligation to be provided by the Affiliated for the research and execution services Sub-Advisers were appropriate. The Board from Invesco Aim to the funds and noted that the Affiliated Sub-Advisers, therefore may reduce Invesco Aim's which have offices and personnel that are expenses. The Board also noted that geographically dispersed in financial research obtained through soft dollar centers around the world, have been formed arrangements may be used by Invesco Aim in in part for the purpose of researching and making investment decisions for the Fund compiling information and making and may therefore benefit Fund recommendations on the markets and shareholders. The Board concluded that economies of various countries and Invesco Aim's soft dollar arrangements securities of companies located in such were appropriate. The Board also concluded countries or on various types of that, based on their review and investments and investment techniques, and representations made by Invesco Aim, these providing investment advisory services. arrangements were consistent with The Board concluded that the sub-advisory regulatory requirements. agreements will benefit the Fund and its The Board considered the fact that the shareholders
AIM V.I. UTILITIES FUND NOTE 10--LEGAL PROCEEDINGS--(CONTINUED) PROXY RESULTS A Special Meeting ("Meeting") of Shareholders of AIM V.I. Utilities Fund, an investment portfolio of AIM Variable Insurance Funds, a Delaware statutory trust ("Trust"), was held on February 29, 2008. The Meeting was held for the following purposes: (1) Elect 13 trustees to the Board of Trustees of the Trust, each of whom will serve until his or her successor is elected and qualified. (2) Approve an amendment to the Trust's Agreement and Declaration of Trust that would permit the Board of Trustees of the Trust to terminate the Trust, the Fund, and each other series portfolio of the Trust, or a share class without a shareholder vote. (3) Approve a new sub-advisory agreement between Invesco Aim Advisors, Inc. and each of AIM Funds Management, Inc.; Invesco Asset Management Deutschland, GmbH; Invesco Asset Management Limited; Invesco Asset Management (Japan) Limited; Invesco Australia Limited; Invesco Global Asset Management (N.A.), Inc.; Invesco Hong Kong Limited; Invesco Institutional (N.A.), Inc.; and Invesco Senior Secured Management, Inc. (4)(a) Approve modification of fundamental restriction on issuer diversification. (4)(b) Approve modification of fundamental restrictions on issuing senior securities and borrowing money. (4)(c) Approve modification of fundamental restriction on underwriting securities. (4)(d) Approve modification of fundamental restriction on industry concentration. (4)(e) Approve modification of fundamental restriction on real estate investments. (4)(f) Approve modification of fundamental restriction on purchasing or selling commodities. (4)(g) Approve modification of fundamental restriction on making loans. (4)(h) Approve modification of fundamental restriction on investments in investment companies. (5) Approve making the investment objective of the fund non-fundamental. The results of the voting on the above matters were as follows:
WITHHELD/ MATTERS VOTES FOR ABSTENTIONS** - ------------------------------------------------------------------------------------------------------------ (1)* Bob R. Baker.................................................... 474,883,590 19,741,622 Frank S. Bayley................................................. 474,653,109 19,972,103 James T. Bunch.................................................. 475,597,417 19,027,795 Bruce L. Crockett............................................... 474,900,579 19,724,633 Albert R. Dowden................................................ 474,749,929 19,875,283 Jack M. Fields.................................................. 475,205,840 19,419,372 Martin L. Flanagan.............................................. 475,248,336 19,376,876 Carl Frischling................................................. 474,453,674 20,171,538 Prema Mathai-Davis.............................................. 473,569,192 21,056,020 Lewis F. Pennock................................................ 475,072,501 19,552,711 Larry Soll, Ph.D................................................ 475,170,544 19,454,668 Raymond Stickel, Jr. ........................................... 475,420,825 19,204,387 Philip A. Taylor................................................ 475,640,570 18,984,642
VOTES WITHHELD/ VOTES FOR AGAINST ABSTENTIONS - -------------------------------------------------------------------------------------------------------------------- (2)* Approve an amendment to the Trust's Agreement and Declaration of Trust that would permit the Board of Trustees of the Trust to terminate the Trust, the Fund, and each other series portfolio of the Trust, or a share class without a shareholder vote........................ 438,131,484 35,586,925 20,906,803 (3) Approve a new sub-advisory agreement between Invesco Aim Advisors, Inc. and each of AIM Funds Management, Inc.; Invesco Asset Management Deutschland, GmbH; Invesco Asset Management Limited; Invesco Asset Management (Japan) Limited; Invesco Australia Limited; Invesco Global Asset Management (N.A.), Inc.; Invesco Hong Kong Limited; Invesco Institutional (N.A.), Inc.; and Invesco Senior Secured Management, Inc.......................... 5,523,791 298,546 264,095 (4)(a) Approve modification of fundamental restriction on issuer diversification.................................. 5,573,223 304,778 208,431 (4)(b) Approve modification of fundamental restrictions on issuing senior securities and borrowing money........... 5,563,200 305,272 217,960 (4)(c) Approve modification of fundamental restriction on underwriting securities................................. 5,573,223 304,778 208,431 (4)(d) Approve modification of fundamental restriction on industry concentration.................................. 5,573,223 305,306 207,903 (4)(e) Approve modification of fundamental restriction on real estate investments...................................... 5,557,483 319,145 209,804 (4)(f) Approve modification of fundamental restriction on purchasing or selling commodities....................... 5,563,819 314,183 208,430 (4)(g) Approve modification of fundamental restriction on making loans............................................ 5,552,317 324,557 209,558 (4)(h) Approve modification of fundamental restriction on investments in investment companies..................... 5,550,428 316,566 219,438 (5) Approve making the investment objective of the fund non- fundamental............................................. 5,289,751 414,908 381,773
* Proposals 1 and 2 required approval by a combined vote of all of the portfolios of AIM Variable Insurance Funds. ** Includes Broker Non-Votes. AIM V.I. UTILITIES FUND ITEM 2. CODE OF ETHICS. There were no amendments to the Code of Ethics (the "Code") that applies to the Registrant's Principal Executive Officer ("PEO") and Principal Financial Officer ("PFO") during the period covered by the report. The Registrant did not grant any waivers, including implicit waivers, from any provisions of the Code to the PEO or PFO during the period covered by this report. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. Not applicable. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. Not applicable. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. Not applicable. ITEM 6. SCHEDULE OF INVESTMENTS. Investments in securities of unaffiliated issuers is included as part of the reports to stockholders filed under Item 1 of this Form. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable. ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. Not applicable. ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. ITEM 11. CONTROLS AND PROCEDURES. (a) As of June 16, 2008, an evaluation was performed under the supervision and with the participation of the officers of the Registrant, including the Principal Executive Officer ("PEO") and Principal Financial Officer ("PFO"), to assess the effectiveness of the Registrant's disclosure controls and procedures, as that term is defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the "Act"), as amended. Based on that evaluation, the Registrant's officers, including the PEO and PFO, concluded that, as of June 16, 2008, the Registrant's disclosure controls and procedures were reasonably designed to ensure: (1) that information required to be disclosed by the Registrant on Form N-CSR is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the Securities and Exchange Commission; and (2) that material information relating to the Registrant is made known to the PEO and PFO as appropriate to allow timely decisions regarding required disclosure. (b) There have been no changes in the Registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the Act) that occurred during the second fiscal quarter of the period covered by the report that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting. ITEM 12. EXHIBITS. 12(a)(1) Not applicable. 12(a)(2) Certifications of principal executive officer and principal financial officer as required by Rule 30a-2(a) under the Investment Company Act of 1940. 12(a)(3) Not applicable. 12(b) Certifications of principal executive officer and principal financial officer as required by Rule 30a-2(b) under the Investment Company Act of 1940. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Registrant: AIM Variable Insurance Funds By: /s/ Philip A. Taylor --------------------------------- Philip A. Taylor Principal Executive Officer Date: August 25, 2008 Pursuant to the requirements of the Securities and Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. By: /s/ Philip A. Taylor --------------------------------- Philip A. Taylor Principal Executive Officer Date: August 25, 2008 By: /s/ Sidney M. Dilgren --------------------------------- Sidney M. Dilgren Principal Financial Officer Date: August 25, 2008 EXHIBIT INDEX 12(a)(1) Not applicable. 12(a)(2) Certifications of principal executive officer and principal financial officer as required by Rule 30a-2(a) under the Investment Company Act of 1940. 12(a)(3) Not applicable. 12(b) Certifications of principal executive officer and principal financial officer as required by Rule 30a-2(b) under the Investment Company Act of 1940. EX-99.CERT 2 h58591exv99wcert.txt CERTIFICATIONS PURSUANT TO SECTION 302 I, Philip A. Taylor, Principal Executive Officer, certify that: 1. I have reviewed this report on Form N-CSR of AIM Variable Insurance Funds; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidating subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in this report any change in this registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 25, 2008 /s/ Philip A. Taylor ---------------------------------------- Philip A. Taylor, Principal Executive Officer I, Sidney M. Dilgren, Principal Financial Officer, certify that: 1. I have reviewed this report on Form N-CSR of AIM Variable Insurance Funds; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940 for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidating subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in this report any change in this registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 25, 2008 /s/ Sidney M. Dilgren ---------------------------------------- Sidney M. Dilgren, Principal Financial Officer EX-99.906CERT 3 h58591exv99w906cert.txt CERTIFICATIONS PURSUANT TO SECTION 906 CERTIFICATION OF SHAREHOLDER REPORT In connection with the Certified Shareholder Report of AIM Variable Insurance Funds (the "Company") on Form N-CSR for the period ended June 30, 2008, as filed with the Securities and Exchange Commission (the "Report"), I, Philip A. Taylor, Principal Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: August 25, 2008 /s/ Philip A. Taylor ---------------------------------------- Philip A. Taylor, Principal Executive Officer A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided by the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. CERTIFICATION OF SHAREHOLDER REPORT In connection with the Certified Shareholder Report of AIM Variable Insurance Funds (the "Company") on Form N-CSR for the period ended June 30, 2008, as filed with the Securities and Exchange Commission (the "Report"), I, Sidney M. Dilgren, Principal Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: August 25, 2008 /s/ Sidney M. Dilgren ---------------------------------------- Sidney M. Dilgren, Principal Financial Officer A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided by the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----